) and Oracle (
) are the two biggest players in the enterprise application
software market. SAP mainly sells application software solutions,
while Oracle's business is much more diversified, including
database software and middleware along with customer-facing
applications. Having acquired Sun Microsystems last year, Oracle is
now in the hardware business as well, selling servers and storage
products loaded with its own software.
We estimate that SAP's applications software business is worth
about $62 billion, versus $45 billion for Oracle's application
software business. Our analysis follows below.
Application software primer
SAP and Oracle compete in several business software application
segments, including enterprise resource planning (ERP), customer
relationship management (
), business intelligence (BI) and supply chain management (SCM).
Here's a quick guide for the uninitiated:
used to integrate an organization's data and processes into
single system. For example, a bank might use ERP software
to integrate its credit card and savings account systems.
helps companies manage sales information such as leads,
transaction history and communication history. Companies also use
CRM apps to acquire and retain customers and gain marketing
enable companies to make better decisions by identifying cost
savings and growth opportunities.
tracks raw materials, work-in-process inventory, and finished
goods from point of origin to point of consumption.
Oracle vs. SAP
We estimate that the application software business constitutes
around 25% of the
$35 Trefis price estimate for Oracle's stock
. We expect Oracle's new application software license revenues to
increase from $2 billion in 2009 to around $2.8 billion by the end
of the Trefis forecast period. You can drag the trend-line in the
chart below to create your own application licensing revenue
forecast for Oracle and see how it impacts the company's estimated
Oracle earns significantly more revenues from support and
license renewals. We estimate that Oracle will earn around $6.2
billion from support and license renewals in 2016, the last
year of the Trefis forecast period.
As shown in the table below, we expect that SAP's revenues will
be more than twice the size of Oracle's by the end of the Trefis
forecast period. However, we expect SAP's gross profit margins to
lag Oracle's margins significantly. As a result, our projected
valuation of SAP is only about 27% higher than our valuation of
Application Software business (2016
SAP leads Oracle in terms of market share
Market Share (2016 projections)
As you can see in the table above, we expect SAP's market share
to exceed Oracle's in each of the four main enterprise application
categories by the end of our forecast period. ERP software is SAP's
most valuable business, contributing around 39% to the
$52 Trefis stock price estimate
. However, we expect SAP's ERP market share to decline from 26% in
2009 to 24% by 2016.
You can see the complete $52 Trefis Price
estimate for SAP's stock here
You can see the complete $35 Trefis Price
estimate for Oracle's stock here.