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

To: LindyBill who wrote (2131)	8/6/1998 6:30:00 PM
From: growthvalue	Respond to of 3424

LindyBill- One nitpick - gross margins are not the same as return on invested capital. If I could recommend a book, try "Valuation" by Tom Copeland, Tim Koller, and Jack Murrin. It's very commonly used as a textbook in business school. Theoretically, in a world where you can make simplifying assumptions, P/E should equal (1-g/r)/k-g g=growth rate r=rate of return on new investment k=discount rate Cisco might have high gross margins, but they still have to build plants to produce their goods - so it's still a more capital intensive business than software regardless of the gross margins. Software isn't as capital intensive (and actually has much higher gross margins anyway - as high as 95%). This suggests that Cisco should not have as high a PE as SAP. Microsoft, moreover, isn't growing as quickly as SAP and should also not have as high a PE. This is why you should compare companies in the same industry - because they have similar capital requirements, similar ROIC, and similar growth rates. The gorilla factor only refers to the risk in forecasting. For example, we can more confidently forecast the results of CSCO than we can COMS, for example. This is because CSCO has been knocking the tar out of COMS. This is why CSCO should trade at a premium to COMS. But MRK doesn't trade at a premium to AHP, even though MRK is much much bigger - this is because MRK's hugeness is not a significant threat to AHP. So while I think this gorilla/chimp stuff is interesting and useful, but reductive when it comes to crunching numbers. Peoplesoft has not been muscled out of the ERP space by SAP nor are they likely to be - this is why the gorilla/chimp comparison is a bit reductive. It all has to do with the confidence with which you can forecast out their results. SAP has not been, nor is it likely to be a significant threat to PSFT's success, although we can have SOME more confidence in SAP - which is why I say it deserves SOME premium. But is SAP likely to steal PSFT's growth away? Not likely. SAP by the way is not trading at as much of a premium to BAANF.

To: LindyBill who wrote (2131)	8/6/1998 6:35:00 PM
From: treetopflier	Read Replies (2) \| Respond to of 3424

SAP's run is ending. What is the average implementation duration for a large scale SAP conversion? 1-2 years? We have less than 18 months until the millenium. If I were still an MIS Director I'd be VERY reluctant to take this on if I wasn't sure I could finish it by then. How many companies are willing to throw this conversion on their agenda this late in the game? The Fortune #1 company I consult at isn't willing to take it on. Their divisions running Oracle Financials will limp along, patch and make due because they know they can't get SAP installed in 17 months. By the way, they are considering converting to SAP, but not until after 2000. Don't believe me, take a look at MANU, ITWO, ORCL, PSFT, VNTV, JDEC, BAANF, CA, BEAS and any other enterprise software vendor over the past 90 days. Their sensitivity to any slowing in software license sales is quite apparent. I don't think you've seen anything close to bottom here yet. I no longer hold SAP, but did very well in it until end of April of this year. It was a GOLDEN stock. I'll be back after 4/1/2000 when CIOs start signing contracts again, assuming there are still CIOs on 4/1/2000... ttf