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SAP Posts Strong Gains in Ambivalent Market

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The fourth quarter of 2002 was a good one for Germany’s SAP ; for the first time it outsold arch-rival Siebel Systems in terms of reported customer relationship management (CRM)
licenses, with 17 percent year-over-year growth for SAP versus Siebel’s
decline of 37 percent.

SAP also continues to lead the enterprise resource planning (ERP) market,
posting strong gains of 16 percent versus declines of 18 percent and 34
percent from respective competitors PeopleSoft and Oracle.

But while analysts were pleased with SAP’s growth they noted that its gains
largely depended on its strength in the German and Japanese markets, which
could lead investors to question the sustainability of SAP’s growth.

“While numbers were strong, that was largely expected by the market and
there is unlikely to be a major shift in consensus for 2003,” said Deutsche
Bank analyst Kevin Ashton. “Indeed, the market may choose instead to
concentrate on the less positive side of the numbers, which was the
extremely strong growth in high margin Germany. The U.S., on the other
hand, while very strong in relative terms — 16 percent year-over-year
versus declines of 35 percent and 37 percent at Oracle and Siebel — was
perhaps a touch below the market’s expectations. The 27 percent license
revenue growth in Germany is surely very difficult to keep up, and
according to market accounts, SAP makes the lion’s share of it profits in
this market. The other wobbly economy that saw strong growth was Japan,
with licenses up 29 percent year-over-year. Here too, there are likely to
be fears about the sustainability of this growth.”

SAP still espouses confidence. It said Thursday that it expects to increase
profitability and gain market share in 2003, though it qualified by adding
that it expects to improve its operating margin by 1 percentage point
“based on modest revenue growth, continued cost containment and customer
buying patterns in line with normal seasonality.”

Still, despite weakness in the Americas region, SAP remains the largest
player enterprise applications vendor in the Americas, and it claimed about
50 percent of the worldwide market in 2002, growing from 41 percent in
2001. It also continued to make strides into Oracle’s share globally.

“For the fourth quarter we continued to see the trend toward smaller deal
sizes, but with customers making larger, more strategic commitments,” said
Henning Kagermann, co-chairman and CEO of SAP. “We believe these
commitments are the result of our customers’ willingness to engage in a
relationship only with a partner they can “trust,” meaning a partner they
know can deliver the solutions to meet their mission critical business
needs, one with financial stability, one who continues to innovate and one
who offers a complete solution combined with strong technology solutions,
services and support.”

However, while Ashton said he expects to see investors boost SAP in the
long-term, even without an economic recovery, he noted that it may not see
much upward pressure in the short-term.

“Overall, then, a market that is unconvinced of an economic recovery is
unlikely to push SAP much higher in the near term, not least as an Iraq war
looms,” Ashton said.

SAP posted earnings per share of euro 1.63 ($1.75) on net income of euro
509 million ($547 million) for its fourth quarter.

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