Experimental feature

Listen to this article

00:00
00:00
Experimental feature
or

SAP, the world’s largest maker of business software, took another hit to its shares on Wednesday after it warned that its 2007 operating margin would decline and it failed to provide guidance on software licence sales growths for the first time.

The German company has now had 15 per cent wiped off its stock market value since the start of the year over investor fears that the days of stellar growth could be at an end. The shares closed 6.5 per cent down at €35.89.

The results came as SAP said that it would launch a new product for mid-sized companies at the end of March, which would revolutionise the way they bought and maintained their computer systems.

SAP is attempting to enlarge its traditional customer base from large corporations to small and medium-sized companies. The introduction of the new midsize product, which will see SAP “host” clients’ business programmes on its computers, will set new subscription services alongside the traditional task of selling software licences.

SAP and its US rival, Oracle, in recent years have started to compete with suppliers to midsized companies, such as Microsoft and many specialists, as they fear that big corporations’ appetite for software could start to wane.

Hanning Kagermann, SAP chief executive, said the new business model would “reshape the way midsize companies purchase, adopt and finance software” and render 10,000 extra clients and €1bn ($1.3bn) in sales from 2010.

Although competitors such as Sage and Salesforce.Com already offer inernet-based, “on demand” packages for midsized companies, Mr Kagermann said that SAP would be the first to offer a full range of business programmes.

This would mean that small companies would pay a subscription for upkeep and updating of applications and data housed in SAP computers.

“I think SAP spending this much money to go into the mid market – and the fact that it is doing so in a tech-savvy way – is going to shake up the market,” said Julian Yates at Investec. Rivals would have to consider similar moves.

But some investors seemed unhappy that the investment would cut SAP’s profit margins this year by one or two percentage points to 26-27 percent, far short of the company’s target of a 30 per cent return on sales.

Undeterred, Mr Kagermann signalled for the first time that he would stay on as chief executive after his contract expires at the end of the year.

Copyright The Financial Times Limited 2017. All rights reserved.
myFT

Follow the topics mentioned in this article

Comments have not been enabled for this article.