It’s summer time (at least here in the northern hemisphere), and the living is easy here on Cape Cod. And the quarterly earnings announcements from leading information technology (IT) suppliers SAP (SAP) and IBM (IBM) make pleasant beach reading.
In looking at their reports, I am going to do my best not to rain on anybody’s beach or boat or golf bag. There is nothing I heard this week that changes my past opinions, which were generally favorable already on these two leaders in their sectors. The yellow flags and foreseeable downsides are already factored in.
Here are the good things I heard:
• IBM had its best revenue growth quarter since 2001. IBM made it clear the “tough compares†start in 3Q and 4Q, so for now sit back and read that beach book.
• SAP software and related revenue was strong for 1H and stronger for 2Q, going into the European slow period. Yes, consulting is flat but that’s not new news. It’s just that no one’s really using the new R/3 stuff yet—just licensing it at great prices. So cut the engine and drift with the current (You’re not in a major shipping channel are you?).
• The IBM problem in the Americas in 1Q must have just been ice storms in March or something because the boys on the company softball team hit a home run in 2Q.
• SAP lifted the kimono a little more on A1S. Keeping with my summer “good times†theme, I will not mention that the first thing that came to mind when I read “A1S appliance†in the transcript was Pandesic (but I think Henning said that was what some customers in Europe wanted—the customer is always right). More important, countering one of my major criticisms of SAP, I now believe there is a supervisory board member with “channel†on his forehead; it’s Henning himself.
• IBM’s plan to almost double EPS by 2010 was prodded and probed by the mainstream financial analysts six weeks after it was implemented the same way the mainstream U.S. consumer press is prodding and probing the U.S. armed forces about its surge plan in Iraq six weeks after they got there. At least give it the summer to work guys.
• SAP’s customer base was up 3,000 in the first half, including some 400 R/3 customers so the core is growing again whereas it had been almost flat in 2006. And SAP counted 800,000 Duet users (upsells today) and almost 2,000 Business One customers (upsells tomorrow).
• IBM says organic growth in the branded middleware segment is beginning to account for “over half†of branded middleware growth. There’s a little overparsing of a “the glass is half full†philosophy in this claim (it’s the flip side of upcoming “tough compares†after all) but these numbers are definitely going in the right direction.
• SAP talked about its pending 1B euro year in middleware revenue. As I detail in our new report on SAP, it could have really rubbed Larry’s nose in it in terms of how quickly SAP reached the $1B level. But discretion is the better part of valor given the Tommorow lawsuit. Also, I must have missed this earlier but it is also good news that Sungard will be a NetWeaver Inside application supplier. I am a little leery of the use of the term “hub concept†by anyone developing modern middleware, but it’s summer time, so I’ll wait for the first leaves of fall to dig into that line.
• IBM says it can meet its EPS goals via selling more new software products (in proportion to older software products I guess) and virtualization. I’ve already disagreed with the former and agreed with the latter so “play away.â€
• SAP added two GEA contracts. It’s not SaaS, but it’s real money in the bank even if not recognizable revenue this past half.
• Finally, despite my concerns in the spring based on both company’s 1Q reports, macroeconomics looked good according to both. SAP was seeing a little bit more robustness in Europe than in the U.S. and both see boom times in A/P.
So sit back, and breath the salt air. The snow will fly soon enough.
(And for all of you readers in the southern hemisphere, most of you have nice weather all year round anyways so forgive my geographic incorrectness.)
–Dennis Byron
Tags: IBM, SAP, middleware, ERP
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