November 17, 2003 11:40 AM PST

SAP expects strong growth, acquisitions

BOSTON--SAP Chief Executive Henning Kagermann told attendees of AMR Research's ongoing Fall Executive Conference that his company will grow faster than the market for enterprise software, and he hinted at future acquisition plans.

Following AMR analysts' predictions on Monday that the enterprise software market would grow by roughly 7 percent over the next year, Kagermann expressed his desire to increase SAP's revenue by at least "double digits" during the same period. He admitted that SAP's average deal size is currently down by roughly 20 percent, but said that a higher volume of deals would help the company replicate its solid third-quarter earnings.

The CEO told the assembled crowd that he believes SAP could increase its market share in several major vertical sectors and indicated that the German business software maker would consider making acquisitions to achieve that goal.

"We could be stronger in several important markets such as financial (services) and public services," said Kagermann. "I wouldn't exclude the possibility of acquisitions, but not just for the sake of growth; potential candidates would help (SAP) become a larger player in some verticals."

Kagermann said the most likely acquisition scenarios would involve SAP buying out top providers of software in niche markets such as financial services, but he stopped short of offering a time frame for any potential deals. On the topic of industry consolidation, he took the opportunity to weigh in on the proposed merger between rivals Oracle and PeopleSoft, saying the controversial deal would only serve to benefit SAP.

"It's distracting both companies from (their) customers, which is good for us," Kagermann said. "If (the merger is) accepted, my concerns would be more for their clients; it's of no real concern for SAP."

The SAP chief highlighted his belief that there will be no more than four or five major companies in the enterprise applications market in several years' time, with smaller companies abandoning the end-to-end software systems market in favor of producing niche technologies.

Kagermann made a point to criticize certain elements of the growing trend among information technology buyers toward outsourcing. He said he found it hard to believe that companies are willing to farm out "core assets" such as their supply-chain operations to outsourcing companies. He added that companies should remain wary of which operations they choose to outsource, and he warned that sending out business processes that could become increasingly mission critical would prove harmful in the long run.

"(Companies) should focus on operations that won't be strategic, and if you aren't sure, figure it out before outsourcing," said Kagermann.

The executive also said he wanted SAP to increase its clout among small and medium-size businesses, and pointed to the company's MySAP All-in-One automation software package as evidence that it is working to build products specifically designed for the sector. SAP announced earlier on Monday that it has partnered with Sybase to use the company's database management software with its Business One set of applications that are aimed at small to medium-size companies.

 

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