SAP doesn't meet the financial criteria, either.
According to SAP's earnings warning on Jan. 5 (http://biz.yahoo.com/bw/990105/sap_ag_1.html) that caused the stock to crash and Deutche Bank to downgrade the stock to "underperform" (http://biz.yahoo.com/c/99/01/05/u.html#n), they expect pretax earnings to rise 15% in 1998 over 1997. Assuming the tax rate remains the same, earnings will increase from $8.87DM to $10.20DM. The current price is $334DM, so the P/E is 33. The price/book > 5, so SAP doesn't meet the financial criteria.
The release stating that Pandesic's market "has been developing a little slower than we hoped" and losing money is at dailynews.yahoo.com. Phoenix has been disappointed by the slow market reception to USB and 1394 and the 2 years of Merced delays and Wind River has been disappointed by the lack of market enthusiasm for I2O, so it appears that establishing a partnership with Intel isn't a sure-fire path to riches.
The earnings warning also states:
SAP's Board, after considering possible currency fluctuations and the global economy overall, expects 1999 revenues to increase roughly between 20 and 25%, with a pre-tax profit margin improving slightly over 1998.
They forecasted 30-35% growth last year and produced only 15%, so even that reduced estimate might be too high. SAP's glory days may be over and it's unlikely that the price will double from earnings and P/E expansion. The best managed tech commodity business in the world, Dell Computer, tried to set up a SAP system and abandoned the project in favor of custom in-house applications. SAP programmers cost $200/hour and the joke going around the parking lot at Advanced Energy on Saturday morning is that SAP is a German acronym that means, "this is gonna hurt"!
Microsoft does a much better job of educating programmers and that's why you don't have to pay $200/hour for their services. SAP can blame the Japanese for their troubles, but the real reason their outlook is uncertain is the high cost of implementing an R/3 system. Dell has been in the forefront of ERP and supply chain management (they bought 1% of i2 after buying their products) and other companies will follow their lead. |
