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Summary:

SAP says it is buying Sybase for $5.8 billion or roughly $65 a share. The deal highlights the growing importance of the mobile Internet & how smartphones are becoming the all important remote terminals of today’s modern enterprise, in the process supplanting the PCs.

SAP, the big German enterprise software company based in Walldorf, Germany, says it’s buying Dublin, Calif.-based database and enterprise software provider Sybase for $5.8 billion, or roughly $65 a share, a 44 percent premium over Sybase’s average three-month share price. According to terms of the deal, Sybase is going to operate as a standalone company. SAP is funding the deal with cash on hand and a 2.74 billion-euro ($3.44 billion) loan.

The deal, which is surely going to get Oracle CEO and Founder Larry Ellison cracking a few jokes, highlights the growing importance of the mobile Internet and modern enterprise, in the process supplanting the PC.

And despite its hefty price tag, it’s been met with the approval of many experts and enterprise analysts. For instance, Forrester Research’s Paul Hammerman believes that “With Sybase Unwired, the mobile apps can be written once and deployed on multiple mobile platforms” and “gives SAP the opportunity to develop new types of business applications for mobile devices.”

Yankee Group analyst Sheryl Kingstone points out “the fusion of cloud computing, application mobility and social media to transform the enterprise mobility space. This deal now gives SAP 2 out 3 in a single purchase.”

Sybase, despite its legacy, has actually been trying to re-invent itself and is less of a traditional database company. It has embraced the cloud (many of its products work with Amazon EC2), has developed in-memory databases and more importantly has been focused on mobilizing the enterprises, which also led to a close partnership with SAP.

“More importantly, they also gain access to the financial services and public sector markets.  On the geographic front, Sybase has strong presence in the China market, an area where SAP sees future growth,” writes R “Ray” Wang on his blog, Software Insider. He points out that at present SAP resells about a billion dollars worth of Oracle databases –- a bad idea considering SAP and Oracle are in direct competition (that is often laced with tart comments by Oracle CEO Larry Ellison.)

About 73 percent of Sybase’s software license revenues comes from the traditional database business, new database business (IQ), business analytics products (RAP) and complex event processing-related products.  In comparison, mobile related products such as SUP, SQL Anywhere and Afaria account for about 27 percent of software licenses. According to some of my sources that know the company well are of the opinion that instead of mobile, the real reason Sybase is growing is because of its analytics-focused products and mobile messaging business.

That said, some believe that Sybase is only a Band-aid for what ails SAP. Over at Forbes, Quentin Hardy brings up an important point when he says that despite this deal, SAP and its troubles are far from over. The company, he says, isn’t big enough and more importantly doesn’t have the ability to be one-stop shop like its rivals IBM, HP and Oracle. However, the rudderless German company does get the go-getting Sybase CEO John Chen, who is widely regarded for his skills in turning around Sybase. He could perhaps be the ultimate winning chip of this deal.

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  1. Om,
    It makes lot of sense. First , SAP now can sell their own database rather than giving business to ORACLE. Second ERP packages requires a certain control over DB , which now SAP can have. Its not SAP that is rudderless, but ORACLE. Which bought dozen companies lately with no clear direction. Oracle Applications package is inferior to SAP. The only thing they can do better is database. Oracle reminds me of the Old GE. SAP will benefit from this if they can quickly move their ERP on to mobile space.

    1. Hi OM,

      What @GBP says is correct.

      Oracle Apps have always been inferior than SAP Business Applications. It’s Just ORACLE’s big noise which tries to self-justify them as “No.1 Business Software company”.

      Being a SAP Consultant & Working with Fortune 500 clients – I can say, Business Applications are moving on Mobiles. So Rather than Database – I feel Sybase’s Mobile exchange Infra. should help SAP to Transfer best breed of Apps on Smart phones, Where Future lies.

      And Of course kicking Oracle from Back end of SAP Applications. Yes, It’s time for Mr. Ellision & Team to crack Jokes!!

      My 2 Cents.

      • Hardik

      I think SAP

      1. @gbp and @hardik

        thanks for your comment and adding more color/context here, considering you guys are in the trenches.

      2. Well, SAP consultants always would say SAP is better.. I have worked on SAP and Oracle 10 years each for fortune 100 clients – and I try to take a less partisan approach. You can debate all day which is “better”, but that is not a sensible comparison in the first place. SAP is the senior of ERP products, it has 30 years of development behind it so it definitely has the gravitas of experience particularly on business side. But SAP has been struggling to keep up with the advances in technology – they still haven’t been able to fully move to the internet era of application development because of the rigid design of their core product. Piggy-backing has been the SAP mantra for adapting to new technologies – ie. most internet age technologies are implemented by adding more and more layers on top of the core-ABAP layer. gbp says – “ERP packages requires a certain control over DB , which now SAP can have”. Sounds very good, but you have to stop and think for a moment how far awyay that “now” is. Bulk of SAP is written in ABAP, a COBOL based language and this ABAP layer is largely database agnostic. SAP has done lot of java development recently, they have ported about 25% of their more portable abap code to java and run it as a separate stack (that is what is called netscaler essentially), but the bulk is still on ABAP and that bulk is still database agnostic. Buying Sybase is not going to change that. Infact SAP already tried to dislodge Oracle by marketing their own database called “SAPDB” but it did not work and there is no reason to believe Sybase would be any different.

