Hot Topic: Enterprise Applications review 2003

During December most people take stock of the past year and look forward to the next year. The news media runs through the events of the year; sports shows do the same. Even though the final results are not yet in, let's review 2003 for Enterprise Applications and look forward to what we might expect in 2004.

For the calendar year 2003, the worldwide market as a whole will see revenues about the same level as 2002 - i.e. zero growth. But if you remove SAP, the market will decline by about 9%. In Europe, the market (measured in euros) will decline by about 3.5%. This compares with a fall of around 3% for 2002. However, excluding SAP, the European market will have fallen by around 2.5%, a massive improvement on the 16% fall in 2002.

Cambashi's short term model projects forward using analyst consensus estimates, while the medium term model uses econometric data for its forecasts. The short term forecast is that Q4 2003 will be cautiously optimistic for the Enterprise Applications market. The market in EMEA as a whole will be about the same level as Q4 2002, but removing SAP from the figures would give a 9% growth (see figure 1). It is also worth remembering that the change in exchange rates between the dollar and the euro means that the downturn in the market in Europe has lasted much longer than it would appear if the figures were viewed in dollars (see figure 2).

The year started with uncertainty over Iraq and the announcement of reduced revenues by some of the major companies in the sector. It has ended with continued uncertainty over Oracle's proposed deal for PeopleSoft and a number of other takeover deals and mergers. For Q4 2003, vendors have set revenue expectations that can and will be met. However, this still means that 2003 revenues will be lower than 2002 revenues in many cases, but since costs have also been cut, losses have been stemmed even on reduced revenues. This does mean there will have been a further decline in the overall market, but the outlook is a lot rosier than it was this time last year. The bulk of 2003 has been a hard slog for most vendors as companies have become more careful with their money, and IT investments vie with other capital expenditure for a decreasing pot of investment cash.

On the face of it, things may look bleak. However, like a mid-winter garden, although the trees are bare and plants look dead, the tips of the daffodil bulbs are just starting to poke through. All signs point towards 2003 as the bottom of the curve - the flurry of acquisitions from SSA, PeopleSoft, GEAC and others suggests that many of the industry's business leaders believe the market has reached the bottom and that it is a good time to buy. Econometric data from PwC suggests positive growth in both GDP and Investment for the major European economies in 2004, after minimal GDP growth and Investment decline in the Euro zone for 2003.

The good news is that 2004 looks much more positive and 2005 potentially a great year. Based on our medium term econometric model, we are predicting a small level of growth for the Enterprise Applications market in 2004 (see the feature article below). Companies will still be careful with their investments, but they will spend money to support their key business initiatives.

Dan Roberts

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