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Technology Stocks : SAP A.G. -- Ignore unavailable to you. Want to Upgrade?

To: Jim Baker who wrote (1945)	8/2/1998 10:20:00 AM
From: Mazman	Respond to of 3424

Jim and Thread, Here is the full story on SAP from Monday's IBD.. Europe's SAP Puts Its Stock In U.S. Hands Investor's Business Daily, 8/3/98 Author: Matt Krantz U.S. investors can buy a piece of one of Germany's leading technology companies. SAP AG , which dominates sales of back-office business (or enterprise resource planning) software, is getting listed in the U.S. Its American depositary receipts - which non-U.S. companies use much like common stock, with their prices quoted in U.S. dollars - are set to begin trading on the New York Stock Exchange on Aug. 3. SAP posted $1.2 billion in second-quarter sales, putting it far ahead of rivals PeopleSoft Inc., Oracle Corp. and Baan Co. in ERP revenue. Getting listed on the NYSE is giving SAP a look at how America's capital markets and accounting rules work. Kevin McKay, SAP America's chief operating officer and CFO, recently shared with IBD his thoughts on doing business as a U.S.-listed company. IBD: Why is SAP getting listed on the New York Stock Exchange? McKay: I'm not issuing new stock. (I'm just) reporting using U.S. generally accepted accounting principles (GAAP). Everyone acknowledges that reporting and disclosures are more significant under U.S. GAAP. We always joke about German GAAP: You can give out one number - net income -and get away with it. But in the U.S., you're required to give full disclosure. IBD: Will following U.S. accounting rules help you sell more software? McKay: When people buy SAP, smart people look at the financial strength of the company selling the software. You could buy the hottest software, but if the company selling it goes bankrupt, you have no support. You're stranded. When (prospects) would go through the process, we'd always have to say we have no debt in the company. But when they asked to look at our balance sheet and annual report, (the numbers) wouldn't have a (U.S.-style) like Baan's or Oracle's would. IBD: What kinds of financial details do customers want regarding SAP? McKay: Customers want to know how steady our earnings are and how much we invest in (research and development). They also want to know if there's more consulting revenue than software revenue, because if there is that means the product is inferior and the software maker is fixing it with consulting dollars. You couldn't have gotten that data out of SAP before. Now you can line up (all the rivals' financial statements) like dominoes. IBD: Why are Germany's accounting rules lenient? McKay: There is not a large capital market in Germany. About 85% of companies (there) fall in a (midsize) group, with a small number of global multinationals. The accounting profession in Germany grew up with more input from bankers rather than independent equity investors like in the U.S. In the U.S., you have the SEC guidelines to protect investors. IBD: Will you use your U.S.-listed stock to motivate employees, as do many U.S. tech companies? McKay: Typically, companies in high tech provide long-term equity incentives to workers. It allows them to recruit and retain workers. There's a lot of competition in our market, so we needed to respond with a bonus plan. The question for us, though, was whether to go with the typical Silicon Valley, high-tech model of offering stock options, or do something different. There's concern with companies that have issued stock options that they have diluted the value of the company. The impact of that dilution is hidden in a footnote. We didn't issue stock options for that reason. IBD: So what do you do instead? McKay: We issue omething similar called) stock appreciation rights. As that right increases in value, we record it in our profit- and-loss statement. That way there is no dilution. Here's an example: Let's say stock rights given to an employee appreciate. A year from now, when we can measure (the value of the rights), we tell the worker we're prepared to pay. And we'll pay in three installments: one now, one six months from now and one a year from now. That way we never dilute the stock. IBD: How has Wall Street reacted to this plan? McKay: We called the analysts from Goldman Sachs and Morgan Stanley and said, ''Excuse me, boys, but when you make a comparison to ourselves with Oracle, Baan, PeopleSoft and J.D. Edwards on an earnings- per-share basis, you better look at their footnotes. You must (consider the) effect of the options.'' IBD: SAP cited problems in Asia in its second-quarter financial statement. How bad are things there? McKay: No one hated to disclose the Asian problem more than me, because I thought it has been an excuse for companies. But it surprised us. We didn't expect much revenue from Indonesia, so we weren't disappointed there. But we didn't count on Japan's internal economic policy to create such uncertainty. That uncertainty at the end of the second quarter caused Japanese companies to hit the brakes. We're committed to the Asian market long term. But we see a sluggish period ahead. We were caught off guard by Asia. IBD: Now that most large U.S. firms have ERP systems, is that market mature? McKay: I think there's a misconception in the market that we've saturated the global customers. There's still a great deal of revenue to garner from the installed base. Let's say Hewlett-Packard buys our financial software. Then they'd likely want to install it worldwide. Then they'd want to buy our human- resources software. Then they'd want plant maintenance. You can keep mining the customer. We've also been aggressive with midmarket customers in the past 18 months. We've gone to companies with below $2.5 billion (in annual sales). We doubled our sales force. The midsize customers have a lower average deal size, but the margins are about the same.

To: Jim Baker who wrote (1945)	8/2/1998 11:43:00 AM
From: mauser96	Read Replies (1) \| Respond to of 3424

Somehow I overlooked the low float when I did my DD on this company. This could be a plus or minus. If the shares not held by management are too low, institutions will not get enough liquidity. OTH, fewer shares means the same inflow of purchasing power will drive up prices more rapidly. The fact that there is so many institutional investors isn't surprising, so at least the ones investing now think there is adequate liquidity. If the founding fathers of SAp own so much stock, they must be the European equivalent of Bill Gates. I'm keeping my fingers crossed for next week.