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Strategic goals
SAP believes it is well positioned as fiscal year 2005 gets under
way. This is because in 2004 its software revenue climbed back
into double digits and it won peer group share, and because of
its clearly defined solution strategy for the medium term.
For the medium term, SAP attaches exceptional importance
to its concept for business applications of the future,
Enterprise Services Architecture. Specifically, it seeks to develop
SAP NetWeaver from a technology platform into a platform
for business processes (Business Process Platform). That means
the platform will combine infrastructure technology with a
portfolio of preconfigured business process modules that
customers can adapt for their own needs. The resulting convergence
of applications and infrastructure has been termed “applistructure” by Forrester Research.
Establishing Business Process Platform, and applications
powered by it, opens up to SAP’s customers the freedom to
simplify their own processes and workplaces and to add their
own features. To SAP, Business Process Platform is the road to
intelligently combining and configuring reusable services to
quickly and efficiently build innovative business solutions.
Moreover, it will be simpler to integrate products that independent
software vendors build for Business Process Platform
with SAP’s own solution offering. These approaches all add up
to new potential for revenue and greater profitability for SAP.
To build from that base, the Company has identified
four strategic priorities for 2005:
- To grow revenue, especially software revenue
- To establish itself as a leading player in the applistructure
arena
- To extend its position as a leading supplier of solutions for
SMBs
- Internally, to ensure that the Company operates as
effectively and efficiently as possible so that it has more
freedom to invest
It is SAP’s aim to complete Enterprise Services Architecture
by 2007. That means all of SAP’s applications must run on
Business Process Platform by then, starting with mySAP All-in-One in 2006. For two reasons, 2005 is a pivotal milestone on that
road. First, the Company will ship mySAP Business Suite and
almost all of the industry solutions on SAP NetWeaver. Second,
SAP will release the first Business Process Platform to some
independent software vendors as a beta to test whether it is
attractive enough for them as a basis for independent development
and to gather experience for subsequent developments.
The Company will also work on convincing customers of the
benefits of the platform’s standardized processes.
Operational goals: growth and investment
In 2005, SAP aims to post double-digit software revenue growth
for the second year in a row and thus win more peer group
share again – and outperform the growth of the overall IT
industry. At the same time, 2005 will be a year of investments.
Investment will focus on driving forward development of Business
Process Platform and the product offering, continuing
the alignment to volume business, and reinforcing sales and
marketing. It is not intended that investment will cause pro-forma
operating margin to decline. At the beginning of the
year, SAP published the following outlook for fiscal year 2005:
- The Company expects software revenue to increase in a
range of 10% – 12% compared to 2004. The growth would be
driven by the Americas and Asia-Pacific.
- It expects the pro-forma operating margin, which excludes
stock-based compensation and acquisition-related charges,
to increase in a range of 0.0–0.5 percentage points compared
to 2004.
- It expects pro-forma earnings per share, which exclude
stock-based compensation, acquisition-related charges,
and impairment-related charges, to be in the range of
€4.70–€4.80 per share. SAP assumes the effective tax rate
will be under 36%.
The outlook is based on an assumed U.S. dollar to euro
exchange rate of US$1.30 = €1.00. These operational goals are also
premised on the expectations that the economy will be stable
and that the buying behavior of customers will conform to
the usual seasonal pattern, with revenue at its strongest in the
fourth quarter.
As in previous years, the major portion of the planned
investment is earmarked for new hires, who would be taken
on as needed to meet actual requirements. If the year unfolds
as expected, some 3,000 FTEs would be added to the total headcount.
Some 20 % of the new positions would be in Germany,
confirming SAP’s belief in Germany as a place to do business.
SAP anticipates that a significant proportion of the new jobs
will be located in India and China, without reducing numbers
in other locations.
It is planned to accumulate liquid assets in readiness
for major investments, acquisitions, and the share buy-back
program.
In the medium term, SAP expects further improvements
in its business. It plans for organic growth augmented by
selected promising acquisitions. The Company intends to
generate additional revenue in the next three years from new
users and solutions, license fees from customers and partners
that deploy Business Process Platform, and by acquiring complementary
products and integrating them into the offering. It
anticipates that with such revenue growth and with increased
productivity in software development and maintenance,
the Company will sustain the forward momentum of its pro-forma
operating margin, which is expected to exceed 30%
by 2007. |
