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The Cool Hand Of Technology – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:50:54 +0000

A young engineer slips a glove on his right hand and wiggles it around at the wrist, then curls in his fingers. A shiny, black robotic hand mounted upright on his desk whirs and clicks as it mirrors his “real” hand with rapid movements. Very cool. But ask any of the other engineers what they think this hand could be used for and they have one, enthusiastic response: “Everything.”That’s a problem for Shadow Robot, the tiny London company that has been developing this robotic hand, considered one of the most dexterous in the world, for more than decade. It proudly counts NASA and the British defense department as clients, along with several universities. But the device has yet to be put to practical use or find itself a market, much less make a profit. Rich Walker, the company’s 38-year-old managing director, wants to change that. Shadow Robot’s hand is unique in its lifelike size and complexity. Its joints comprise 24 different degrees of freedom and are powered by “air muscles,” which consist of tiny rubber tubes covered in a plastic mesh. When the tubes inflate, the mesh contracts, moving a tendon in a certain way. The technology is also easily compatible with other systems.Most other robotic hands, as developed by competitors like Barrett Technologies and Germany’s Schunk Group, are simpler or larger. Barrett’s hand has three fingers and is mainly used for manufacturing, while it also sells a robotic arm used for performing surgery. There are around 11 or 12 multinational companies in the world today selling 99% of the world’s robotic arms, says Bill Townsend, the founder and CEO of Barrett. About 70% of them are used for making cars, and 30% are for other industrial manufacturing. But Shadow Robot’s hand is so dexterous, Townsend notes, it is better suited to “emerging applications” that are more human friendly than his machines.
“Emerging” describes it well. Over the course of a decade, Shadow Robot has sold about a dozen hands retailing at approximately 100,000 pounds each, but most of its clients have been so intrigued by its human-like qualities that they buy just to research it. NASA has been cagey about what it’s doing with the hand, Walker says, but he knows the agency took it apart immediately after purchase.
Britain’s Ministry of Defense isn’t doing such reverse surgery. It paid Shadow Robot 200,000 pounds to build and develop a robotic hand that could be integrated onto another robot used to defuse bombs, though it won’t give the company much more information than that. This seems to be along the lines of where Walker, a Cambridge math graduate with dreadlocks down to his waist, wants to take the company: robots that can do things any human hand could, but shouldn’t because it’s too dangerous, including working with hazardous materials. He also imagines specialists using the hand to fix things from great distances-even many miles-with the help of a video camera.
This is still years in the future, though. After a decade of struggling along with 250,000 pounds investment capital from founder Richard Greenhill and another director, Shadow Robot is currently at that difficult stage met by many high-tech companies, where the people behind it start to realize they cannot continue to just make cool-looking technology anymore-they have to make money too. Shadow Robot has never made a profit. Most years it has either booked a loss or broken even; it only started being funded by its own sales last year. Recently its accounts have started to show some promise. Shadow brought in revenues of 100,000 pounds in 2007, then 350,000 pounds in 2008 and is projecting sales of 700,000 pounds this year. A big chunk of that, or 200,000 pounds , will come from the sale of a hand to Britain’s Ministry of Defense, and another 150,000 pounds is the first installment of a four-year research contract with the European Union, via a lengthy grant application through Pierre et Marie Curie university in Paris. Shadow Robot is 50% owned by 66-year-old Greenhill, who was able to fund it until 2008 with money from a stock photography firm he started with his wife. The rest of the company is owned by its eight, full-time employees.Greenhill is the ultimate geek. He would happily continue tinkering with his robots for the remainder of his life and finds the notion of making money from them jarring and a “commercial pipe dream,” according to Walker. One reason for his view may be the difficulty he had making money from robots in the past: he set up an educational robotics company in the early 1980s, which quickly folded. For many years Greenhill’s anti-commercial stance bothered Walker and the company’s main board member, Nick Singer, a banjo-playing design engineer who took care of about a third of Shadow’s funding in the 1990s. After a number of heated discussions-”We provided hours of entertainment,” Walker says of himself and Greenhill-he and Singer finally confronted the founder last year. “Greenhill didn’t want to run a business. Singer and I felt that a commercial approach would enable us to get the company off the rocks financially, and Greenhill agreed to step back.” The company’s advisors recommended that Walker take over.
It was a stark change in roles. Walker had first met Greenhill when he was just 15 and attending a summer camp devoted to computers. He became something of a protégé for the older inventor, and went on to spend his summers working with Greenhill and his small team of robot enthusiasts out of the attic of the founder’s home in Islington, North London. While Walker has pulled away from robotics designing and started managing the office and accounts, Greenhill also pulled away geographically – he spends much of his time in the English mountains of Cumbria, hiking in remote areas with no mobile phone access. Occasionally he lends his advice to the company on research. This may be a good thing if Shadow is to succeed. “Richard is a visionary,” says Walker. “And his long-term goal is building humanoid robots that will do everything.” But while the protégé likes that long-term goal too, he wants to add “shorter goals and road maps and plans.” With Greenhill having come up with the new ideas to prove people wrong, Walker wants to avoid reinventing the wheel. Whereas the founder avoided books, his energetic successor walks out of the library with 12 of them, all about business and marketing. “A few years ago we were focused inwards and assuming that people would find out about us. We thought that if you built a better mousetrap the world would beat a path to your door.” Now Walker, a lover of metaphors, is the one knocking on doors and picking up the phone to companies or people he reads about in trade magazines. He tried hiring sales people, but found that research departments were put off by their pitches, so he stopped. Now Walker takes care of much of the selling himself, as well as of the grant applications; for three months out of the year he spends 75% of his time applying for grants. He’s learned to spend as much of the rest of his time attending trade fairs, meeting potential customers, or reminding an engineer to drop a line to someone who could find their robotic hand useful. It’s how they got that Ministry of Defense contract. “You sow bread on the water and eventually something bites.”With the company now refocused, Walker is trying to find other markets to tap besides defense. The Defense gig has the potential to become much bigger, but until that is confirmed he’s sniffing around in biomedicine, nuclear energy and hazardous waste. Gaining traction in those markets has been difficult, but Walker at least knows that Shadow Hand is a product that could one day minimize risk to humans, in war zones or with hazardous materials. More importantly, he’s caught on to the basic principle behind running a business: “If you don’t have somebody that’s interested in what you’re doing, there’s not a lot of point doing it.”

