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After months of hand wringing about the falling fortunes of enterprise software giant SAP, the company turned in first quarter results that signal management may be getting things back on track.
It was three months ago that SAP founder and Chairman Hasso Plattner decided to take matters into hand and oust then Chief Executive Officer Leo Apotheker. On the surface, the decision seemed to be about poor financial performance. SAP’s revenues fell 4% in 2009 and was forced to announce the first job cuts in the company’s history.
But the real reason behind the ouster was an alarming rise in dissatisfaction among the company’s customer base. Apotheker’s regime attempted to move some customers to a more full-featured – but pricier - support package at a time when many chief information officers were trying to whether the recession on flat or slashed IT budgets.
To set matters right, Plattner put in place a pair of co-CEOs, in the form of Bill McDermott, head of its field organization, and Jim Snabe, the company’s product development chief.
Together, the pair appear to be winning back the favor of customers.
First, let’s start with financials. The company reported that its first quarter profit rose 97% compared to the year ago quarter. Software and software-related service revenue rose 12% in the quarter to $2.62 billion. The company said it saw particularly strong growth from its business intelligence offerings, based on its BusinessObjects products, as well as demand from small and mid-sized businesses.
Looking forward for the rest of the year SAP said it expects its software and software-related service revenue will rise between 4% to 8% for the year, and that its operating margin will rise between 30% and 31%.
So, overall, the financial picture is looking pretty sound.
More importantly, here’s what the company’s been doing on the customer front. It delayed a planned hike in service fees, acknowledging that the timing wasn’t best. Then, in January of this year, SAP said it would bring back its standard support model and hold maintenance prices at 2009 levels.
The moves appear to have regained customers’ trust. The company said more than 90% of its enterprise customers chose to purchase its top-end enterprise support package – a big vote of confidence in area that is key to SAP’s financial health.
It also appears to be gaining some momentum against its fiercest rival, Oracle. Without naming names, SAP claimed it was able to go into 24 businesses and replace a rival software company’s systems with its own. “We had 70 significant wins (in the quarter), and of those 24 were literal replacements of competitive installations,” McDermott said in a conference call.
Among those was a huge deal with one of the world’s largest brands, St. Paul, Minn.-based 3M. SAP was selected by 3M for a global rollout of its Business Suite 7 enterprise platform as a replacement for a number of legacy systems installed at sites around the world.
To be sure, SAP still has a number of challenges to overcome, including the onslaught of competition from Software-as-a-Service rivals. But for now, the new executive team deserves credit for making solid progress.
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