Yesterday, SAP announced both its second quarter and first-half 2009 results, and in my view, paints a picture of more changes to come for this important vendor on the ERP landscape.

For the second quarter, while reporting a modest 6% decline in total revenue, software license revenues were down a rather significant 37% for the quarter, and for the first six months of 2009.  Net Income was down 4% for the quarter, a cumulative 12% thus far in the year. Operating margins actually improved 1.8 points for the first six months, which is noteworthy.

From my viewpoint as an industry observer, you’re going to hear and read about two different perspectives of SAP at this point.  From a financial results perspective, the company seems to be positively weathering the current global economic recession through its actions in controlling costs and spending.  That is obviously good for SAP. From a market strategy and product marketing perspective, there are, by my lens, troubling warning signs.  These are signs for which the SAP community should be watchful.

A look at revenue analysis over the first half of 2009 indicates that SAP is buffering the significant decline in software license revenues with both a 15 percent rise in support and 20 percent uplift in subscription and other revenues.  Thus, the previously announced across-the-board increases in support maintenance fees were well-timed for SAP. The cash position has more than doubled to $3. 4 billion Euros ($4.8 billion USD).  Days sales outstanding, a reflection of how timely customers are paying their invoices has increased from 71 days to 77 days thus far this year, which should be of concern to SAP’s executive management. 

In its business outlook for the remainder of the year, SAP is projecting a write-down of acquisition-related charges and deferred support revenue from the former acquisition of Business Objects, as well as provisioning a one-time $200 million euro restructuring charge to result in the reduction of positions.

What can we extract from all of this information?

First, the previous multi-year effort to transform applications to SAP’s NetWeaver platform and the current SAP marketing emphasis on enabling more responsive business performance through analytics has not as yet helped in boosting software license sales. In my attendance at the Annual SAP Sapphire conference in May, I observed the total domination of Business Objects marketing messaging and product briefings, with very little hyping of  SAP’s bread and butter ERP and Business Suite applications. In fact, I heard some speculation that SAP senior executives were contemplating a decision to cancel the Sapphire events all together.  Perhaps those effects are being reflected in lack of software license sales momentum.

While service and maintenance revenues are sustaining overall revenue performance thus far, much has been reported regarding SAP customer pushback on these increased maintenance fees, particularly since many SAP customers continue to be pressured to control IT related costs through this severe recessionary period. 

SAP has already reduced headcount by nearly 3000 people, with sales and marketing and professional services taking the brunt of the cuts to date. With additional reductions surely in the cards, what areas will SAP additionally cut?  I suspect that marketing will continue to be a prime target.

With an increased cash position, is SAP positioning for a period of decreased software license sales, additional acquisitions, or making the company more financially attractive to a suitor?

While I surely do not  portend to be an expert in all of these matters, my gut tells me that more significant changes are in the wind for SAP.

As an SAP customer, prospect, or competitor, you should be watchful for upcoming changes related to SAP.  These changes may present buying opportunities for SAP customers, since the company will need to increase software license sales.  If you are a competitor or SAP partner, be watchful, since the signs all point to change.

Bob Ferrari