No Time For Games – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:50:23 +0000

Another month, another hit to an industry that once seemed immune to the financial distress afflicting broad segments of the economy. Sales of video games, both hardware and software, fell 29% in July compared to the same month in 2008, according to research group NPD. That’s the fifth consecutive monthly decline, although a smaller one than June’s 31% drop. Year-to-date that brings industry revenue to 8.2 billion, a 14% decrease in the first seven months of the year. But there’s reason to think the games industry is in for a rebound this fall.One unavoidable factor contributing to the steep decline in revenues this year are the game consoles. Machines like the Nintendo
Wii, the Sony
PlayStation 3 and the Microsoft
Xbox 360 are showing their age and their price. Hardware sales fell 37% in July, to software’s 29%. Some of that drop-off is to be expected: typically, a new generation of consoles will generate strong sales for its first few years before tailing off as more homes already have one in the living room. But the recession is also playing a role here: the three consoles still cost between 250 and 400 while consumers are cutting back on big discretionary purchases this summer. Games, in contrast, cost 40 to 60. .”Hardware sales have slowed considerably to date on nearly every platform,” writes NPD analyst Anita Frazier. The lone exception is the Xbox 360, which is up for the first seven months of the year.Analysts who cover the gaming beat are predicting that the console makers will likely reduce prices this fall to lure bargain-hungry shoppers. That should also benefit the publishers who make the games themselves and plan a slate of blockbuster titles to coincide with the console discounts. Among the releases industry watches are looking forward to are a Beatles version of the popular music game Rock Band, another installment in the action series Halo and another sequel to the war game Call of Duty. All three should be strong sellers.For the record, July’s biggest sellers heavily favored Nintendo, which has consistently surprised analysts with the popularity of its casual and easy-to-learn games. Wii Sports Resort was the month’s top seller with over 500,000 games sold. Nintendo heavily teased the game at this year’s E3 games expo, boasting of the new motion controller that comes with the title and lets players accurately simulate archery and other sports. .Publisher Electronic Arts
scored the second and third sports with NCAA Football 10 for the Xbox and PlayStation. Nintendo took the remainder of the top five with its Wii Fit training program and Mario Kart racing games for the Wii and the mobile console Nintendo DS. The PlayStation 3 garnered only one of the top ten this month as Sony’s high-priced, but high performance, game system continues to lag the competition.

