Bloomberg News

SAP Challenges Oracle With $500 Million Hana Incentive

April 11, 2012

The SAP stand at the CeBIT 2012 trade fair in Hanover. Photographer: Sean Gallup/Getty Images

The SAP stand at the CeBIT 2012 trade fair in Hanover. Photographer: Sean Gallup/Getty Images

SAP AG (SAP), the largest maker of business-management software, plans to spend almost $500 million to lure customers to its Hana data-processing product, stepping up competition with Oracle Corp. (ORCL:US)

SAP has budgeted $337 million to provide new clients of its Hana database platform with consulting services and an 18-month refund policy. The Walldorf, Germany-based company is also starting a $155 million venture fund to spur development of applications compatible with Hana.

With the introduction of Hana and the $5.8 billion purchase of database maker Sybase Inc. (SY:US) in 2010, SAP ratcheted up efforts to challenge Oracle’s dominance in the $22.5 billion database market. Hana is designed to quickly analyze vast caches of sales and operational information, as well as unstructured data such as e-mail and social media. It relies on computer memory, rather than disk drives, to speed up the process.

The incentives “give a strong signal to customers and the market that we are deeply committed to developing this growth area,” Vishal Sikka, an SAP board member in charge of technology and innovation, said yesterday in an interview following a presentation in San Francisco. “With Hana, we have an opportunity to really transform the database and rethink applications.”

Shares Outperform

SAP declined 0.1 percent to 50.01 euros as of 3:49 p.m. in Frankfurt while Oracle dropped 0.5 percent to $28.21 in New York. SAP had gained about 13 percent in the 12 months through yesterday, compared with a 15 percent drop for Redwood City, California-based Oracle.

Kate Pichon, a spokeswoman for Oracle in the U.K., said she couldn’t immediately comment.

Co-Chief Executive Officers Bill McDermott and Jim Hagemann Snabe want to expand SAP’s customer base from information- technology staff in a back office to include salespeople wielding mobile devices and smaller clients more willing to adopt on-demand applications. They project that this push will help lift SAP’s revenue to more than 20 billion euros ($26 billion) by 2015, compared with 14.2 billion euros last year.

“We estimate that SAP can get to double-digit license revenue growth this year entirely from the success of HANA, so this is clearly a key product,” Nomura Equity Research analysts including Rick Sherlund wrote in a note today, adding that revenue from Hana may reach 500 million euros this year.

‘Initial Traction’

Threatening Oracle in the database market “will certainly take time, but areas where it might show initial traction include new real time applications” and cloud-computing, they said.

Oracle CEO Larry Ellison in October unveiled the so-called Exalytics Intelligence Machine, which also analyzes information within dynamic random access memory. Sanjay Poonen, SAP’s president of global solutions, at the time said Oracle’s approach requires clients to buy and maintain more hardware than a competitive SAP system.

“Early market leadership is important for Hana, so facilitating customer adoption is very strategic for SAP,” Nomura’s Sherlund said of SAP’s spending on incentives. “Oracle is likely to promote Exalytics as a market rival, so helping customers with implementation is a catalyst to adoption.”

Syclo Acquisition

SAP also said it plans to buy Syclo, a closely held provider of mobile applications, for an undisclosed price. Earlier this year, SAP acquired cloud-computing specialist SuccessFactors Inc. (SFSF:US) for $3.4 billion.

Even as SAP is pushing to “become the fastest-growing database vendor in the world,” the company will continue to support other databases, including those of International Business Machines Corp. and Microsoft Corp. (MSFT:US) “for the foreseeable future,” Sikka said in the interview.

SAP’s McDermott in January forecast that revenue from Hana products will more than double this year from 160 million euros in 2011, when the software was first rolled out to a wider audience. Sikka declined to forecast potential revenue for Hana products beyond this year.

“It’s entirely understandable that they have no interest in being just a reseller any longer and that they would rather pull new customers onto its own Sybase database,” said Thomas Becker, an analyst at Commerzbank AG in Frankfurt who has a hold recommendation on SAP shares. “Whether that will work remains to be seen, but in any case it’s another sign that SAP has shifted up a gear.”

To contact the reporters on this story: Jordan Robertson in San Francisco at jrobertson40@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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