SAP, Oracle war intensifies

FRANKFURT: Germany's SAP has bought a U.S. company specializing in support for PeopleSoft software, exploiting its advantage as Oracle grapples with the task of integrating PeopleSoft after a hostile takeover.

The world's biggest maker of business software bought TomorrowNow -- a company with almost 100 clients including Nestle, Lockheed Martin and public-sector customers -- for an undisclosed sum, it said on Wednesday.

TomorrowNow specializes in maintenance and support for former clients of PeopleSoft and JD Edwards, which PeopleSoft bought as it tried to fight off Oracle's offer.

SAP said it would offer special deals to TomorrowNow's customers to migrate to SAP's own flagship NetWeaver software, and that it saw significant opportunities to capture market share.

"Under this SAP safe passage programme, organizations running PeopleSoft and JDE will be able to quickly extend their IT infrastructure with the SAP NetWeaver platform," SAP said in a statement.

SAP has benefited over the past year and a half from uncertainty in the business software market generated by the protracted battle Oracle waged to take over rival U.S. software company PeopleSoft, following PeopleSoft's acquisition of JDE.

SAP's announcement came a day after Oracle, SAP's closest rival, said it would challenge SAP's global market lead by combining its business software products with those of PeopleSoft, following the $10.3 billion takeover.

Oracle's CEO Larry Ellison forecast Oracle would keep about 95 percent of PeopleSoft's customer base by supporting PeopleSoft and JDE clients at the same time as building new software for them and developing the new, merged products.

SAP, which has more than half the global market for business software to help large firms manage functions from supply-chain management to payroll, described Oracle's agenda as "very ambitious."

The company's top technology strategist Shai Agassi said, "We believe a very higher percentage of PeopleSoft and JD Edwards customers will convert to this offering," adding that industry analysts have said the potential upside could be 2,000 to 4,000 customers.

INVESTORS SCEPTICAL

Investors reacted guardedly to the news, with SAP closing 0.9 percent lower in Frankfurt at 124.10 euros, underperforming a 0.5-percent drop on the European technology index. In New York, SAP was trading 1 percent lower at $40.24.

"The real question is whether anybody will change their applications just because of this," said Bill Swanton, analyst at AMR Research. "If what you have now meets your needs, I don't see a very compelling reason to switch."

SAP said it would initially target customers running both SAP and PeopleSoft/JDE software, of which it estimated there were around 4,000, mainly in the United States.

It would offer them maintenance deals including migration to SAP software through TomorrowNow at a rate of 17 percent of the value of their original PeopleSoft contract, executives told the conference call, compared with the 10 percent TomorrowNow currently charges them for maintenance alone.

As part of the deal, it would also offer trading credits of 75 percent of the value of the PeopleSoft contract.

SAP said it would make significant investments to expand TomorrowNow to meet customer demand, including hiring extra staff.

"You can expect SAP to target other customers in other segments down the road," Agassi told the conference call.

SAP said last week its licence sales grew 8 percent year-on-year in the December quarter, mainly in the United States.

As of Sept. 30, SAP had 56 percent of the global business software market and 38 percent in the United States, according to its own measurements.

(Additional reporting by Wei Gu in New York)