SAP's Q408 Results & PAC's Estimates on How Bad Things Really Were (Are)...

Thanks to its aggressive cost-cutting measures that began in September of 2008, SAP reported a Q408 (ended Dec. 31) net profit increase to €850 million ($1.12 billion) compared to €752 million in the prior year. Revenue rose by 8% to €3.49 billion, which while fine, is a far cry from its string of double-digit growth of recent years...

The company also announced its first mass job-cuts (I should correct a WSJ report, this is in fact not their first job cuts, there have been plenty of small/focused cuts every few years), reducing its global workforce by 6% or 3,000 workers in order to save €300 million to €350 million a year starting in 2010.

PAC took these results a step further by creating our own pro-forma (including Business Objects revenue) estimates at constant currency. According to our own estimates, SAP's revenue declined by -3% (compared to +8% in their official release) while license revenues declined by -15% (compared to their -6%). Taking this a step further into the US, PAC estimates that license revenues may have declined by as much as -30%!

It is clear that especially in the US from October through now many customers have been in a state of paralysis, waiting for a sign that there is some level of stability (even if we know this stability will come at a much slower market growth rate). In PAC's own estimates for the Worldwide SAP Consulting Services (CS) market, we have forecasted 3.7% growth, which while moderate is approximately two percentages higher than overall IT services growth. At the US level, we expect the SAP CS market to be flat and the overall IT services market to decline for the first time since the dot-com bust...

At the same time, it would be a mistake to completely relay SAP's struggles on the ecosystem. While of course there will be an impact of slower business and license sales of SAP on its partners, the U.S. is also one of the largest markets for "SAP Shelfware" in PAC's opinion... and when stability is reached, there will be a glut of implementations and extensions for IT services companies to slowly work on before SAP sees a major rebound in license sales (I guess a parallel to the real estate market could be drawn here, but I don't think the SAP situation is so dire!). I also believe that this is why SAP has been so aggressive in its cuts, and the fact that the benefits won't come about until 2010, which is commonly seen as the year most business leaders hope things may turn around... perhaps the rebound will come for IT services partners first?

At the same time, while PAC wonders how long a "travel freeze" and other cost-cutting procedures at SAP are feasible before it zaps morale and sales aggressiveness... the company will make a major product launch next week with its new Business Suite 7, which I will be attending. The suite will bundle all of SAP's main products into one offering and is certainly major news... however, it still leaves to question whether customers are so interested in such an offering during such times?

Check back on Wednesday for my Business Suite 7 post...