SAP’s Hana Analytics May Pay Off as Software Trumps Hardware
August 08, 2011, 4:40 AM EDTBy Ragnhild Kjetland
(Updates shares in 16th paragraph.)
Aug. 8 (Bloomberg) -- SAP AG, the German software maker whose sales outpaced those of Oracle Corp. last quarter for the first time in 2 1/2 years, has a new weapon to defend its decision not to add hardware to its mainstay business.
At the heart of the newly found momentum is SAP’s Hana offering, which allows clients including BASF SE and Colgate- Palmolive Co. to speed up the analysis of business data. The amount of prospective sales for Hana is “very, very large and growing very, very quickly,” Chief Technology Officer Vishal Sikka said in an interview. “We have never seen anything of this kind of growth before.”
The 400 million-euro ($571 million) pipeline for Hana, which was officially released in June, is the biggest in the history of Walldorf, Germany-based SAP, the largest maker of business-management software. It’s growing by 10 million euros a week, co-Chief Executive Officer Bill McDermott said last month.
Hana, which stands for High-Performance Analytic Appliance, fits SAP’s strategy to focus on developing its own software without adding hardware offerings through acquisitions. That approach may pay off as clients are increasingly seeking integrated software to analyze and manage business data without complicated hardware add-ons, said Peter Russo, a managing director for Pierre Audoin Consultants Inc. in Washington.
“There is this push to narrow down what you’re spending on hardware and services,” Russo said in an interview. Software customers are more interested to “put more resources into the actual enterprise software application.”
Test Programs
BASF, the world’s largest chemical company, has been able to analyze commodity sales 120 times faster with Hana, it said last month. Russian oil producer OAO Surgutneftegas, which has been using Hana in test programs since February, said the analysis of raw data directly from the operational system made additional data warehouse obsolete.
Colgate, the world’s largest toothpaste maker, and Lenovo Group Ltd., China’s biggest computer maker, started using the Hana in-memory technology in December.
On July 26, SAP said it will reach the top end of its profit forecasts this year after winning market share in the second quarter because of demand for mobile and data-analysis offerings. Last quarter, SAP won the U.S. National Hockey League team San Jose Sharks as a user of its on-demand software Business ByDesign.
“We think this is a fundamental shift in market dynamics, where companies are investing more in the software part and less in commodity infrastructure,” SAP co-Chief Executive Officer Jim Hagemann Snabe said last month.
Profitability
SAP’s profitability has trailed that of Oracle over the last five years, at an average operating margin of 26.5 percent compared with Oracle’s 35.8 percent, according to data compiled by Bloomberg. Total sales grew an average 8.3 percent a year against Oracle’s 20 percent.
In the quarter ended May 31, Oracle’s hardware product sales fell 6 percent, fuelling concern that the top maker of database software may not be benefiting as much as predicted from its acquisition of Sun Microsystems Inc. last year.
While Redwood City, California-based Oracle has amassed more than $42 billion in acquisitions since 2005, SAP made only two large takeovers in its 39-year history: mobile-computing software maker Sybase Inc., which SAP bought last year for $5.8 billion, and business-intelligence company Business Objects SA, acquired in 2007.
IBM, Cisco
SAP’s Hana technology comes on servers from companies such as Hewlett-Packard Co., International Business Machines Corp., Dell Inc. and Cisco Systems Inc.
SAP needs traction on its new offerings fast. The company forecasts Hana and other new products will contribute a quarter of a targeted 20 billion euros in sales by 2015, up from 12.5 billion euros in 2010. SAP declined to comment on Hana’s pricing.
“SAP could have 100 Hana customers by the end of the year,” said Andreas Wolf, an analyst with Warburg Research GmbH in Hamburg. Wolf, who has a “buy” rating on SAP shares, estimates that each client might pay 1 million euros for Hana as an initial installation fee.
SAP dropped 1.5 percent to 38.70 euros in Frankfurt trading as of 10:14 a.m., valuing the company at 47.5 billion euros. Oracle on Friday dropped 1.8 percent in Nasdaq Stock Market trading, giving the company a market value of $144 billion.
Too Early?
While the initial demand may be encouraging, it’s still too early to say whether Hana will have the desired long-term impact, said Pierre Audoin Consultants’ Russo. Most customers may wait up to two years to see the results of early test cases before making their own purchase decisions, he said.
Donald Feinberg, a Gartner Inc. analyst based in Sao Paolo, says SAP has to hurry up to keep its current advantage.
“I have to believe that other vendors are working on doing the same type of thing” as SAP, he said.
For SAP, Hana represents SAP’s attempt to “completely transform itself” and the most successful product in SAP’s line-up since the flagship software R/3 and its successor, the enterprise resource planning system, which is used by almost half of SAP’s customers today, according to Sikka.
“We had tremendous success with R3 and wave after wave of innovation at SAP did not quite reach that point where we could renew the company around it,” Sikka said. “Until Hana.”
--Editors: Simon Thiel, Kenneth Wong.
To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
