SAP Kept Afloat by Customers Need for Support
I often think that the preoccupation with corporate earnings can even outshine their revenue issues. However, you can never do better than the amount of money you can bring in, and for SAP, the signs are not promising, particularly as its weakest area, software sales, is the one that makes all the others possible.
Although earnings increased by 12 percent, sales dropped by 9 percent. But for the full story, some perspective helps. I went through SAP financial statements and pulled together the largest three revenue categories over eight quarters. Here’s the result:
Those figures tell an interesting story. Given that SAP is supposedly a software company, it is bad news to see that the whipsawing sales of software are on a pretty clear down trend. The industry demands constant growth, but we’re talking about a company that has seen a dropping trend in software sales (look at the black line called Poly. (Software), which is the trend line). The big danger is that software has to drive everything in the company, including consulting and support. No software sales means customers don’t need anything else, either.
Now look at the other revenue lines. Even consulting is clearly trending down slightly. The only major revenue line where SAP sees growth is in support. In other words, SAP has prospects only because its customers need significant amounts of support after they buy the software. Considering that better designed software should require less support than lesser applications, it’s the equivalent of saying that SAP has an incentive to turn out questionable software so that it can continue to attract the bigger support fees that keep it afloat.
Image via stock.xchng user bensonpuppy, site standard license.
Erik Sherman is a freelance journalist whose work has appeared in Newsweek, the New York Times Magazine, Technology Review, the Financial Times, Chief Executive, and other publications. Follow him on Twitter.
BNET User Analysis