Bloomberg News

SAP in Arab Spring Push to Make Up for Southern Europe Slump

November 02, 2011

(Updates with analyst comment in fourth paragraph.)

Nov. 1 (Bloomberg) -- SAP AG, predicting a “struggle” in southern Europe amid the sovereign debt crisis, is intensifying its push to sell software to governments in emerging markets as they upgrade communications and computing systems.

“There’s a lot of appetite from Africa and especially the Middle East, northern Africa region, regarding our public sector solutions,” Franck Cohen, head of operations in Europe, the Middle East and Africa for Walldorf, Germany-based SAP, said in an interview.

SAP, whose software license sales in the region outperformed Oracle Corp. in the most recent quarter, is tapping new markets as public debt hampers information technology investments in southern Europe. Government spending in the Middle East and Africa on information technology, excluding telecommunications, will rise almost 80 percent to $10.5 billion in 2015 from 2010, according to researcher IDC.

“There’s definitely a lot of action,” Mukesh Chulani, senior regional analyst of IDC’s Government Insights program in Istanbul, said in a telephone interview.

Military on Facebook

“For example, Egypt has turned around from a country notorious for shutting down access to the Internet to a point where their supreme military council is looking to actively engage people on Facebook,” Chulani said.

SAP plans to double the number of consultants and partners in the Middle East and Northern Africa in the next 12 to 18 months, according to Sam Alkharrat, managing director for the region. “We are seeing double-digit growth across the region.”

In the past month, Cohen has met with leaders including the prime minister of Kazakhstan and Cameroon’s finance minister, he said in the interview.

SAP most recently won a deal to work with Qatar’s supreme council of information and communication technology, ictQATAR, on a human resources planning project aimed to increase government efficiency, SAP spokeswoman Claire McPeak said.

Growth Tops Oracle

In the third quarter, SAP’s software revenue rose by 26 percent at constant currencies in the EMEA region. The increase, driven by the public sector in emerging markets, contrasts with Iberia, where deal sizes shrank by 50 percent, and flat sales in Greece. Oracle’s software license revenue in the region in the fiscal first quarter ended Aug. 31 rose 15 percent in constant currencies.

SAP and Oracle don’t break down sales for the Middle East and northern Africa. Steve Walker, an Oracle spokesman, declined to comment on the size of the company’s business in the region. Oracle’s government customers include Saudi Arabia and Turkey, according to the company’s website.

SAP shares fell as much as 2.1 percent in Frankfurt trading and were down 1.3 percent at 43.06 euros at 9:20 a.m. as the Stoxx Europe 600 Index fell 2.4 percent. The stock has gained 13 percent this year. Redwood City, California-based Oracle has risen about 5 percent in the U.S.

Arab Spring

“In the Middle East, the governments, with the crisis and what we’ve seen during the Arab spring, really want to show their citizens that they are doing something,” Cohen said, referring to the uprisings in Tunisia that inspired revolts across the region. “They are investing for better governance and they are talking to us about e-government platforms.”

While the public sector business in emerging markets is developing “very well,” SAP, the world’s biggest maker of business software, will be “struggling in southern Europe in the coming months,” Cohen said.

Europe’s political leaders last week persuaded bondholders to accept 50 percent writedowns on Greek debt and boosted Europe’s rescue fund to 1 trillion euros ($1.4 trillion) in a crisis-fighting package intended to shield the euro area.

--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


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