Ambitious plans are a bit like country lanes: one never knows where they are going to lead. With Wednesday's acquisition of TomorrowNow which provides support for PeopleSoft software SAP is offering the US group's customers a road map to reach its own NetWeaver platform. So far, the German software maker has benefited from the uncertainty created by Oracle's battle to win PeopleSoft. Moreover, by creating a duopoly in many segments, Oracle's move looks set to boost all software makers, at the expense of their clients.
Buying TomorrowNow should help SAP tweak its migration offerings at a time when its rivals are vulnerable. But although no financial details were given, the deal also shows that further market share gains might come at a heavy price. With sales still weak in Europe, SAP needs to boost marketing and development spend to keep up its US momentum. While its share of clients' IT budgets looks set to grow further, NetWeaver will expand its presence in lower end applications, adding to pressure on margins. All this leaves consensus estimates looking ambitious. SAP is trading at a still feisty 26 times this year's earnings, excluding stock-based compensation. No wonder that investors have become less infatuated with their former sweetheart. Like companies who have tried to upgrade to a different IT platform, they might have learned a lesson from bitter experience; piling on to a crowded road can sometimes lead to a frustrating journey.
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