Nokia Microsoft Gang Up On BlackBerry – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 16:46:41 +0000

In the technology world, the enemy of an enemy is a friend. So it goes with Nokia and Microsoft, which on Wednesday announced a “long-term alliance” to snatch more of the enterprise market from BlackBerry manufacturer Research In Motion-even though they also compete against one another with rival operating systems.Although the BlackBerry is not the only smartphone that has caused Nokia
and Microsoft
their fair share of headaches-as Steve Jobs can no doubt testify-Nokia executive Kai Oistamo bristled at the suggestion Wednesday’s announcement was truly about targeting the popular Apple
iPhone. “This is really about creating a formidable challenge for Research In Motion,” he said on a conference call to announce the partnership.The news failed to dent RIM
shares, up 1%, to 72.80, or Apple’s, up 1.8%, to 165.74, during midday trading in New York on Wednesday. Microsoft was up 2%, while Nokia rose 0.9%, in Helsinki.The first step of the alliance will involve creating a suite of Microsoft Office applications for Nokia handsets, beginning with Office Communicator Mobile, a client that combines instant messaging with Microsoft’s Exchange e-mail and calendar software. There is already an Office-compatible application for Nokia handsets, known as “Quickoffice,” but it lacks functionality compared with official Microsoft-developed apps.Quickoffice seemed to sense the writing was on the wall on Wednesday. The developer’s Web site offered visitors a 50% discount on all purchases-for one day only.From Nokia’s point of view, getting Microsoft on board will no doubt be a differentiator, especially for its BlackBerry-esque E-Series handsets. But will it be a game changer? Alandsbanken analyst Lars Soderfjell doesn’t think so. “I can probably count on the fingers of one hand the amount of times I’ve opened a Microsoft Word or Excel file on my mobile,” said Soderfjell, a user of Quickoffice.
CCS Insight analyst Geoff Blaber said it was an “incremental” development, but not a big draw for Nokia.The alliance is probably on balance better for Microsoft, which has failed to make much headway with its own Windows Mobile operating system. Although the software company’s head of Business, Stephen Elop, sought to scotch any claim it might be abandoning “WinMo,” Microsoft is clearly looking for ways to get a bigger share of mobile users. This is the third alliance in almost as many weeks for Microsoft, which announced the terms of a proposed tie-up with Yahoo!
last month, quickly followed by a five-year digital advertising partnership with Publicis Groupe of France and now Nokia.

Applied Materials Weathers Storm – US-FOREX.US

Forex-Publisher — Mon, 10 Aug 2009 20:46:30 +0000

Investors have accepted that 2009 isn’t the year for Applied Materials, making Tuesday’s fiscal-third quarter report an assessment of how well the semiconductor equipment maker has handled the downturn and positioned itself for the future.
In June, Applied Materials
‘ chief executive Mike Splinter warned of more failures in the industry as the number of customers declines. Splinter said that chipmakers are working together to survive weak demand and high development costs, but no such cooperation is occurring among equipment makers like Applied Materials. Splinter said acquisitions in the chip-gear sector are very difficult to conduct, leaving few options for consolidation, other than a company’s outright failure.
Wall Street expects the company to report a loss of 8 cents per share on Tuesday, well off its 14 cents profit recorded in last year’s corresponding period. Since the beginning of the year the company’s market value has risen 32.8%. Peers such as Novellus Systems
and Lam Research
have risen 45.4%, and 36.0%, respectively, over the same period. Meanwhile, the semiconductor industry, as measured by the SPDR S&P Semiconductor
ETF, has gained 56.1%, while the broader Technology SPDR
ETF has risen 27.4%.
The year got off to a rough start. Back in February, Applied Materials reported its first loss in more than five years, thanks to declining semiconductor demand and continued weakness in credit markets. The company also didn’t provide guidance for the rest of the year, only to say sales were expected to fall across its businesses.
Despite the bleak outlook, the company continued to push into the solar energy business. Applied Materials has already moved aggressively into the space over the past three years, but in an interview with Forbes earlier this year, Splinter talked about how he wanted more.

