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SAP AG Corporation (NYSE: SAP) is the world's leading provider in business software and is the top provider in 20 of the 25 industries that it serves. SAP develops and distributes software programs that increases or examines the productivity in specific parts of the company, such as customer relations, enterprise resource planning, accounting, human resources, and others. SAP's main revenue streams come from the liscensing of business software, providing maintenance services, and consulting. Over 75% of revenues come from SAP's 32,000 enterprise customers.[1] SAP focuses on vertical industries, such as media, which helps provide growth as these industries expand. A potentially large area of growth could come in the relatively new services-oriented architecture (SOA), which enables the customers to link and connect its various applications. SAP expects its SOA, called NetWeaver, to be well received by its large installed customer base. Many of the industries SAP operates in are fragmented in terms of the software brands used. At the same time, there has been a trend towards consolidating software providers and that is expected to help SAP and Oracle as they are the two largest software companies.


Products and Services

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Information received from SAP Annual Report 2006

Software SAP is the leader in 20 of the 25 industries in which it operates. Business software is software that can be applied to increase productivity and efficiency for a company with a multitude of different variations on how that is achieved. Software sales accounted for 33% of total revenues in 2006. SAP offers software to mostly enterprise applications for the government, corporations, and other institutions. SAP software helps provide business solutions and efficiency for its customers. In 2006, SAP was the worldwide market share leader in enterprise resources planning (ERP), customer relationship management (CRM), and supply chain management(SCM).[2]

Maintenance Maintenace is the largest revenue stream for SAP as it provided 37% of total revenues in 2006. Maintenance helps fix and support the various software offered by SAP.

Consulting SAP also provides consulting services relating to maximizing the effectiveness and utilization of SAP software to numerous companies and organizations. Consulting was 25% of revenues in 2006.[3]

Trends and Forces

Undercutting Support Services

There are many new small companies that have based their business on offering support and maintenance services specifically for SAP software. These companies offer their services at sometimes up to a 50% price discount.[4] This increased competition from these specialized companies will likely thin out SAP's margins for its support and maintenance segment in the next several years.

Consolidation of Software

Software applications are becoming more numerous, complex, and integrated in the workplace. This has lead many organizations to start consolidating there software providers. This is expected to benefit SAP and Oracle most as they are the two largest software providers. In Q3 2007, SAP signed a Global Enterprise Agreement with Apple and will be providing Apple with almost the entire SAP business suite. In addition, Wal-Mart will phase in SAP ERP financials globally starting 2010.

Services-Oriented Architecture (SOA)

SOA helps organizations link there applications to help easily transfer, compare, and relate different data and systems. Instead of having specific software programs existing and functioning independently, SOA allows the commonly used functions in the different programs to be accessed and used from any of the different departments and also externally from the company so partners can access it as well. This is an emerging industry that is expected to be very beneficial for customers. SAP's SOA product is called NetWeaver. SAP has a large installed base of customers, over 32,000, and these existing customers should help boost the growth of NetWeaver sales. In 2006, SAP and Microsoft partnered to offer Duet Software. Duet was designed to build off of SOA by enabling SAP processes to function in harmony with Microsoft Office. Duet provides greater efficiency by allowing customers to access their SAP data through Microsoft Office.


Competitors

Oracle (ORCL): Oracle is the largest data storage software provider in the world and the second largest business software provider behind SAP. Oracle revenues in 2006 was just under $18 billion.

Salesforce.com (CRM): Salesforce.com is a hosted software application provider that offers its services through the web. As of January, 2007 Salesforce.com had close to 30,000 customers.

Epicor Software (EPIC): Epicor develops enterprise application software primarily for middle-sized companies and subsidiaries of larger companies. Epicor's 2006 revenues were $384 million.

Lawson Software (LWSN): Lawson provides enterprise software to companies worldwide. There 2006 revenues amounted to $750 million.

SAP ($ in millions)
2002 2003 2004 2005 2006
Revenue 6958 7947 9371 10654 11764
Operating Income 1526 1950 2517 2917 3210



  1. Information retrieved from Morningstar.com
  2. Information retrieved from Morningstar.com
  3. Information retrieved from SAP Annual Report 2006
  4. Information retrieved from Morningstar.com
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