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August 5, 2008

Q&A with Karl-Heinz Streibich, CEO, Software AG

Software AG's second quarter results announced on July 23 reveal that the business infrastructure provider has hit its growth targets, despite turbulent business conditions. CEO Karl-Heinz Streibich explains the importance of the webMethods acquisition last year to its continued success and its plans for expanding the business further.

By Janine Milne

Q. Consolidated revenue is up 18% and you’ve hit your targets. Are you happy with your second quarter results?

A. We’re very happy with the results and we have made good improvements to the previous quarter as well as to last year. We have made a big step forward in the integration of webMethods which has improved our profitability as well as our prospects for the future.

Q. You’ve stated that you want to be a top 10 global software player. How has the acquisition of webMethods helped you in that aim?

A. We have a very successful product line called ETS (Enterprise Transaction Systems) and were looking for a second project line and growth opportunity. The webMethods product line helps to modernise and automate the processes of customers that have installed other products. So we now have a product line that helps to improve the existing customer base and it gave us a tremendous growth potential in ETS too.

We have been successful in the major part of integrating the two companies and in large countries 80% of the businesses are fully integrated, but there will be a long tail to the integration with countries which are smaller.

With webMethods we found a company that had exactly the same strategy as we had, focusing on SOA and BPM and they had already developed a market-leading product.

But we did not have a significant product overlap because webMethods had been strong in areas in areas we had been weak, so it had BPM whereas we re-sold Fujitsu BPM and we did not have an integration server, so the product portfolio of webMethods has played a dominate role in our recent growth.

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Q. How important was it that webMethods was strong in the US market?

A. We had been fairly strong in the US before the acquisition and it represented about 30% of our business and it represents about 40% now. Being strong in the US is absolutely key because it is a huge market of 340 million consumers. It is the highest developed consumer market band the biggest one and there’s huge market potential.

Q. Are more acquisitions part of your strategy?

A. Acquisitions are a very important growth strategy for us and one of our four growth drivers. The first is innovation, the second is globalisation, the third is partners, which help us extend our reach into vertical markets and then there’s mergers and acquisitions. So we always have a number of companies on our radar screen that are relevant for acquisition, however, with an acquisition like webMethods you cannot plan. This is a rare opportunity and you are either fit or you aren’t, so we work at keeping fit in our market so that we are very well prepared in case there’s an opportunity for a new acquisition.

Q. How are you going to take on the bigger software players in your market and what marks you out from the competition?

A. Our potential is huge and what we have to do is focus on the combined unique features of the propositions we have, for example, we’re only second to IBM in having mainframe knowhow as well as web services knowhow. Secondly, we have a true customer base of 3,000 enterprises worldwide and none of the mid-sized companies can say that. Thirdly, we have a culture where we are brutally open and focus on customer requirements and that makes us more agile, more flexible and more sensible to customer needs compared with the big companies. And we are much faster than them – when we see a trend we go for it.

Q. Have you seen any effect yet from the uncertain economic situation in the US, UK and elsewhere?

A. Analysts expect the market must have a breakdown or reduction in business, but we do not see that. However, I believe it will become more difficult to predict what happens one, two, three or four quarters ahead. But we believe our own ability to deliver our own ability to sell is by far the major reason for success rather than local situations.

We have a counter-cyclic product. For example, with BPM, we optimise the process to reduce process cost and make processes more flexible and this is something customers look for when there is a downturn in the economy. Another point is that we help modernise rather than replace. Replacement costs tenfold what modernisation costs, which is also something in our favour.

Q. Do you believe there will be consolidation in the SOA/BPM market?

A. Sure there’s lots of consolidation and we are also consolidators. We’ve bought five companies in last three or four years and we are secure from hostile takeover thanks to a private foundation which owns 30% of our shares. So SoftwareAG has three unique conditions: the huge customer base, our luck with buying WebMethods, and third is definitely that we are secure from hostile takeovers because of the foundation.

Q. So what’s the strategy for the coming year?

A. Keep on doing what we’re doing, do it better and grow. I believe continuity is one of our key success factors. This is my 20th quarter review and we have achieved every single forecast in every single quarter. How do we do that? We are brutally open in analysing our weak points and we try to correct them and try to be fast at correcting them. We are a constantly changing company and we don’t accept that a problem cannot be solved. You can expect more growth this year because our projection is that we have 24-27% growth this year and we are looking for another successful quarter.

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