        Oracle’s strength on the other had is in the core database. They are late to the application development but they make up for that by being technologically more agile. Oracle applications does not need to worry about xyz databases, they support only Oracle database – which is the best database – and they really exploit the strength of the database in a way SAP will never be able to do. And on top of it they control java now and SAP finds itself in a sticky situation – they made huge investments on a technology owned fully by their arch rival. They didnt have too many options on the table. This Sybase purchase is a desperate attempt – but I believe SAP is too big and too complex to adapt… they are likely to continue to slide as a company. Let us see where they stand in 2 years.

      3. @Rajiv, , good points. Yes , the issue with SAP is, they are creating layers on top of their core App server which is still ABAP based. OTOH, Oracle seriously lacks in features. Specially in financial accounting. ORACLE is just catching up to the features of SAP just now ( I don’t want to go in detail of the fundamental architecture… IMG and BR 100).

        The only positive for SAP from this deal is, ability to push Sybase. If you did licensing for ORACLE you know that it costs an arm and leg for ORACLE DB. SAP can discount it and keep ORACLE away.

        ORACLE DB is still the king, but as a company they lost. Wait till you see the wheels come off this juggernaut. Too many things overlapping in ERP space , Peoplesoft,Siebel,JD Edwards,Retek the list goes on. Plus whats up with Sun purchase ? I could be wrong, but in five years ORACLE will start shrinking either by loosing key personnel or overlapping products with no clear direction.

    2. @gbp – don’t see a way to reply to your latest post.., so replying against the old post.

      Oracles erp purchases (peoplesoft, siebel, jde, retek etc) I think were simply an attempt to eat up the competition. With these purchases Oracle aimed at winning the customer base that was otherwise likely to go to SAP. They do not have any long term commitment to the future of any of these products – they will support them as long as the customers want them and then get them to migrate over to the Oracle Apps line of products and then kill these products. They are not planning to integrate or assimilate any of these products into the Oracle application suite (except implementing features etc.). From Oracle’s point of view, they have achieved exactly what they wanted from these mergers already -ie. preventing SAP to expand their customer base, especially in north america. It might appear they overpaid, but in the long run it was money well spent for them because they contained SAP.

      Now look at the other major purchases Oracle made – BEA, Hyperion and finally Sun. Again, masterstrokes! These purchases have helped Oracle to be the most important player in their respective fields – middle-tier, analytical erp and Server side solutions. Oracle is selling Sun storage servers which are a big hit and so is getting mySQL – again, they ate up the competition and also acquired a profitable business – they don’t need to kill mySQL, it is profit making business, and they don’t need to worry about mySQL growing a threat to Oracle because they can contain that anytime. And Sun gave them Java, which is the icing on the cake. SAP has made huge java investments in recent years and by owning java Oracle has REALLY put SAP on a defensive footing. SAP is trying to break loose and do an Oracle-act by purchasing Bus Objects & Sybase but it is probably too late (and oh 6 billion in CASH is really pricey for what they are getting – compare with the value Oracle got for their money).

      So I do not think Oracle’s wheels are going to come off. As far as Oracle is concerned there is no confusion – the confusion is in the opposition’s mind and that is exactly how Larry wants it!

      1. We have seen this business in the past with big companies. Merge,acquire then consolidate while killing competition. Its just being repeated with Oracle. The key is how long will they be in green? FWIW , the strategy might be great now , can’t argue with you on that.But as an investor I would be worried if they don’t improve their core offerings (DB and Apps).
        On the JAVA thing, not sure you heard it, about 7 years back there were rumors that SAP is going with .net before they switched back to JAVA. I do not want a technical debate here, but the JAVA thing is no biggie from a business perspective. The issue really is getting away from the core ABAP layer ( the whole kit and kaboodle of SAP framework) and make it more web centric.
        In short, yes, you are right on the acquisitions. But as an investor I would be looking at their products closely for innovation. The wheels are not there yet. Larry just assembled the chariot, it will take time for them to come off. When that happens he need to fix this “chariot” first before fixing his “Yacht” :).

  2. Technology Wars have erupted between Technology Titans as the Industry consolidates behind 5-10 Big Global players.One of the strategies in these wars is acquisition of small and mid sized companies ,recent example is HP buying Palm to make an entry into the smartphone segment.

  3. Om – I know you were moving fast to get some industry analyst commentary before you filed the story. But all 3 of your sources are biased (counting on SAP for future revenue) and not telling you what they are thinking behind closed doors…

    The private conversations tonight are quite interesting. In a sentence: SAP paid too much, and it will fail to execute.

    1. Hi

      I agree with you — the deal is pricey. I think it goes without saying that SAP had to overpay to get this asset.

      On the guys being biased — perhaps — but I checked with some other sources and they agree — expensive or not, it makes sense on paper for SAP to do this.

      But as Forbes points out, for SAP this may not be enough.

      On SAP failing to execute … I will not argue with you. It seems you know more than I do ;-)

  4. Great news for Sybase Developers & DBA’s. Sybase is in Safe Hands now and with Mr. Jhon Chen , SAP may benifit in many ways. All the best for SAP

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