SAP Sales Slip As Succession Rumors SwirlSAP Sales Slip As Succession Rumors Swirl

SAP sent a shock wave through Wall Street with an announcement that its fourth-quarter sales came up short.

SAP said in the warning that it expects fourth-quarter revenue of 2.95 billion euros (about $3.8 billion), a 7 percent year-over-year increase but below the growth analysts anticipated. SAP is scheduled to release full results on Jan. 24. For the full year, SAP's software sales were around 3.10 billion euros vs. 2.78 billion euros in 2005, a growth rate slightly lower than SAP executives were targeting.

SAP's sales struggle comes as it and Oracle are locked in a heated battle for market share. The two companies' complex financials, currency differences and distinct geographic footprints make head-to-head comparisons difficult, but financial analysts said SAP's shortfall is an ill tiding as it tries to fend off its aggressive rival.

"We believe the competitive environment is getting tougher," Cowen & Co. analyst Peter Goldmacher wrote in a research note. "Customers' desire to invest in SOA and buy more products from fewer vendors puts SAP at a disadvantage, partially because this competitive dynamic is ratcheting up pricing pressure, which SAP feels the most, given its relatively limited solution set relative to Oracle and IBM."

Other analysts read the tea leaves differently. While JMP Securities analyst Pat Walravens downgraded SAP's stock to "market underperform" and questioned its "convoluted" product messaging and ability to meet customers' SOA needs, Sanford Bernstein & Co. analyst Charles Di Bona reaffirmed his optimism about SAP and called it "well-positioned to gain market share in the applications market and in the infrastructure market."

Oracle also had a tricky recent quarter. Sales for its flagship business, its database software, appeared soft (Oracle bundles database and middleware sales, making it difficult to break out segment sales). Executives also acknowledged some "execution" issues with its sales efforts.

"Considering both SAP and Oracle posted disappointing results in their most recent quarters, we suspect investors might become concerned with the macro environment. However, our Oracle checks at this point continue to suggest that there are no macro issues," said UBS analyst Heather Bellini. "Oracle's shortfall last quarter resulted from a lack of execution."

SAP's slip comes as it faces a potential management change. Henning Kagermann, SAP's CEO since 1998, is about to turn 60, at which point SAP's corporate policies require a yearly review of his contract. SAP co-founder and supervisory board chairman Hasso Plattner told a German newspaper this week that he would like Kagermann to stay in the job for at least another year.

Even if Kagermann stays put, SAP could see turnover elsewhere in its executive ranks. SAP's succession plans are unclear, and JMP's Walravens warned in a recent note that internal politics are afoot. Though Product and Technology Group President Shai Agassi is one of SAP's most visible executives, Customer Solutions & Operations President Leo Apotheker may be Kagermann's intended heir, Walravens wrote.

"Our due diligence suggests there has been some tension between Agassi and Apotheker over the past year," he said.