This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for SAP (NYSE:SAP)
${header:potential}
Below are key drivers of SAP's value that present opportunities for upside or downside to the current Trefis price estimate for SAP:
Enterprise Software
- SAP ERP Market Share: We estimate that SAP share in Enterprise Resource Planning (ERP) software market has declined from around 27.3% in 2008 to around 26.7% in 2011. We expect it to decline marginally to around 26% by the end of Trefis forecast period, primarily due to the increasing competition in the space. SAP has made some significant acquisitions like SuccessFactors which should help it capture some portion of the growing cloud based software market. If SAP manages to capture 30% of the market by the end of the forecast period, there could be a 5% upside to its price estimate.
- SAP CRM Market Share: We estimate that SAP share in Customer Relationship Management (CRM) software has declined from around 22.5% in 2008 to 19.9% in 2011, and we expect it to continue to decline to 19% by the end of Trefis forecast period. SAP faces stiff competition from Salesforce.com, Oracle and Microsoft in this market. Pure cloud computing players like Salesforce.com have an advantage over SAP as it can benefit from the expected fast growth of cloud computing market. Also, Oracle has claimed that it is gaining applications market share from SAP. These factors could mean that SAP's market share could decline at an even faster rate. There could be a downside of around 5% to our estimate for SAP stock if its CRM market share declines to 14% by the end of Trefis forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for SAP at the top of the page.
${header:summary}
SAP makes money by selling crucial software applications to businesses worldwide. Companies use SAP software to efficiently integrate and process data, better manage customer and supplier relationships, and shorten product lead time to market through use of product management software.
Each of these four steps, i.e. integrate and process data, manage customer relationships, manage supplier relationships, and shorten product lead time, can be thought of as corresponding to one of SAP's four main software offerings.
Enterprise Resource Planning Software (ERP):
SAP's best known product is its SAP Enterprise Resource Planning (SAP ERP) software. Enterprise Resource Planning (ERP) is software used for integrating the data and processes of an organization into one single system.
For example, in a bank, a credit card system and a savings account system are two different systems having no common interface. SAP ERP provides an interface which connects all systems together, in this example connecting credit card and savings account systems.
With the bank's system integrated using ERP software, the bank's customers will now be able to auto-debit their credit card payments to their savings account. Without this vital integration of the two systems, the customer would have to manually transfer funds from his savings account to his credit card account. Furthermore, by tracking such information, ERP software helps the bank cross sell credit cards to their savings account customers and vice-versa leading to new revenue opportunities.
Customer Relationship Management Software (CRM):
Customer Relationship Management (CRM) is software that allows companies to better manage customer information such as leads, transaction history and communication history. CRM data helps companies acquire and retain customers as well as gain marketing and customer insight.
For example, a customer may always buy the same product from a retailer. The retailer could advertise similar products to the customer if it kept track of the specific products purchased by the customer as well as the customer's spending habits and what products he may be interested in the future. Tracking and organizing such information creates significant business opportunities for the retailer. It is challenging to do such customer specific marketing without the help of the CRM software.
Supply Chain Management Software (SCM):
Supply Chain Management (SCM) is software that helps companies track the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.
For example, a medical services company that sells medical and surgical supplies to hospitals would benefit from a supply chain management system that can coordinate with medical supply manufacturers and hospital customers. By keeping track of usage patterns, the supply chain management system will be able to forecast the demand of medical and surgical products by seasons, by regions and by customer types. This will help both the medical service company and hospitals to more efficiently manage their supply inventory levels.
Large retailers with many regional distribution centers like Wal-Mart use supply chain management systems to coordinate between suppliers of merchandise (e.g. clothes, paper products) and Wal-Mart's retail stores to reduce the inventory cost. This helps retailers like Wal-Mart pass savings onto customers in the form of lower prices for many everyday products. The backbone of many service operations is Supply Chain Management or SCM.
${header:sourcesofvalue}
The ERP software segment is SAP's most valuable segment for the following reasons:
High Market Share in Large ERP Market
SAP remains the leader in the ERP market with a market share of around 27% in 2011. We believe that SAP's ERP market share will be around 26% by the end of the Trefis forecast period.
We believe SAP may lose market share in future due to
- Better innovative efforts taken by its competitors.
- Increasing presence of its competitors across the globe.
High Gross Profit Margin
SAP benefits from high gross profit margins on all its software products to the tune of 81%.
${header:trends}
Battle of faster technology continues
Time and again SAP has announced that its in-memory is a disruptive technology, which speeds up data storage and retrieval to unprecedented speeds. Leveraging the in-memory technology is a software known as HANA (High Performance Analytic Appliance) that SAP released a few months back. HANA uses a different method of storing and retrieving data by storing it on computer’s CPU rather than traditional way of reading and writing on storage disks.
On the other hand, Oracle has also made great strides over the last year or so through the introduction of faster Exadata machines capable of producing millions of transactions quickly.
Software as a Service (SaaS)
Software as a Service (SaaS) is a subscription based service where companies can access software online and pay only for the functionality utilized. This is oftentimes a cost effective solution for companies, and suits small and medium enterprises more, as they have low IT budgets. In this model the software is generally hosted on the service provider's servers from where it can be easily accessed by users. As such, businesses can save heavily on costs and time involved with purchase and implementation of expensive software. We forecast an increasing trend towards "Software as a Service" adoption.
SAP SaaS offering includes CRM, which it sells by the name CRM on-demand.
SAP has come up with the SaaS ERP offering known by the name SAP Business ByDesign. It has been slow in implementing this offering and released it in 2010. However, it acquired SuccessFactors in 2012 to give itself a boost in the cloud computing market, and aims to become a leader in cloud based enterprise software in the coming years.
Trefis Forecast Rationale for SAP Market Share in Resource Planning Software
${header:what}
${forecast} represents the percentage of the global Enterprise Resource Planning (ERP) market (in terms of new software license sales) attributable to sales by SAP.
ERP software is used for integrating the data and processes of an organization into one single system.
SAP's primary competitors within ERP include Oracle, Infor, Sage and Microsoft.
${header:historicals}
With around 29% market share, SAP is a clear market leader in the ERP space. However, the company has recently experienced declines in its ERP Market share. SAP's market share has increased from around 26% in 2008 to 29% in 2011.
Trefis forecasts that ${forecast} will decline marginally throughout the forecast period, primarily because of the increasing competition in the ERP software space.
${header:rationale}
Trefis considered the following two factors for its forecast:
- Threat from smaller players
- Infor and Sage are two small players in the ERP market, but they have shown tremendous growth of late
- Infor has taken several innovative steps to increase its share, one such example being its recent announcement of OpenSOA. It is a mechanism by which it becomes easy for customers to self-configure and integrate different systems without the vendors intervention. This reduces cost and instantly and seamlessly adds tremendous value to the business.
- Sage's strongest areas of specialization are in healthcare, payment processing and online banking--a sector that has seen increasing need for such solutions.
-
Oracle's increasing presence in the financial services and public sector
- Oracle's acquisition of PeopleSoft in 2005 catapulted Oracle to the second spot behind SAP
- Oracle has increased its presence in Europe, with increasing support for the financial services and public sector. It has also taken a greater interest in Human Resources Management Software.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
DCF MethodologyView All Help Topics