IPhone No Magic Bullet For T-Mobile U.K. – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 16:46:15 +0000

Just how badly do network operators need the Apple iPhone to grow in Britain? O2 is the only operator to offer the in-demand handset, and its second-quarter customer additions were strong – 252,268 – at a time when rivals T-Mobile and Vodafone are actually losing customers. T-Mobile especially is feeling the pressure after parent company Deutsche Telekom sent in new management in June to shake up the unit. But even if O2’s exclusivity runs out, don’t expect T-Mobile to suddenly reap the benefit.The problem is that getting hold of the iPhone might not be quite as crucial for operators now as it was in 2007 or 2008, especially as competition in the touch-screen field has increased since then, while the state of the economy has markedly deteriorated. “The iconic status and must-have status of the iPhone is waning right now,” says Peter Boyland, an analyst with IHS Global Insight, adding that take-up of the latest 3G S model seems to have been “average.”So even though linking up with Apple
would certainly help T-Mobile add customers, while breaking O2’s hold on the product, it would not magically change its number four position in a market of five operators. The challenge lies more in the crowded nature of the British market, particularly at a time when consumers are keen to find the best deal possible. Undercutting is rife: France Telecom
subsidiary Orange on Thursday announced a mobile broadband contract for five pounds a month, the cheapest yet. And T-Mobile is also very exposed to the prepay market, which is more volatile than contract business: Boyland says 70% of the operator’s customers are on prepay, compared with just over 50% at Vodafone
and 60% at Orange.When asked if T-Mobile’s new chief, Richard Moat, would try to remedy this, the operator’s head of corporate affairs, Robin O’Kelly, told Forbes: “We are likely to proportionally grow contract more than prepay … They tend to bring higher average revenues per user.”Kelly would not comment directly on rumors that T-Mobile could end up selling out to a rival like Vodafone but said that Moat was focusing instead on bringing “organic growth.” He said that Moat would unveil his turnaround plan in mid-September, along with any financial targets.
So unless Moat can pull some special rabbits out of the company’s hat, it looks like the name of the game will be defensive cost-cutting and stabilization for the time being. Gaining the iPhone, if it comes about, will shake things up for the Deutsche Telekom
unit, but not dramatically.

Chinas Largesse Helps Lenovo – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 06:46:12 +0000

