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Would SAP AG (ADR) (SAP) Steal Database Market Share From Oracle Corporation (ORCL)?

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Back in 2011, SAP AG (ADR) (NYSE:SAP) told the market it planned to be the second largest database vendor by 2015. These words were received with skepticism. However, it seems now that SAP stands behind its words. The company reported that it has more than 1,500 users of its HANA database, up from 1,300 in the previous quarter. The company is expecting HANA to generate $850 million-$925 million in revenue this year. This is a 66% growth in revenue in comparison with the previous year. Can SAP continue the momentum?


The battleground

SAP AG (ADR) (NYSE:SAP) is still not a major player in the database field. First place belongs to Oracle Corporation (NASDAQ:ORCL) with its famous Oracle Database, followed by International Business Machines Corp. (NYSE:IBM) with DB2, and Microsoft Corporation (NASDAQ:MSFT) with SQL Server. Berenberg’s analyst, Daud Khan, stated that if SAP’s HANA is a success, he estimates its database market share to rise to between 15%-20% from the current low single-digits. Meanwhile, he downgraded Oracle, stating that the company would be the main loser if SAP succeeds.

Oracle Database is believed to be the most sophisticated product in the market, along with IBM’s DB2. However, this sophistication comes at a price. The databases are pricey and not easy to implement. Additionally, specialists needed to run these databases after they are implemented receive higher salaries than employees who specialize in Microsoft or SAP AG (ADR) (NYSE:SAP) solutions. In the current environment of shrinking IT budgets, being cheaper is an extremely important selling point.

Microsoft Corporation (NASDAQ:MSFT) is doing well with its SQL Server, too. While huge firms that implemented IBM or Oracle Corporation (NASDAQ:ORCL) solutions may be reluctant to give up on them after so much spending, small and mid-sized companies would actively search for attractive solutions. That’s where Microsoft and SAP could step in.

The impact

For SAP AG (ADR) (NYSE:SAP), database is a prospect market. For Oracle Corporation (NASDAQ:ORCL), it is the main market and its database is the flagship product. Oracle gets more than 34% of its revenue from the database segment. If its market share shrinks, this would severely impact the company’s earnings. One can expect Oracle Corporation (NASDAQ:ORCL) to make some moves to protect its market share. It is possible that the company may have to reduce pricing, as more and more customers count their pennies.

SAP AG (ADR) (NYSE:SAP)’s HANA has yet to achieve a 5% share in the company’s revenue. If current growth rates persist, this would change and the database market would become increasingly important for SAP. Microsoft and IBM receive roughly 5% of revenue from databases. Microsoft has demonstrated good dynamics on all major business segments this year, so you can expect the database segment to grow as well. International Business Machines Corp. (NYSE:IBM)’s share looks stable at this time, but nobody knows what’s around the corner.

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