SAP’s markets are shrinking and margins are declining; Trefis price estimate lowered from $45.51 to $39.06

October 29th, 2009 by Trefis Team
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SAP which makes money by selling crucial software applications to businesses worldwide reported quarterly results that indicate the demand for business software like SAP’s has been lower than expected in recent quarters.  Furthermore corporate customers who have purchased business software have been more demanding leading to declines in SAP’s high margins.  The company’s primary competitor Oracle has also experienced lighter than expected demand for its business software products but Oracle has fared better due to stability in its recurring software maintenance revenues whereas SAP’s maintenance revenue has also experienced deterioration.

Resource planning software is one of SAP’s primary software products and accounts for about 39% of the $39.06 Trefis price estimate for SAP.  We now expect that the $20 billion market for Resource Planning Software will not return to 2008 peak levels until 2011.  We continue to believe that SAP will also experience on-going market share declines within this segment from share of about 26% today to 24% by the end of the Trefis forecast period.  Additionally, we expect SAP’s gross profit margin in its resource planning segment to dip to about 79% compared to historical averages above 80% and slowly return to close to 82% over the Trefis forecast period.

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Within SAP’s content on our platform, you can see how the stock would be impacted if the company’s Resource Planning Software Gross Profit Margin did not recover from current declines.