HONG KONG -
Because half of the low-priced computers sold in China’s rural areas carried Lenovo’s label, the world’s fourth-largest computer maker managed to trim its losses in the quarter ending in June.
Lenovo
reported Thursday a net loss of 16 million for the three months through June, down from a profit of 110.5 million from the same period last year. The figure, the company’s third straight quarterly loss, was better than the market forecast of a 54 million loss, and was better than the previous quarter’s 264 million loss. Total revenue dropped 18% to 3.5 billion during the quarter from 4.2 billion in the previous year, as the average sales price continued falling. But the lower prices helped Lenovo increase unit sales and grow its market share in China. The computer maker said it was under severe pricing pressure from cut-throat competition amidst weak market demand. Lenovo had been relying on big orders from corporate clients since it acquired its laptop unit from IBM
in 2004. But with corporate sales falling as companies cut IT budgets, Lenovo shifted strategies, and has been focusing on individual clients in China and other emerging markets after a restructuring in April.
To carry out its expansion in China, Lenovo in February said good-bye to its well-regarded American CEO Bill Amelio, a former Dell
executive who led a broad restructuring of Lenovo’s worldwide operations. His replacement was Yang Yuanqing.
Thanks to the restructuring and the new business strategy, China was the only area that contributed positive earnings to the group’s consolidated account in the April-June quarter. The Chinese market accounted for approximately 48% of Lenovo’s group sales, and the personal computer market in China posted 14% year-on-year growth during the quarter, Lenovo announced Thursday. Lenovo’s unit shipments to China grew 15% in the quarter and its market share rose by 0.3 percentage points to about 28.6% based on industry estimates. Lenovo is the top seller in China. Lenovo’s growth in China was helped by the Chinese government’s stimulus package. In early January, the central government revealed details of its 4 trillion yuan hand-out. Under a subsidy program aimed at boosting consumption in rural districts, the government rolled out a 13% subsidy for farmers in 12 provinces who buy home appliances such as TVs, refrigerators and personal computers. Lenovo has been the biggest beneficiary of the four authorized computer brands entitled to the subsidies. According to a market survey, almost half of all computers sold to rural farmers in the first six months of this year were from Lenovo. Even though the worldwide personal computer market showed signs of improvement, Lenovo forecast the operating environment would continue to be challenging for the 2009/2010 fiscal year because the global economy remains uncertain and corporate customers are still conservative about PC spending. “In addition, the ongoing shift of product mix toward entry-level PCs also exerts pressure on Lenovo’s operation,” Lenovo said in a statement. The Chinese computer maker pledged to continue to invest in the China market to further expand its leadership and profitability. “The market offers good growth opportunities for the Group with the government’s economic stimulus program, rural PC subsidy program, urban PC upgrade program, 3G adoption, etc. The Group will enhance its distribution network to cater for these new growth drivers,” it added.
Thomson Reuters contributed to this article.

Analysts Split On Nvidia – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 22:46:22 +0000

A year ago, Nvidia was the comeback kid. The maker of graphics processing microchips transformed itself from habitual laggard in the industry’s undercard rivalry into a premier designer of circuitry, poised to challenge Intel and Advanced Micro Devices, the reigning champions of chipmaking. But when you’re a contender, you’re also a target, and this is an industry in which the product gets an overhaul every six months and a customers’ loyalty lasts about as long. Analysts are split on how well Nvidia is living up to its promises.The chips Nvidia
makes don’t run your home computer, but they do make possible the dazzling pictures you see if you’re watching a high-definition movie or playing the latest photorealistic videogame. While most personal computers come with cheap, and inferior, graphics chips embedded in them, avid gamers, 3-D artists and other users who need ultra-rich picture, opt to pay several hundred dollars for a graphics card like Nvidia’s. These special circuits relieve your computer’s microprocessor, the central processing unit, from the numbingly repetitive but mathematically taxing duties of drawing complex images on your monitor 60 times a second.Graphics has long been the sideshow to chipmaking’s main event—the endless war of attrition between CPU makers Intel
and Advanced Micro Devices
. That is, until the rate of improvement in CPUs slowed down dramatically for reasons of physics. That led people to think about graphics chips that might be used for more than just rendering images on your screen and Nvidia’s products emerged from the wiring wilderness inside your computer. Now Nvidia is pushing its chips into new markets like scientific computing, crunching data for oil companies and pricing financial products for banks. .Nvidia reports earnings for the second quarter on Friday afternoon and shareholders will be paying particular attention to how well-received the company’s new products are. One wrong move can sink a firm like Nvidia: witness the fate of longtime rival ATI which misfired with its 2007 chips and had to sell out to AMD, turning the giant CPU firm into Nvidia’s fiercest rival.Barclays analyst Tim Luke writes that Nvidia’s sales are likely ahead of what Wall Street is estimating and the firm is earning more on those sales. Shipments of graphics chips probably grew 26% in the second quarter. Luke believes the company lost a penny per share between April and July and will earn 52 cents a share this year. That’s well above the analyst consensus of 41 cents a share. But Luke worries about competition and slaps Nvidia with a neutral rating and a price target of 15, compared to its 13.40 closing price Wednesday.Doug Freedman, analyst at Broadpoint AmTech, is more bullish. He thinks the firm may well beat his estimates of a penny per share in profit and 717 million in sales and will probably forecasts better results for the current quarter. Higher margins are coming, too, and Freedman likes the company’s long-term focus. However, the competition in chips is brutal. Nvidia’s cell phone chip, the Tegra, still needs to score big in the smart phone market to succeed, says Freedman. Investors should also pay close attention to what Nvidia management tells them about its loss of market share and plans for specialized chips for different kinds of customers. Freedman rates the stock a buy.

