SAP profits fall 64% as customers wait for mySAP.com

ERP software company SAP has blamed the complete shift of the US market toward the Internet f or a sharp drop in sales and profits.

The complete shift of the US market toward the Internet was an important reason that ERP software company SAP's sales and profits were lower than expected in the third quarter, SAP's have co-chairmen said at a press conference.

They also warned that investments in SAP's new Internet-based software model, called mySAP.com, would continue to dampen the software vendor's results in near future.

"We cannot decrease these costs," said co-chairman Henning Kagermann. "We want to get this system as quickly as possible to our customers."

SAP earlier said its net income fell 64% in the third quarter ended Sept. 30. It posted net income of 45 million euros ($US48.7 million) compared with 125 million euros in the third quarter of 1998. The decline came as revenue in the third quarter rose 7% to 1.12 billion euros, up from 1.05 billion the year earlier.

SAP still expects its 1999 revenue to increase 15% to 20% compared with 1998 revenue by the end of the fiscal year. However, the SAP executive board expects its 1999 pretax profit margin to fall below the 1998 level, instead of increasing by 1% as it had predicted.

SAP revenue were slow because its US customers were waiting to purchase mySAP.com, said SAP co-chairman Hasso Plattner. The company expects about 90% of U.S. customers to move toward that model, he said. SAP has now shipped the mySAP.com product line and it became available globally at the end of September, confirmed SAP spokesman Gerhard Rickes today.

The core of mySAP.com is mySAP Workplace, an employee interface or portal that lets users transact internal and external business processes over the Internet, integrating SAP's own software applications with outside sources of information. Other products include mySAP.com Marketplace, mySAP.com business scenarios and mySAP.com application hosting.

Although Plattner called the quarter's results disappointing, he said they were "relatively good," compared to ERP vendors such as PeopleSoft, Baan Co. and J.D. Edwards.

The German software vendor attributed the results mainly to declining license revenue in the Americas, Japan and the U.K. SAP has put in place new management in Japan and the UK. to deal with internal problems in those regions, Plattner said.

Sales of new products were weakest in the Americas, falling 5%, to 492 million euro, down from 517 million euro in the third quarter of 1998. SAP saw its strongest revenue growth in the Asia-Pacific region in the third quarter, increasing 51% to 125 million euro, up from 83 million year on year. In EMEA (Europe, the Middle East and Africa), sales rose 13% to 506 million euro, up from 447 million euro.

Product revenue fell 2% in the third quarter, from 626 million euro in 1998 to 611 million in the third quarter 1999. Services, however, grew 23% to total 488 million euro, up from 396 million euro year on year. The strongest share of that came from increased consulting fees.

In addition to shipping mySAP.com products, SAP will also be bundling Internet-enabled versions of its products for distribution to its installed base of customers, Plattner said, so customers have the chance to put front-office applications on the Internet as soon as possible.

Plattner said he was "deeply hurt" by continuing accusations that SAP doesn't "get" the Internet. "We have been accused of missing the Internet," by analysts, journalists and investors, he said. "We have feverishly sought to prove otherwise with facts." In particular, Plattner appears to take umbrage with a spate of articles claiming that SAP competitor Oracle is the only ERP vendor adequately prepared to do business over the Internet.

With mySAP.com, all SAP applications, including finance, logistics, human resources, supply chain management, business warehouse, knowledge management, e-commerce products and customer relationship management applications, are available both over the Internet and via traditional workstations, Plattner said.

He pointed out that some 3.5 million users are utilizing a product called SAP's Employee Self Service over the 'Net, and that SAP has revamped its user interface to increase the number of nonprofessional users.

"Most of them (nonprofessional users) will have to go over the Internet. Client server is too expensive," he said.

An SAP official later demonstrated live how one user could access a purchasing application via the Internet. Plattner even admitted it was better than what desktop users get today from SAP.

"The Internet is a new dimension, and what we have seen here is one class better than what we have today on the desktop," said Plattner. SAP also said that mySAP.com is prepared to allow remote access to its applications via handheld devices.

Along with the mySAP.com comes a new pricing model for SAP products, Kagermann said. Instead of paying for and buying individual components of SAP's software, such as a human resources module of R/3, customers will pay based on how many people use the product, the number of transactions they conduct, and their role in the company. SAP is also moving toward a leasing model, where customers pay on a monthly basis for use of SAP products and services, Kagermann said.

SAP, in Walldorf, Germany, can be reached at +49-6227-74-74-74, or at http://www.sap.com.

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