SAP identifies a fruitful market

Key innovation areas include computing via the cloud, mobile and HANA

SAP AG, the world's largest business-management software provider, expects China to become one of its top five markets globally in terms of revenue in the next two to three years as its growth in the country hits a record high, corporate executives said.

"China is no longer a small market for SAP. It is a very material part of our business," said Stephen Watts, president of SAP, Asia-Pacific Japan. As the market size continues to grow, China is the most important market strategically and it will be bigger than North America in the coming years, he added.

The growth rate of SAP's China business hit 17 percent on a four-year basis, making the market register about a quarter of the company's revenue in the Asia-Pacific region by the end of last year, according to the company.

The fastest growing market in the Asia-Pacific region was Japan, with an annual growth rate of 31 percent.

Watts predicted China is set to be a market that has more potential as the government plans to arm the nation with advanced information technology.

By 2014, China will become the world's largest information technology spender, overtaking Japan, said Watts.

The company, based in Walldorf, Germany, said on Jan 23 its operating profit in 2012 increased by 11 percent year-on-year to 5.21 billion euros ($7 billion), slightly missing the company's forecast of 5.25 billion euros.

SAP said its "continued investments in key innovations" and global expansion activities dragged down profits. Its key innovation areas, including cloud computing, mobility and the flagship product SAP HANA, delivered "exceptional growth" globally, it added.

SAP predicted its annual operating profit could rise to 5.85 billion euros ($7.86 billion) to 5.95 billion euros in 2013, boosted by growing demand in emerging markets such as China.

China is the "most strategic" market for SAP globally. The company will continue to invest in the nation to guarantee future growth, said Watts.

In November 2011, the company announced it will invest at least $2 billion in China by 2015 to keep its competitive edge and fund innovation.

SAP recruited more than 1,000 employees in China to beef up its marketing and support teams last year. The company now has more than 4,000 employees in the country.

Alex Atzberger, head of its China strategy and growth plan, said "several hundred" people will be recruited this year to beef up the company's sales and services, especially in smaller cities.

"Looking ahead in 2013, we will have more opportunities in industries including urbanization, transportation and food safety, where SAP is ready to provide enterprise software solutions," said Atzberger.

Currently, about 50 to 60 percent of the software revenues were generated by State-owned enterprises but Watts also expects privately owned firms in the economically developed east coast regions to generate more profits for SAP in the coming quarters.

"If you were a betting person, I think you should probably put a little money on the SOEs," said Watts.

In the meantime, he also stressed if SAP could continue to build scale and channels for customers in east coast regions, the scale of revenues generated from privately owned companies could be as big as that from SOEs.

"SAP has seen rapid growth in China over the years as more Chinese companies started to embrace new technology to boost operating efficiency," said Gene Cao, a senior analyst at Forrester Market Advisory Co Ltd.

With continuous investment in China and localization speeding up, SAP's performance in China this year could be better, Cao said.

Global spending on enterprise software may jump by 6.4 percent to $296 billion this year, faster than the 3.3 percent growth pace recorded in 2012, Bloomberg News reported, citing research company Gartner Inc.

Researchers also raised the overall estimate of spending on information technology, saying that uncertainty regarding an upturn in the world economy is "nearing resolution", it added.