SAP Launches Business Suite 7, Reports 2008 Financials, and Cuts Jobs

February 9, 2009 Timothy Prickett Morgan

Application software giant SAP has had a busy time of late. Last week, the German company, which is the largest seller of application software on the planet, announced that it had upgraded its flagship ERP suite, Business Suite, to a brand, spanking new version 7. The company also braced Wall Street for some bad financial news a few days earlier and announced the ubiquitous layoffs that are hitting the IT industry as the economic meltdown works its way into the data centers of the world.

The upgrade to Business Suite 7, which sports what SAP calls a new modular design that allows companies to deploy modules in a piecemeal fashion in a hesitant budget environment, is going to be a key to SAP’s financial prospects this year. Some of the modules being rolled out are tweaked versions of the Business Objects business intelligence software that SAP got through its $6.8 billion acquisition of that company back in October 2007. Of course, the ERP revolution was designed to quash the modular approach to MRP and DRP systems that predate the ERP big bang that SAP was the poster boy for in the mid-1990s. Back in the day, companies–and especially midrange companies–were happy to use a mix of modules from different vendors and developed by their own programmers to get code perfectly matched to their business. SAP doesn’t want to go all the way back there, but realizes that companies are only going to deploy ERP app modules where they can get pretty fast results.

“Today, large enterprises are skeptical of IT projects that involve foundational investments that aren’t tied to delivering fast value to users,” explains Jeff Woods, managing vice president of ERP and SCM software at Gartner. “Big projects that only promise a foundation for future value delivery are too risky, too costly, and the benefits are difficult to justify to business leaders. Enterprises want integrated IT solutions that require only investment that is tied to immediate business value–but without losing the cost, information integrity and process integrity benefits that a strategic suite provides.”

SAP says that Business Suite 7 has over 150 enhancements spread across the ERP, Customer Relationship Management, Supplier Relationship Management, Supply Chain Management, and Product Lifecycle Management portions of the suite (which in turn have multiple modules). By the way, in an irony that I will never quite understand, SAP’s Business Suite (which was called the mySAP suite a few years back) has been ported to OS/400, i5/OS, and i operating systems, but the midrange All-in-One suite, which is a trimmed down set of software aimed at companies with fewer than 2,500 employees, its Business One suite, which is aimed at firms with between 10 and 100 employees, are not available on the platform. (If you know different, pipe up. Both IBM and SAP have terrible documentation on platform support for SAP’s code.) Obviously, the smaller SAP suites are more suitable to the small and medium businesses where the i platform is mostly installed. But IBM and SAP know more than you and I do about this, apparently.

SAP also gave Wall Street a head’s up recently that its numbers for the final quarter and full 2008 were being affected by the economic downturn. SAP released preliminary financial results, with total sales for 2008 coming in at €11.6 billion, up 13 percent, and a net income of €1.9 billion, down 2 percent. (This was using U.S. accounting rules for revenues, costs, and profits pulled back into Germany and converted to euros.) Software sales were up 6 percent to €3.6 billion for the year, with software support and other services revenues up 14 percent to €8.5 billion.

The fourth quarter did not look so nice at SAP, however, as you might expect given the economic climate. Software sales fell by 6.5 percent to €1.32 billion, but support and services sales rose by 7.8 percent to €2.67 billion; overall sales in the quarter grew by 7.7 percent to €3.49 billion. Net income rose by 13 percent to €850 million.

While these sets of numbers all sound pretty good, they are only good because they include revenues and profits from Business Objects, which were not in the 2007 figures. SAP is warning Wall Street that it faces tough compares in the first half of 2009, when SAP’s sales were pretty good ahead of the economic meltdown and the Business Objects deal was not yet completed. Because of this, SAP is cutting approximately 3,000 employees from its global workforce, reducing headcount to 48,500. That’s 5.8 percent of SAP’s 51,500-strong employee roll. As hard as this might be to believe, this is the first time since SAP was founded in 1972 that it has had layoffs. Now that is some fine German engineering. Anyway, the layoffs are expected to save SAP €300 million to €350 million a year, once they are fully in effect in 2010.

SAP also said that Gregory Tomb, president and chief executive officer at SAP North America (which does about a third of SAP’s sales each year), has stepped down and taken a leave of absence. Tomb’s exit was for personal reasons, and he plans to return to the company at some time in the future, but not in the president or CEO position. Rob Enslin, chief operating officer at SAP North America, has moved into the president and CEO position, effective immediately.

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