SAP Looking At 35% Margins And Doubled Revenue By 2014 - InformationWeek

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IT Leadership // CIO Insights & Innovation
Commentary
6/29/2009
06:38 PM
Bob Evans
Bob Evans
Commentary
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SAP Looking At 35% Margins And Doubled Revenue By 2014

A leaked SAP strategy document says the company expects to reach an operating margin of 35% by 2014 and also expects current revenue to double during that five-year period. Right now, archrival Oracle has an operating margin of 51%, so it will be interesting to see how each side spins its profit story to its customers.

A leaked SAP strategy document says the company expects to reach an operating margin of 35% by 2014 and also expects current revenue to double during that five-year period. Right now, archrival Oracle has an operating margin of 51%, so it will be interesting to see how each side spins its profit story to its customers.An SAP spokesman told Reuters that the document was meant only for internal consumption and was not intended to serve as guidance. SAP has consistently said it intends to reach an operating margin of 35% but until now has not tied a date to that target, the Reuters report said.

While SAP has declined to give formal guidance on revenue projections for this year, the company expects its operating margin for the year to come in between 24.5% and 25.5%, the report said.

If SAP hits that projection, that would make Oracle's 51% operating margin almost exactly twice as big as SAP's. In the bare-knuckle competition that rages daily between the companies for the hearts and minds - but mostly the wallets - of CIOs, which is the better profile to have? Here's how a couple of conversations might play out:

THE SAP SPIN, from an SAP executive to a CIO: "Hey, we realize you're struggling for every nickel in your budget, and we're in that same boat ourselves. Our financial results reflect that as well, because while we're running our company very efficiently, we're also generating enough of a healthy profit to fund significant ongoing R&D projects to allow us to keep building great new products that you depend on to run your global business.

"In contrast, did you see Oracle's latest financial results? Operating margins of 51%? I mean, everybody's got a right to turn a profit, but when does enough become too much? We think that's another strategic advantage you gain by going with SAP instead of Oracle - unlike them, we're not getting rich at your expense."

THE ORACLE SPIN, from an Oracle executive to a CIO: "How many companies in your industry or among your customers have gotten nailed by sticking for too long with old technology that just doesn't allow them to keep up with new, lean, and cutting-edge global competitors? As you've told us in earlier meetings, these enterprise systems are running every facet of your organization, every process, every transaction, every customer interaction, every financial detail. This software is the lifeblood of your company.

"And for us at Oracle to be able to continue providing you with world-class applications and middleware and databases integration that pull all of that together in real-time, we need to have the resources to be able to hire the very best software engineers from across the world. So yes, we have nice operating margins, but as we all know, our final profit margins are a lot lower than that, so 51% isn't really the figure to focus on."

Let the spin begin.

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