That company that's supposed to be buying SAP isn't doing so well

by Scott Priest, Editorial Director, Financials & GRC

May 17, 2011

It seems that everyone in the ERP/tech space with access to a blogging tool has been speculating that HP would be buying SAP some time soon. And with former SAP CEO Leo Apotheker now at HP, and the Mark Hurd scandal, with Hurd landing at Oracle, there is something cinematic about such a prediction.

Which makes it all the more amusing that you can read virtually endless content online being produced live from SAPPHIRE NOW about how exciting the future is for SAP (including our own blog posts here, here, and here), HP is receiving negative press for disappointing financ ial results.

HP's revised expectations were all well below Wall Street's forecasts, and shares of HP fell by more than 7%.

The company said it is "working around the clock" to minimize the impact felt by the crisis in Japan, but HP still expects to take a $700 million hit to sales over the next six months. The big blow is due to reduced Japanese demand as well as supply constraints that have affected the entire tech industry.

Virtually every company was affected by the earthquake and tsunamis in Japan, but HP's problems don't end there. Their services group has been struggling as compared to expectations, and is in the process of being reorganized.

"HP has a solid strategy for services, but we haven't invested in the parts necessary for long-term success," said Léo Apotheker, HP's CEO, on a conference call with investment analysts. "As a result, our short-term margin expectations have been too high. That underinvestment has impacted our ability for sustainable growth in the long term."

Now, all these issues don't preclude HP from making a big purchase to curry favor with investors and the greater IT market. I'm no M&A expert, and we've seen companies try to buy their way out of problems before. SAP itself has in recent years gone through two major acquisitions -- BusinessObjects and Sybase -- that were at least in part based on improving their reputation (and filling in holes in their functionality). 

But SAP is a pretty sizeable company in its own right, and, if you've been following SAPPHIRE NOW at all, it appears to have a direction with passionate leaders at the helm. That they'd sell to a struggling competitor run by a short-lived (and poorly performing) former CEO seems even less likely now than it has all along.

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Dave Hannon

9/25/2013 8:55:05 PM

Just to chime in, here's Barclay's take on HP's problems from today's investor note from Barclay's:
"We believe HP’s services division is likely to remain challenged with no visibility to when we could see tangible results from increased investments. Given today’s disclosures and execution issues that surfaced last quarter, it is clear that the business has significant work ahead even after announcing several restructurings...Now it is clear to us this restructuring was a bit telling of some of the issues that HP’s acquisition of EDS now faces."

Sarah Cenedella

9/25/2013 8:55:05 PM

Wallask is, in fact, drunk on SAP. He is a SAPaholic.

Scott Wallask

9/25/2013 8:55:05 PM

Good blog post. Sitting here at Sapphire Now, I must admit that reading the "here, here, snd here" links above made me wonder whether, in fact, I had gulped the SAP champagne. There is definitely a "Yay SAP!" feeling here in Orlando that would never allow the company to reveal its poker hand if, in fact, it was entertaining an offer.