Henning Kagermann, the longtime chief executive of SAP, the giant maker of complex computer applications for business, is in the middle of a slow transition in which he will yield the top job entirely to L?o Apotheker, now the co-chief executive, in March. Mr. Apotheker rose through the ranks of the SAP sales force, a notably different career path than Mr. Kagermann, a former physics professor who made his name as a developer.
The handover has fed an irresistible narrative in financial markets: the software egghead who shoveled cash into new projects is yielding to the uncompromising money maker. ...
The company is indeed shifting toward more of a focus on the bottom line, and less on the multibillion-dollar investments in technology that helped make it the market leader in the lucrative field of business software.The goal, it seems clear, is for SAP to show that it can not just produce sophisticated software that companies depend on to run their businesses but also do as well as its American archrival, Oracle, in satisfying the demands of investors.
Oracle achieved a pretax profit margin of about 35 percent last year, well ahead of the 26.7 percent operating margin that SAP managed in 2007. That is one reason SAPs stock price has languished in spite of years of sales growth.
I understand that it's hard to resist pressure from shareholders to increase profits. But when increasing profits becomes the overriding goal, it often comes at a cost, usually to quality control as the company cuts corners to reduce expenses. One of those potential corners, the Times article points out, is the company's payroll:
SAP is betting that it can raise its profit margins without conjuring up, as is often the case in Germany, the specter of mass layoffs to contain costs.
It'd be a shame if SAP, a company with a solid industry reputation for understanding and responding to its customers' needs by delivering quality business software, eventually undermines itself by forgoing quality in pursuit of higher net profits. After all, SAP already is profitable and has been for a long time. Even worse, though, would be if the company's new strategy was being fueled by share-price envy. For if you look at the 10-year stock charts for SAP and its main rival, Oracle, it's hard to tell a difference. And below are the prices for each company's stock at the beginning of three years I chose since 2000 (the height of the '90s tech stock market boom) and last Friday's market close:
Oracle SAP
2000 31.16 52.56
2003 10.94 20.22
2006 12.25 45.61
8/22 22.52 55.88Interestingly, SAP is slightly ahead of its share price of Jan. 3, 2000, while Oracle is down 28 percent. Only since 2006 has Oracle's stock outperformed SAP's.
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