As corporate IT spending stagnates, enterprises are focusing on implementing back-end solutions.
Over the last few months, the downturn across all sectors has led to a reduction in IT investment as businesses seek to cut costs. At the same time, firms are tiring of IT vendors’ failure to deliver on promises, having frequently embarked on projects that take three times longer than predicted to achieve a return on investment and cost far more than expected.
Firms with flash and funky front-end solutions intended to bring in new customers and generate revenue have been hit hard. Broadvision saw its sales down 40% in Q2 2001 compared with 2000. Enterprises are focusing their investments on back-end and integration solutions that can help them cut costs, save time and streamline business processes.
SAP is a major beneficiary of this trend, with forecast revenue growth of more than 20% for 2001 (23% for the first nine months). The German-based firm has 50% of its business in Europe, and so has been less affected by the market downturn than its US competitors.
It now plans a $368 million share buyback. While other vendors have gone through the buyback process to boost their ailing share prices, SAP’s move seems to be a show of confidence. The buyback will allow the company to take advantage of its depressed share price to strengthen its finances for the future, funding stock option plans – and potentially acquisitions, though the market will have to wait and see how SAP’s strategy unfolds.
SAP’s European focus is likely to reduce its exposure to the effects of terror attacks on the US in September. It had already forecasted a slower Q4, and admits that the atrocities make it hard to say how much the market will slow down. But this feeling is rippling throughout all market sectors – no one is quite sure what the future holds.
