Business software
solutions giant SAP
is struggling, and analysts know it. Amid lingering concern
about delays in new licensing contracts as it transitions from a
license-centered business model to a subscription-based one, analysts
at Jefferies downgraded the German maker of business
enterprise software to "underperform" from "hold,"
with a price target of EUR63.50 ($71.72).
The company, along with arch-rival Oracle —
which reports quarterly earnings after markets close last week
Thursday — provides "enterprise resource planning," or
ERP, software, which allows businesses to better manage operations
such as production, sales and delivery. To better compete with the
likes of Salesforce.com, a cloud-only provider of ERP solutions which
has eaten away at its market share, SAP is aiming to rely less on
revenue from programs that companies install on their internal
servers to those rented from an online cloud-based model.
To do this, SAP is in the process of shifting its customer base
toward a new platform, known as S4, or Hana, which provides
cloud-based services. But it's slow going. In April, the Walldorf,
Germany-based company missed sales estimates due to contract delays
in the Americas. And analysts suspect this to continue to be the
case.
"Medium-term maintenance trends appear to be weakening, a
sign that larger-scale S4 ERP adoption will take longer than
expected," Jefferies analysts said.
Another problem, the analysts say, are recent SAP management
suggestions of S4 won't run on competitor Oracle's platforms. If
true, "S4 upgrades require database migration which is a big
alongside the usual trials and tribulations of ERP platform
upgrades," they said.
Jefferies analysts also expect that by 2020, SAP will derive only
around 23% of its sales from cloud-based products-short of the
company's goal of 29%. SAP currently generates around 11% of its
revenue from cloud-based products. SAP, in short, has it's work cut
out for it.
SAP shares fell 1.82% to EUR68.38 in Frankfurt trading. Its ADRs
declined 1.53% to $77.23 in New York.
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