PhillyDeals: SAP 'will die' if latest system disappoints predicts company cofounder

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SAP chief executive Bill McDermott at the U.S. headquarters in Newtown Square. DAVID SWANSON / Staff Photographer

At the New York Stock Exchange, which has become a theater for corporate product announcements now that most actual stock trades are done remotely by computer, Bill McDermott, Newtown Square chief executive of software-maker SAP SE, stood before stock analysts and reporters Tuesday to hype "the biggest product launch ever [by] the most global software company on the planet."

The product is an updated SAP business system called S/4 Hana, which McDermott promised would allow clients to "run your entire company, radically simplified, at a speed never before achieved, real-time, in the cloud," from a smartphone.

McDermott's boss, 71-year-old SAP cofounder, board chairman, and software leader Hasso Plattner, said the stakes were high: S/4 Hana had better help boost sales by at least $10 billion above today's levels over the next five years "or we will die," he told the crowd.

"For too long, SAP has been stuck into our own configuration," Plattner added. Now, he said, it's time to "leapfrog" not just longtime competitors like Oracle Corp., but cloud-based specialists such as Salesforce.com and Workday.

Even the computing students Plattner teaches at the University of Potsdam in Germany, he said, have become bored by enterprise software, SAP's main product for companies that still operate their own in-house servers. "Users told us, 'Your user-interface sucks,' " he said.

So SAP, even as it was spending more than $18 billion buying a string of specialized cloud-computing business-software makers over the last few years, put its engineers to work. They built a system that searches data inside computer systems' local memory without having to shuttle back and forth to a hard drive. Added to a simplified user screen, S/4 Hana allows users to "massively shrink" the complexity and speed with which corporate and Internet data can be merged and mined for useful information, Plattner said.

SAP shares have trailed rivals, like Oracle and Salesforce.com, over the last year. In January, SAP cut its profit expectations for this year. The company's lofty expectations are "not being reflected in the stock, given investors' continued concerns" that SAP doesn't reach its stated goals, analyst Brian Schwartz told clients at Oppenheimer & Co. in a report Tuesday.

Yet Schwartz also said SAP at its recent price in the high $60s was a bargain; he expects the stock will top $80 by early 2017 now that McDermott has sworn off big acquisitions and come up with a better story to keep old clients and sell to new ones.

SAP sales will have to accelerate fast: Its 2020 profit projections are "a long way from here," analyst Chandramouli Sriraman of Mainfirst Bank of Germany told McDermott in a conference call after last month's earnings report.

SAP hasn't made clear to all users how compatible or expensive S/4 Hana software will be compared to its current software, or how quickly it will be available. In New York, Anthony J. Bosco Jr., an executive at the Day & Zimmerman engineering group in Philadelphia and a leader of an SAP users' group, told me his company was studying S/4 Hana closely and might put it to work over the next few years.

 


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