Alcatel-Lucent Turns First Ever Profit – US-FOREX.US

Forex-Publisher — Thu, 30 Jul 2009 23:45:19 +0000

When France’s Alcatel bought America’s Lucent Technologies in 2006 for 13 billion, bringing together a fixed-line pro and a wireless champion, the deal seemed to make business sense. So far the opposite has been true: Alcatel-Lucent’s mounting losses since then have sent the network supplier’s stock down 80% and led to a management shake-up, with Ben Verwaayen picked as the new boss last year. But Thursday marked a milestone for Alcatel-Lucent
, when Verwaayen was able to announce a first-ever quarterly net profit of 2 million euros , or one euro cent per share. There won’t be much champagne poured, though, given that the net profit is set to disappear as quickly as it arrived. Alcatel was unprofitable at an operating level, and was only boosted by one-off gains including the sale of its stake in defence firm Thales
.”[A net loss next quarter] is fairly certain,” said Nicolas von Stackelberg, an analyst with Oppenheim. He said that when excluding the one-off gains for the second quarter, which gave Alcatel an after-tax boost of 277 million euros , the company suffered a loss of 11 euro cents per share-or exactly what analysts had forecast. Investors found some hope in the results, however: Shares of Alcatel-Lucent soared 6.6%, or 12 euro cents , to 1.92 euros , during afternoon trading in Paris. CEO Ben Verwaayen’s outlook statement said that the company still expected to break even on an “adjusted” operating profit level, which excludes the impact of the declining value of assets acquired from the Lucent takeover.Lucent’s wireless expertise was based mainly in CDMA, or code division multiple access, a type of network technology that has not delivered huge growth outside of the United States or key Asian markets. China’s Huawei has also turned up the competitive pressure on Alcatel-Lucent in this technology. Alcatel’s plan for the future lies mainly in cutting more costs, and earlier this month the company said it planned to slash an extra 850 jobs in France over the next two years. Last month, Alcatel announced a 10-year outsourcing deal with Hewlett-Packard
, which will see about 1,000 workers transferred to HP.

Yahoo Stock Falls – US-FOREX.US

Forex-Publisher — Thu, 30 Jul 2009 23:44:49 +0000

A night’s sleep wasn’t enough to calm Yahoo! investors unhappy with the terms of its deal with Microsoft.After sinking 12.1% on Wednesday, Yahoo!
shares felllittle further on Thursday, pulling the poster-child of the 1990s Dotcom boom to 14.43 by midday trading, 16.2% down from its Tuesday close.”Investors are clearly disappointed with the terms of the deal,” said Todd Greenwald, an analyst at Signal Hill Group. Meanwhile, things were fine in Redmond, Wash., where Microsoft
enjoyed a upwards push of 1.2%. On Wednesday, Yahoo! and Microsoft announced a 10-year deal where Yahoo! would adopt the MS Bing search engine, while Microsoft would be in charge of the global selling of premium search advertising for both companies. The deal will, at least initially, bring in 500 million in annual operating income and save Yahoo! 200 million in capital expenditures. The problem with that is Yahoo!’s investors thought they it would pick up 2 billion or more up front for its search business. Steve Ballmer, Microsoft’s chief executive, said nothing like that could never happen. The deal can be seen as desperate. And why not? The former rivals and wopuld-be merger partners have both lost considerable ground to Google
for one simple reason: they’re not as good. These problems have also contributed to the expired shelf-life of their brands, being passed by, of course, Google, and others like Apple
in the vital game of being viewed as fresh and cutting-edge.It was also desperation, or something like it, that led Microsoft in tried to purchase Yahoo!, the search-world’s distant second-place runner, in an astounding 44.6 billion hostile takeover last year. It didn’t work out, but not before the notorious Carl Icahn got involved, eventually leading to the ouster of Yahoo! founder and chief executive Jerry Yang.
Thursday saw financial advisory firm Collins Stewart cut its price target to 18.50 from 20, though maintained its “buy” rating. Incidentally, Microsoft also announced on Thursday that it’s collaborating with comScore to develop a digital media planning product called Reach and Frequency Planner, which is supposed to allow brand advertisers to predict reach, frequency and audience composition at the ad placement level.

