EMC Rolls On, Mixed News for SAP and Sun

EMC Corp. posted strong first quarter financial results but Sun Microsystems Inc. experienced a surprise third quarter loss. Meanwhile, SAP AG announced healthy first quarter financial results except for its software-as-a-service (SaaS) business while Microsoft Corp. rolled out its CRM SaaS offering.

Focal Points:

• EMC reported total revenues for the first quarter increased 17 percent year-over-year to $3.47 billion. Net income for the quarter on a GAAP basis was $269 million or $0.13 per diluted share. EMC's systems revenues represented 41 percent of total first quarter revenue while software license and maintenance revenues accounted for 41 percent of total revenue. 18 percent of total revenues came from services. CEO Joe Tucci says the company will continue to move into the consumer sector, as 70 percent of all digital information is created by individuals and 85 percent of that will be managed in the cloud. The only cloudy spot for EMC was VMWare, whose revenues fell short in the fourth quarter of last year. VMware, 90 percent owned by EMC, reported first quarter revenues of $438 million, up 71 percent from a year ago and about 6.5 percent from the $412 million it reported last quarter. VMware also forecast 2008 revenue growth of 50 percent, down from the 88 percent it did in 2007.
• Sun Microsystems reported its revenues for the third quarter of 2008. Total revenues for the quarter dropped one-half percent year-over-year to $3.266 billion. Net loss for the quarter on a GAAP basis was $34 million or ($0.04) per diluted share. This is compared to a net income of $67 million for the same period the previous year. Sun derived 61 percent of its revenues from its product lines and 39 percent from services. Gross margins dropped to 44.9 percent from 48.5 percent in the previous quarter. Meanwhile, SAP posted double-digit revenue growth for its first quarter of 2008. Revenues in the quarter grew 14 percent to €2.46 billion from the same quarter last year. SAP claimed it gained market share, growing to 32.6 percent of the core enterprise applications market from 28.2 percent a year ago.
• However, SAP officials acknowledged that the company's new SaaS offering, Business ByDesign, has not met early expectations and will take 12-18 months longer than planned to meet its 2010 goals of 10,000 customers and $1billion in revenues. As a consequence, the company will reduce its 'accelerated investments' in Business ByDesign this year by about €100m and cease further such funding going forward. Funding will come from normal operations in the future. Meanwhile Microsoft rolled out its Dynamics CRM Online solution, with prices and options aimed at undercutting Salesforce.com. Officials stated Dynamics CRM Online is a full suite of on-demand sales, marketing and customer service applications along with business process automation and workflow automation. Microsoft is offering its on-demand CRM package in two editions. The Professional Edition provides 5 GB of data storage, 100 configurable workflows and 100 custom entities at an introductory price of $39 per user per month through the end of 2008. The regular price after that is $44 per user per month. The Professional Plus Edition offers offline data synchronization along with 20GB of data storage, 200 configurable entities and 100 custom entities. This package is priced at $59 per user per month.

Experton Group believes demand for core enterprise applications and storage products and services will remain strong, especially in the small- to medium-sized business (SMB) market for both and consumer space for storage, regardless of economic conditions. Sun will continue to struggle with its revenues and profits, as competition from its primary rivals will be vigorous. Even though the number of major vendors in each of these spaces remains and consolidation continues, IT executives should be able to challenge these providers to offer decent discounts, SLAs, support and terms and conditions if they want to be selected as the vendor of choice. Enterprise IT executive should also seek to get architectural and strategic support from those they view as a strategic partner, as well.

Experton Group expects SAP's problems with Business ByDesign to continue and doubts it will achieve its 2010 goals, as it contends with internal design and sales issues as well as strong competition from Microsoft, Oracle, and Salesforce.com. Oracle's new version of CRM On Demand and Microsoft's Dynamic CRM Online, like SAP's Business ByDesign, are aimed at taking share away from Salesforce.com, which leads the CRM SaaS space. Each of the vendors has a unique slant, and therefore functionality differences, that each hopes will enable it to garner market share. Microsoft and Salesforce.com are best poised to succeed while Oracle will need to restart and pump up its efforts if it is going to make decent headway. Experton Group believes SAP will be a distant fourth in the CRM SaaS market and its long-term success remains in doubt. IT executives desirous of taking advantage of the CRM SaaS model should spend the time to understand the business models each of their prospective providers and be satisfied that the vendor's road map and strategy maps well with the company's direction and requirements before making a purchase decision.