Larry Ellison, the CEO of Oracle (NASDAQ:ORCL), certainly likes enemies. Perhaps he reasons combativeness will motivate the troops in the battle for software dominance. And, of course, he did win his long battle with PeopleSoft, which he now owns.
So Ellison, it could be argued, now needs another enemy. Why not SAP (NYSE:SAP), which is the biggest ERP (enterprise resource planning) software company in the world? In fact, at a conference yesterday, Ellison smash-mouthed SAP. Even more interesting: Ellison had kind words about another competitive enemy, IBM (NYSE:IBM). No doubt, Ellison never says nice things for the sake of being nice. After all, Ellison will need to keep happy the IBM consultants who help PeopleSoft clients.
Ellison should be concerned about SAP, especially in light of yesterday's earnings report. In the fourth quarter, SAP posted net income of $708 million, which was up from $548 million in the same quarter a year ago. For 2004, software revenues increased 10% to $3.2 billion, and the company expects the growth to increase to as much as 12% in 2005.
Moreover, SAP demonstrated its strongest growth in the U.S. Those revenues increased 27% in 2004 to $816 million. So, maybe SAP is already winning early battles for disaffected PeopleSoft customers. For example, during the quarter, SAP's U.S. market share increased 1% to 38%.
Despite the strong performance, SAP's stock price slid $0.92 to $39.38. On the conference call, SAP's CEO, Henning Kagermann, indicated that 2005 will be a time for investment for his company. A big part of this will be the hiring of 3,000 additional employees. This may crimp profits in the short term, but with the upcoming battle with Ellison, it is the smart thing to do.
Fool contributor Tom Taulli does not own shares mentioned in this article.
