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SAP’s Q1 results just came in at the lower range of SAP’s guidance. The Americas software and services business was down 13 percent from Q1 2007, indicating that the U.S. recession is registering a meaningful impact on software spending across the board (since Oracle’s and Microsoft’s numbers were similarly hit). The bad news in the U.S. market may be just beginning. In December of last year, the Institute for Supply Management reported that “Purchasing and supply executives predict that capital expenditures will increase by a meager 0.7 percent in 2008, compared to a 18.2 percent increase reported for 2007.” There’s little new money in the U.S. for capital expenditures on such things as software, and the average lead time for capital expenditures in manufacturing is now up to 118 days, meaning that manufacturers are delaying whatever projects they have on hand.
The ISM surveys touch tens of thousands of respondents who are, in many cases, closer to the enterprise’s day-to-day budgeting decisions than the CIO function, so the data should be taken more seriously than CIO surveys that purport to give a picture of true IT spending realities and intentions.
The interesting thing about SAP’s software and services results is that they were much stronger in other geographies, such as EMEA (up 23 percent) and Asia-Pacific (up 47 percent). APAC is probably the safest long-term geography for SAP, given the vast numbers of East Asian manufacturers and other companies who are only semi-automated. Europe is strong for now, but Germany and France are feeling the pinch in macroeconomic terms, as consumer confidence and purchasing power are dipping there, causing a drag that will be felt across the EU. The New York Times recently reported on a middle-class French family who could no longer afford store-bought baguettes; that’s the new Europe for you. Meanwhile, wealth is increasingly flowing to China and India. If the trends evinced in SAP ‘s Q1 results hold up, this will shortly be the promised land for SAP.
Demir Barlas, Site Editor