Sleek SAP Is Primed For Recovery – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 17:46:09 +0000

When the economy recovers, some companies will come back with a bang and others will arrive with a calm “hello.” SAP seems content to go with the latter. The world’s biggest maker of business software surprised the market on Wednesday when it showed just how well it had done to keep a lid on costs in the midst of the recession: its operating margin for the second quarter came in at 27.7%, versus the 24.4% expected by analysts, compensating for a 40% slide in software sales. SAP’s American-Depository Receipts ticked up 0.8%, or 35 cents to 44.84 in New York on Wednesday morning. Its ADRs have risen by 8.30, or 23% since start of 2009. Yet for all the good SAP is doing with cutting costs, does have what it takes to revive sales? Jochen Klusmann, head of equity research at BHF Bank, thinks it does, and that SAP’s shares have further to climb. He raised his price target for the company’s Frankfurt-listed shares on Wednesday to 35 euros from 32 euros , after seeing the latest figures, and thinks SAP is making “great progress” in cost-cutting. The firm has already cut around 2,800 of the 3,000 jobs it had planned to remove this year. As, expected, most of those cuts have been in sales and marketing, leaving the company’s research and development division relatively sheltered. That should allow SAP
to launch innovative products once the economy recovers, but the job cuts also don’t herald a difficult recovery in sales. “The sales execution at SAP has historically been excellent,” said Rajeev Bahl, a senior research analyst at Piper Jaffray. In difficult economic times, such as from 2001 to 2003, SAP was able to protect its earnings growth through cost cutting, and then “were able to recover revenue growth quite quickly.” Still, that may only be small comfort to investors when comparing SAP’s 40% drop in software license sales with Oracle’s, which have only fallen by 13% in the corresponding period. When announcing its results on June 23, Oracle’s president, Charles Philips, said his company had taken market share from SAP “in every region around the world,” with its software business growing 5% in Europe while SAP’s contracted by 27%. Klusmann agrees that SAP has had a harder time than Oracle in keeping up sales during the recession. “Up until 2007, SAP has been gaining at the expense of Oracle
. But in the last two to three quarters, that has turned around,” he said.
Meanwhile, Oracle has a flashy new software product in the works, Fusion, which comes out next year and will link together the handful of different technologies the company has taken on through acquisitions in the last few years including PeopleSoft and Sun Microsystems. Fusion will essentially act as a successor to its existing products and, hopefully for Oracle, convince the thousands of customers it has taken on through acquisition to stick around. But Klusmann doesn’t see Fusion as being a big challenge to SAP. Rather than translate into substantial new business for Oracle, he believes the new software will only help maintain a steady flow of high-margin maintenance contracts for the company and compensate for the 30 billion or so that it has spent on acquisitions in the last few years. Fusion, he suspects, is also “not a visionary new product.” While Oracle has a bigger R&D team overall than SAP, only about a quarter of it is focused on business applications; pound for pound, SAP appears to have been putting more money into software applications research than Oracle anyway. Even if Fusion turns out to be the big new product that Oracle’s customers really want, it will be difficult to dent SAP’s 25-30% share of the global market for business software. Oracle still trails with half that, leaving about 60% of the market to capture from other players, either organically or through acquisitions. That’s where SAP could come in to play Oracle’s acquisition game. SAP’s chief executive, Leo Apotheker, was quoted as saying Wednesday that his company may spend as much as 5 billion euros on acquisitions to win market share from competitors. in cash on its books as of June 30, so asset sales or share swaps may be in the cards.) The tech industry has been awash with speculation in the last few days that that International Business Machines’
1.2 billion purchase of software maker SPSS will spark a wave of merger and acquisition activity in the software and computer sector. If SAP wants to fill its gap in banking software, some good targets might be British software company Misys, which produces the Midas software system used by lenders, and Teminos of Switzerland. But don’t expect SAP to make any big moves in that direction till around next year-its focus is still on keeping lean and mean.