SAP Combines Business Units, Pre-Announces Revenue Growth

SAP AG is shaking things up.

The Walldorf-based enterprise software giant said Tuesday it has combined the North American and the Latin America subsidiaries to boost growth.

The reorganization elevates Bill McDermott, who has been chief executive officer of SAP North America, to lead the new SAP Americas unit. It’s now the company second largest unit. SAP Americas has more than 5,000 customers, said McDermott. "Worldwide, we have more than 30,000," he said. "They tend to be larger, and part of our strategy is to expand into more small and mid-size companies. If you count up all the locations where customers might have two or three sites, you're in the hundreds of thousands."

McDermott, who once held a top executive position at research firm Gartner, hired former BearingPoint chief executive officer Rand Blazer to lead U.S., public sector sales. "CEOs of a public company now find it interesting to run a piece of SAP's business," he said. "Rand is the thought leader in the public sector, which is about 80 percent of BearingPoint's revenue."

Blazer replaces Steve Peck, who remains with SAP as head of alliance for the new Americas unit. Chou, 44, who assumes the role of senior vice president of Mendocino, a platform that will allow users to access SAP enterprise applications through the Microsoft Office desktop. "We believe the combination of Microsoft and SAP, the business user and the enterprise, there are 60 million business users that Microsoft and SAP have in our overlapping install base," McDermott said. "About 45 million of the 60 don't run SAP today."

McDermott estimates the Mendocino business will initially get off to a healthy start with between "1,000 and 2,000 percent" growth. "This could be the fastest growing software business in the world," he said.

An indication McDermott might be on track is reflected in preliminary fourth-quarter revenue numbers also reported today. SAP revenue is estimated to reach $3.3 billion (euro 2.75 billion), up 15 percent from a year earlier. Revenue is expected to climb 13 percent for the year to $10.25 billion (euro 8.5 billion). SAP, which did not provide estimates for its net earnings, will release final results and outlook for 2006 on Jan. 25.

Although the pre-announcement indicates "slightly better than expected top-line results," John Rizzuto, director of infrastructure software at Lazard Capital Markets LLC, believes earnings will come in slightly lower, but remain at the high end of the company's guidance.

As for McDermott, five chief executive officers within as many years preceded his appointment to head SAP North America in 2002. The North America region, considered a laggard then, has become a growth engine under McDermott. SAP has since delivered 12 consecutive quarters of significant market share gains, revenue growth and customer satisfaction improvements and is working on the thirteenth.

McDermott pushed SAP America to focus on customers. He reorganized the company's to-market strategy, revamped the sales force, bought sales help for midsize and small customers in-house, and shifted the division focus from products and solutions to regions and industries.