The first quarter reporting season revealed that the stabilisation in the business applications market that was showing up at the end of 2003 was no blip, although demand worldwide is still uneven.

At first glance, results for the quarter looked upbeat. Germany’s SAP reported its first quarterly rise in new licence fees in almost three years – by 5% to $439 million. And on the surface, growth at its closest rival, PeopleSoft, also looked highly positive, with revenue up 40% from a year ago to $643 million, and software licence revenue shooting up 62% to $131 million.

But digging a little deeper suggested that demand during the quarter was largely US-based where the rebound in sales has been more significant. Sales on the other side of the Atlantic were considerably weaker during the three months.

SAP, for one, gleefully pointed out that its share of the enterprise applications market in the US increased to 34% from 25% a year ago. In contrast, sales in Europe, which account for more than half of SAP’s business, dropped by 4%. The company also saw a 22% decline in sales in the Asia/Pacific region, although this was largely attributed to a 37% drop in Japan, where the company is currently reorganising its sales force.

Results from Sweden-headquartered business applications vendor IFS reveal a similar pattern. Sales in continental Europe failed to reach targets but licence revenue in North America remained unchanged. Overall licence sales totalled $27 million, down 3% from $28 million in the same period in 2003, with total revenues at $68 million, down 12% from $77 million.

Despite what looked like runaway growth, PeopleSoft still managed to disappoint Wall Street. PeopleSoft laid the blame on a handful of customer contracts that were not signed by the end of the quarter, as well as the management “distraction” of Oracle’s $9.4 billion hostile takeover bid.

Furthermore, its JD Edwards acquisition in 2003, a significant contributor to revenue figures, gives a misleading picture. Some analysts were troubled by the company’s accounting adjustments related to the purchase and said it was questionable whether PeopleSoft would meet its 2004 revenue targets.

SAP seems to have been the winner from that battle. Analysts think it is well positioned to meet its full-year forecasts of 10% licence growth – especially after its market share globally increased to 54% from 51% in 2003.

Despite disappointing results, IFS also remains confident that revenue will increase at market rate in 2004, as a result of a positive order backlog, lower cost levels and the continued focus on selected market segments.

Boom or gloom?

Boasts of booming sales from the Microsoft camp provided further evidence of an IT spending recovery. Revenues for the period hit $9.18 billion, up from $7.84 billion in the same quarter in 2003 and well ahead of analysts’ expectations of $8.67 billion. The figures were attributed to strong growth in the “core client, information worker and server businesses”, which grew by 16%, 18% and 19% respectively.

But despite the buoyant sales, the company’s net income fell 39% to $1.32 billion, following a rash of legal settlements: a fine from the European Commission; a hefty payout to Sun Microsystems; and a settlement with digital rights management specialist InterTrust.

And although the software giant has upped its forecasts for the rest of the fiscal year (ending 30 June) to between $36.4 billion and $36.5 billion, an increase of 13% to 14% over fiscal 2003, it has predicted next year to be more downbeat, pitching sales and profit growth for 2005 at just 4% – lacklustre compared to its previous years. The company put this down to an unexpected slowdown in PC and server sales and the end of its much-criticised “upgrade advantage” licensing programme.

Challenges from open source will also play a part in 2005. In addition, the company recently admitted it has not yet “figured out” its sales model for emerging markets, whose large untapped revenue for the company is crucial.

Meanwhile, Sun Microsystems is suffering more dramatically in the face of rivals. It posed dramatically weak results (once again) – a loss of $760 million compared with a slim net income of $4 million achieved a year ago and revenue decline – for no less than the twelfth consecutive quarter – of 5% to $2.65 billion.

The company has been losing considerable market share in its core server hardware market for some time to cheaper offerings from rivals Dell and IBM. Similarly, its Solaris Unix operating system is losing out to Linux and Microsoft Windows.

Another company reshuffle, huge layoffs and combining units to cut costs has led CEO Scott McNealy to claim optimism over the future. He also claims that momentum is stronger than the figures indicate, identifying a line-up of new products that is “stronger than in the past ten years”. Analysts are considerably less bullish. But Microsoft’s $2 billion injection into the company should help.

The poor performance at Sun was underscored by the strong results at rival IBM. The company reported a revenue rise of 11% to $22.3 billion, from the $20.1 billion in the year-earlier period. This was attributed to solid performance in IT services, growth in software and systems businesses, and strong hardware revenues. Emerging markets were particularly lucrative for the company, with China, Eastern Europe, India and Brazil all delivering double-digit growth.

Although the company is confident over future results, analysts are predicting full-year revenues of $95.7 billion, which the company only described as “reasonable”. The latest quarter, thanks largely to cost cuts and large sales of its intellectual property, are misleading, they claim. It is also doubtful whether IBM can continue its favourite strategy of bolstering revenues figures through acquisitions. This is because, say analysts, there are fewer potential acquisition targets big enough to provide a significant enough boost to a $100 billion company.