SAP CEO Apotheker Unexpectedly Resigns; Board Names Co-CEOs
February 07, 2010, 8:52 PM ESTBy Ragnhild Kjetland
Feb. 8 (Bloomberg) -- SAP AG Chief Executive Officer Leo Apotheker unexpectedly resigned after the world’s largest business-management software maker’s supervisory board decided not to extend his mandate.
Apotheker’s exit comes less than a year after he took over in May 2009 as the sole CEO of the Walldorf, Germany-based company. SAP said in a statement yesterday that board members Bill McDermott and Jim Hagemann Snabe will take over as co-CEOs.
Apotheker, 56, presided over the first annual drop in revenue at the company since 2003 as customers faced with the economic slump put off investing in new software. SAP, whose software is used for payrolls, customer relations management and Apple Inc.’s iTunes download system, is fighting off competition from Oracle Corp., which in December said it is winning customers at the expense of the German company.
“When you look at SAP’s performance in 2009, it was really dismal, from a financial perspective,” said Paul Hamerman, an analyst with Forrester Research in Virginia. “I think the 2009 earnings call less than two weeks ago signaled the beginning of the end of Apotheker. Apotheker projected a persona that was defensive rather than a man of vision.”
SAP’s software license revenue fell 28 percent in 2009, after rising for years. Total revenue fell 8 percent to 10.67 billion euros ($14.6 billion). SAP needs to look outside the company for new ideas to revive growth, Hamerman said.
“I don’t necessarily think SAP insiders can turn the company around,” he said “The company could benefit from new blood at this point.”
Mutual Accord
Apotheker resigned after a mutual agreement between him and the supervisory board not to extend his contract, SAP said in the statement yesterday. The contract would have expired at the end of 2010, spokesman Christoph Liedtke said.
The new co-CEO Snabe is currently head of product development, while McDermott is the head of field organization.
“The new setup of the SAP executive board will allow SAP to better align product innovation with customer needs,” Hasso Plattner, co-founder of SAP and chairman of the supervisory board, said in the statement.
Apotheker become the sole CEO of SAP when his co-CEO Henning Kagermann stepped down. The company’s shares have risen 14 percent in the past year, giving SAP a market value of 40.9 billion euros. Oracle shares have risen 34 percent.
“When companies have bad years, somebody has to take the bullet,” said Peter Goldmacher, an analyst with Cowen & Company in San Francisco. “I don’t know if things would have been worse if Leo wasn’t around. I think SAP is structurally impaired and I don’t think anybody can change that, and get them out of the tailspin.”
Takeover Target
SAP is not “competitive as an independent company,” Goldmacher said, adding that “they need to be acquired. It needs someone that can really leverage the business, but I don’t think anything is imminent because management will exhaust every opportunity before seriously considering shopping around for a buyer.”
During his reign, Apotheker tried to push through higher- margin support contracts, backing off after customers balked. In January, SAP caved in to customer demand and offered lower priced support and froze prices for existing support and maintenance agreements, seeking to retain clients and sign up new ones.
The move marked a major about-face by the company that had wanted to migrate all its clients on to “enterprise” support, a full-range of tailor-made services to cut corporations’ costs.
‘Contentious Relationship’
Instead, Apotheker was forced to offer customers a choice between “enterprise” support and a lower-priced standard package with basic software backup. SAP also delayed a price increase on its enterprise support for a year.
Support sales, including upgrades and maintenance, make up more than half of total revenue at SAP, which counts Apple, McDonald’s Corp. and Wal-Mart Stores Inc. among its customers. Expanding those sales is a key growth driver for the company.
“What happened during the past year was a contentious relationship that emerged with the customers over enterprise support prices,” Hamerman said. “They lost touch with their customers. I think Leo’s persona didn’t help. At times he was defensive and condescending toward the media and the customers.”
--With assistance from Beth Mellor in London. Editors: Vidya Root, Ben Livesey
To contact the reporter on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net
To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net
