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Wednesday, March 3, 2004

Web services downgrade for SAP

Analysts at London-based broker Dresdner Kleinwort Wasserstein have downgraded SAP stock because of web services. They reiterated a "sell" rating on SAP AG (SAPG.F) today, citing a price target 10 percent below the current market price.

"According to Dresdner Kleinwort Wasserstein's research note published this morning, one of the core markets for SAP in the long term is web services-based composite applications," reports online information site New Ratings. "The analysts mention that new applications are likely to provide limited revenue growth opportunities for SAP in the long term, given that these applications need to be highly commoditized and standardized."

What's notable about this succinct view of SAP's prospects is that it's been published by a team of financial analysts. When something that technology analysts have been saying for some time suddenly crosses over to become a credible viewpoint in the financial markets, it's a sure sign that it's starting to enter mainstream thinking. This is not good news for holders of SAP stock. But it's a realistic assessment of the increased competition SAP and its rivals are going to face once web services standardization takes hold of the enterprise software market.

I'm no financial analyst, but a 10 percent drop looks like a conservative prediction to me. As I've said before, "none of the big guys can see (or frankly even dare contemplate) the margin-destroying dynamics of the business model that web services is introducing to the software industry." Now that DKW analysts have drawn attention to this trend, it's only a matter of time before the true implications begin to sink in.

posted by Phil Wainewright 10:50 AM (GMT) | comments | link

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