Weekly Software Notes: SAP, Symantec and Salesforce

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SAP: SAP logo
SAP
SAP

Shares of software vendors SAP SE (NYSE: SAP), Symantec (NYSE: SYMC) and Salesforce.com (NYSE: CRM) appreciated sharply during the week ended March 20th. Shares of European major SAP led the rally with a 7% gain Monday through Friday, buoyed by investors’ and customers’ positive response to SAP’s recent moves into the Internet of Things (Read: SAP Prepares to Take On The Internet of Things, Announces String of New Partnerships). Salesforce’s shares appreciated by 5% during the week, while Symantec’s shares gained 4%, in line with the 4% uptick in the Dow Jones U.S. Software Index. In comparison, the broader S&P 500 gained 3% Monday through Friday.

In this report, we take a look at the latest updates pertaining to the aforementioned companies.

See our complete analysis for: SAP SE | Salesforce.com | Symantec

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SAP SE

SAP continued its foray into the Internet of Things (IoT) by entering into a partnership with Huawei, a leading global information and communications technology (ICT) solutions provider. [1] The new partnership will establish joint innovation efforts in China and Germany to advance research on IoT and provide new solutions to the market. As part of these efforts, the two companies will work on integrating Huawei’s ICT infrastructure and connectivity solutions with SAP HANA Cloud Platform, SAP applications and SAP analytic tools. The collaboration will develop agile manufacturing, smart energy and transportation solutions for transportation, shipping and vehicle analytics services.

SAP’s big moves into IoT are already paying off dividends as the company bagged a joint contract with Accenture (NYSE: ACN) for CenterPoint Energy, an energy delivery company. [2] SAP and Accenture will develop a unique analytics solution for integrating Information Technology (IT) and Operational Technology (OT). The new solution will merge business data, sensor data and external data feeds and will be compatible with the SAP HANA Cloud Platform.

Meanwhile, the Board of Directors of SAP recommended a dividend of €1.10 per share for fiscal 2014, which is a 10% hike compared to last year’s dividend of €1.00 per share. [3] This puts the total amount of dividend at €1.3 billion, which represents a payout ratio of 40%, compared to 36% previous year. SAP will also amend its dividend policy to pay a dividend totaling at least 35% of profit after tax, compared to the existing policy of minimum dividend of 30% of profit after tax.

We have a price estimate of $78 for SAP SE, which is about 5% higher than its current market price.

Symantec

Earlier this month, research firm IDC lowered its outlook for PC shipments in 2015. It now expects PC shipments to decline by 4.9% in 2015, 160 basis points lower than its previous forecast of a 3.3% drop. [4] The situation is expected to improve in the medium term, as IDC expects PC shipments to decline by only 0.7% in 2016 and pick up thereafter. It should be noted that PCs includes desktop computers as well as laptops under IDC’s classification system.

This is worrying news for software security major Symantec, which relies heavily on PC shipments to drive the revenue of its consumer security software business. Consumer security software, or User Productivity and Protection, accounts for more than half of Symantec’s information security business. With the looming split of the Information Management business, Symantec will have to continue with its information security business alone. It does not bode well for the company that its consumer security software division, which faced a decline of 25% in 2014, is set to face worsening demand for PC’s in 2015. Symantec’s market share in the global Consumer Security Software market has declined from 15% in 2012 to 10% in 2014, which implies that Symantec is losing customers even in the present market conditions. Under the existing conditions, we believe that Symantec’s loss of market share will continue in moderation over the foreseeable future. However, if the PC market worsens even further,  Symantec could lose market share in the consumer security software segment much faster than our current projection.

To counter the threats in the consumer security software business, Symantec has been gradually shifting its focus to the enterprise security software market (Read: Symantec’s Revenues Disappoint in Q3 as Corporate Breakup Looms). As part of this shift, Symantec has partnered with Primadesk to introduce a security app for mobile devices running on Android and iOS. [5] By using the app’s Symantec Sealed Program, an additional layer of security can be implemented for mobile access of enterprise files. It should be noted that this is a minor development that is unlikely to provide significant incremental revenues to Symantec.

We have a price estimate of $25 for Symantec, which is nearly the same as its current market price.

Salesforce.com

In a interesting move, Salesforce has co-invested with Microsoft (NYSE: MSFT) in a $60 million investment round in InsideSales.com. [6] InsideSales.com operates in the big data space, and makes software that analyzes data to predict when people are most likely to buy.

The co-investment is noteworthy because Microsoft and Salesforce traditionally were rivals, prior to the departure of Steve Balmer.  However, Salesforce and Microsoft did enter into a partnership last year for integrating some of their enterprise products, [7] Moreover, Insidesales.com actively sought the participation of both companies.

Surely a greater rivalry exists between Salesforce and its biggest rival, Oracle. Oracle’s CEO Larry Ellison recently took aim at Salesforce and claimed that his company will overtake Salesforce by the end of calendar 2015 to become the world’s biggest cloud computing company (Read: Oracle Takes Aim at Salesforce.com as Currency Headwinds Eat Into Q3 Revenues). If Salesforce and Microsoft continue their cooperation along this vein, Oracle stands the risk of losing potential customers who may be attracted to the better integration of Salesforce’s products with those of Microsoft’s.

We have a price estimate of $60 for Salesforce.com, which is about 10% lower than its current market price.

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Notes:
  1. Huawei, in Cooperation with SAP, Establishes Joint Innovation Efforts to Deepen Cooperation in Industry 4.0 and the Internet of Things, PR Newswire, March 17, 2015 []
  2. SAP, Accenture Collaborate for CenterPoint IT-OT Solution, Zacks.com, March 17, 2015 []
  3. SAP Recommends a Dividend of €1.10 per Share – Year-Over-Year Increase of 10%, SAP Press Release, March 19, 2015 []
  4. IDC Lowers PC Outlook for 2015, While the Long-Term Outlook Improves Slightly, IDC, March 12, 2015 []
  5. Primadesk and Symantec Join Forces to Secure Mobile Access to Enterprise Files, Market Wired, March 18, 2015 []
  6. Salesforce and Microsoft Invest in InsideSales.com at $1.5B Valuation, The Wall Street Journal, March 18, 2015 []
  7. Microsoft and Salesforce Strike New Partnership, The Wall Street Journal, May 29, 2014 []