SAP-Oracle Lawsuit Could Weigh on SAP Market Share, Stock Price
A few weeks ago, a California court ruled that SAP (NYSE:SAP) owes $1.3 billion to Oracle (NASDAQ:ORCL) from a copyright infringement suit going back to 2007. [1] Oracle alleged that TomorrowNow, an SAP subsidiary, obtained unauthorized information from Oracle. According to several reports, this is the largest amount ever awarded in a software piracy case and could lead to a drawn out legal battle. [2]
While our current estimates call for a gradual decline in market share, we believe that the SAP’s reputation could be hurt by this announcement given the size of the penalty, perhaps leading to faster market share declines as competition picks up and management works to put out fires relating to this ruling. Our current Trefis price estimate of $53.29 for SAP stock is about 8% above the current market price.
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SAP and Oracle Compete in Applications Software Business
SAP is currently the leader in the ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management) software market. Companies use ERP solutions for integrating an organization’s data and processing it into a single system. We forecast that SAP’s share in the ERP market will decline to around 26% in 2010 and could continue to decline to around 24% by the end of the Trefis forecast period.
Oracle acquired PeopleSoft in 2005, which catapulted Oracle to the second spot behind SAP in the ERP market. Oracle’s ERP market share has shown an increasing trend over the past few years that could continue in the future.
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CRM software helps companies acquire and retain customers as well as gain marketing and customer insight. SAP’s share in this market is also expected to decline from around 26% in 2005 to 22% in 2010, and could continue to decline to around 18% by the end of Trefis forecast period. It competes with Oracle, Salesforce.com (NYSE:CRM) and Microsoft (NASDAQ:MSFT) in this market with Oracle again taking the second spot behind SAP.
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Downside From Quicker Market Share Loss
SAP acquired TomorrowNow in 2005, just after Oracle acquired PeopleSoft, which provided CRM and ERP software. TomorrowNow provided maintenance and technical services to PeopleSoft and JD Edwards customers. Following the lawsuit from Oracle, SAP shut down TomorrowNow.
We believe that the lawsuit could have some long-term effects on SAP’s reputation thereby affecting its image for potential new business and existing clients. As a result, SAP’s already declining market share could decrease further in the medium-term. Management dealing with legal settlements of the awarded $1.3 billion could also distract SAP’s from other matters at hand.
In a hypothetical scenario, if SAP’s ERP market share declined to reach around 15% vs. our current expectation of 24% and its CRM market share decline to reach around 10% vs. our current expectation of 18% by the end of the Trefis forecast period, this could equate to a potential downside of 20% to the $53.29 Trefis price estimate for SAP stock.
You can see the complete $53.29 Trefis Price estimate for SAP stock here.
Corrections: (original text in italics)
1) We made a correction to the text after speaking with SAP. We previously stated that SAP illegally obtained information on Oracle software and customers, which is Oracle’s claim. SAP states that this is not factually true.
You can find more information regarding this suit on SAP’s dedicated website: http://www.tnlawsuit.com/
The court stated that TomorrowNow, an SAP subsidiary, illegally obtained information on Oracle software and customers.
2) SAP reports that they have received a negligible number of requests from existing clients regarding this suit and so it does not expect any market share impact from this event.
SAP’s ERP market share declined to reach around 15% vs. our current expectation of 24% and its CRM market share decline to reach around 10% vs. our current expectation of 18% by the end of the Trefis forecast period, this could equate to a potential downside of 20% to the $53.29 Trefis price estimate for SAP stock
Notes: