PracticePeople In PracticeSAP profit warning prompts new tack

SAP profit warning prompts new tack

ERP giant's UK electronic business strategy holds hope for disappointing quarter. Nick Huber reports

SAP, the leading enterprise resource planning vendor, is looking to the Internet to bolster its revenues, after issuing a profit warning last week.

The company said its annual results, to be published on 26 January, would show around 15% profit growth for 1998 – in contrast to previous forecasts of 30 to 35%. Total revenues for 1998 are expected to be around DM8.4bn (#3.5bn), a rise of 40% on the previous year.

SAP blamed the profit shortfall on turmoil in Asia and Japan, where it saw a fourth-quarter shortfall of DM200m. SAP’s share price fell 20% following the warning.

A source close to SAP ruled out the possibility of job cuts among SAP’s UK workforce and predicted sales in Europe would rise 40%, giving it a 52% share of the European market.

The company is trying to widen its business base. Accountancy Age understands SAP is planning to lay the foundations for its UK electronic business strategy, with two interlinked deals to be announced later this month.

Industry insiders expect SAP to link up with BT to provide the framework for small and medium-sized businesses to implement R/3 applications over the World Wide Web.

While the Web is likely to simplify and reduce the cost of installing R/3 software, it also provides an environment for delivering related services and business information through what are termed ‘portals’.

Last November, BT bought a 50% stake in the portal site Excite UK. A spokesman for BT refused to confirm that a deal with SAP was imminent.

SAP also plans to partner Dunn & Bradstreet, one of the leading providers of credit reference information. The deal would extend the R/3 Web interface to let SAP incorporate information from online credit checks directly into R/3’s sales, distribution, accounts and purchasing modules.

The e-business announcement follows a bruising year for SAP in which the company’s share of UK ERP revenues was reported to have eroded from 43% to 40%, according to market research firm Ovum.

Ovum’s report on the ERP market last November confirmed the impression that users were put off by the complexity of installing SAP’s complex applications.

Chris Alder, director of corporate communications for SAP in the UK, said that, in spite of the profit warning, ‘1998 has been a successful year for SAP in the UK’. Forthcoming announcements from SAP, he added, would ‘simplify the way our software is used’.

Trevor Salomon, marketing director for JD Edwards, which recorded a 44% increase in revenue for 1998, said: ‘It’s never good for the other players when the market leader wobbles, because our share price gets dragged down by the analysts.’

Additional reporting by Dennis Howlett, VNU Newswire

PEOPLESOFT TAKES ERP ONLINE

While SAP is set to be the first ERP big hitter to link up in the UK with a major telecoms company, PeopleSoft set up Momentum, a new subsidiary, in December to attack the online market.

PeopleSoft’s former chief financial officer Ron Codd moved across to become CEO of the new company, which is being run as a ‘garage-style’ Internet start-up. ‘We’re building on the foundations of ERP, not throwing out the old model,’ Codd told Accountancy Age. ‘We expect PeopleSoft will sell more software by bringing it to them in new ways.’

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