Tuesday, February 19, 2013

Hana: Game Changer for SAP

One of the very few European technology companies that enjoys success globally is Germany's SAP AG ADR (NYSE: SAP). More than 60% of all global transactions involve a SAP system.

Yet, it was feared that the German firm's best days were behind it. The perception among investors was that it had missed the change over of applications to the cloud and on to mobile devices. It was this change that was powering new challengers to SAP such as Salesforce.com.

New Leadership

But the appointment of co-CEOs – Bill McDermott and Jim Hagemann – in 2010 refocused the company on innovation and its customers.

What followed was 12 straight quarters of double-digit growth in sales of software and related services.

But that wasn't enough. Doubts still lingered about the company. Would it go down the path of HP towards obscurity or remain relevant and successful?

Luckily for SAP, the man who developed its flagship software system - chairman Hasso Plattner, is still hard at work. He developed a new system architecture that may catapult SAP ahead of its competitors.

Hana Is Born

Plattner and a team of computer scientists designed new architecture that is now SAP's solution to the rapid growth of mountains of complex data and companies' desire to exploit this information to their advantage.

The new architecture, Plattner's brainchild, is called 'Hana' and should be the catalyst for SAP's future growth.

SAP says Hana will allow companies to run complex reports on voluminous data in a matter of mere seconds instead of hours. That is due to the fact that Hana's computing takes place directly in the memory chip of the computer, instead of on a separate hard disk.

This entire concept was originally sneered at a few years ago by SAP's rival, Larry Ellison of Oracle (Nasdaq: ORCL), who often likes to poke fun at everything SAP.

However, he seems to have changed his tune. Oracle now has its own in-memory product, called Exalytics, which was released in February 2012. It is quite a bit different than Hana, but both at their core do in-memory calculations.

Microsoft (Nasdaq: MSFT) is also expected to launch an in-memory product by 2014 or 2015. It is currently working on it – project “Hekaton” - to compete directly with Oracle and SAP. Hekaton is Greek for 100 times.

It is expected that customers will be able to install Microsoft's Hekaton on the commodity servers they are using today. 

Hana is one of the key factors that is expected will allow SAP to keep pace with rivals including Oracle and International Business Machines (NYSE: IBM). IBM recently reported excellent earnings (up 11%) powered by gains in “analytics, cloud computing, [and] Smarter Planet solutions”.

Last year's acquisitions of Ariba and SuccessFactors and 2010 purchase of Sybase are also expected to help SAP to keep pace with rivals.

The Future

SAP forecasts it will pass 20 billion euros in sales by 2015, powered by three key areas: mobile, cloud computing and database computing.

Sales of Hana are expected to reach 700 million euros in 2013, which may be a conservative estimate by the company. Hana had sales of almost 400 million euros last year with about half of those sales coming in the last quarter of 2012.

An additional key selling point for SAP this year is the fact that it reported earlier this month that Hana will support SAP's business suite management software, its cash cow.

Hana could turn out to be a real game changer for SAP, which may set it on the right path for the foreseeable future. As Hasso Plattner told the Financial Times, “I see now a clear future for SAP for the next five to 10 years.”
This article was originally written for the Motley Fool Blog Network. Be sure to read of all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.

Tuesday, February 12, 2013

PC Era Continues to Fade

The PC era seems to be drawing to a close. The once dominating force in the technology sector – Wintel – is not what is used to be. The two companies involved, Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC), continue to search for a new path for success in the rapidly-expanding smartphone and tablet era.

Take Intel, for example. The company's most recent earnings report showed profits fell 15 percent as revenues and profit margins dropped in 2012, thanks largely to declining sales in its core PC market. Intel has its processors in only a mere 10 tablet and seven smartphone models.

Of course, Intel and Microsoft are not alone in trying to adjust to the new realities. The fortunes of PC makers Dell (Nasdaq: DELL) and Hewlett-Packard (NYSE: HPQ) have also declined quite rapidly. HP is desperately trying to maintain its number one position over rival Lenovo by cutting prices and sacrificing its profit margin. . .not a long-term winning strategy.

Dell's best hope seems to be a leveraged buyout by private equity firm Silver Lake Partners, which specializes in saving 'dying' firms. The buyout makes sense for Dell because the decline in the PC market looks set to continue to the years ahead.

PC Decline to Continue

The headwinds is the industry is facing was borne out by data from both Gartner and IDC Research this month that showed PC shipments declined in the fourth quarter of 2012, 4.9% and 6.4% respectively.

Both research firms blamed the failure of Microsoft's Windows 8 to ignite the market and consumers' growing preference from lower-cost tablets. An analyst at Gartner, Mikako Kitagawa, told the Financial Times “Tablets have dramatically changed the device landscape for PCs, not so much by cannibalizing PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs.”

The decline of the industry caught the eye of the Fitch Ratings agency. Fitch warned that revenues in the PC sector in particular would decline again in 2013. It said, “2013 marks an important year for the industry. . .[it] is especially critical for Microsoft, Dell, HP and Intel, all of which have been limited participants in faster growing products over the last two years.”

Stodgy Dividend Companies

Over the last few years, companies in this once vibrant sector seemed to have turned into stodgy old dividend-paying companies. They are now like the 'old economy' companies they once made fun of.

Just look at how their yields have risen since Apple first launched the iPad at the beginning of 2010.

Microsoft's dividend yield doubled to 3.5%. Intel's yield rose over 40% in the same time frame to 4.4%. The dividend yields for both Dell and Hewlett-Packard are above 3%.

Bear in mind that during this same time frame, the yield on the 10-year U.S. fell by half to 1.9%.

With smartphones, iPads and Android phones continuing to erode away market share from the PC industry, these yields may climb even more.

That's something tech investors would have thought impossible a few years ago. It's also something for Apple investors to chew on. In the tech space, no one stays on top forever.
This article originally appeared on the Motley Fool Blog Network. Please read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.

Wednesday, January 23, 2013

Pharmas Look to Fatten Up With Obesity Drugs

Pharmaceutical companies have had some recent lean years thanks to the patent cliff and other factors. But some pharma companies hope to grow fat with profits again soon.

Their plan to do that? Jumping on the growing global trend of obesity. Pharmaceutical firms believe consumers are moving away from fad diets and look forward to a surge in sales from prescription medicines that promise to help consumers lose weight.

In the United States alone, there is a need for something that can tackle the nation's problem with its citizens being overweight. According to the Centers for Disease Control and Prevention (CDC), more than two thirds of Americans are overweight and more than one third – 78 million U.S. adults – are considered to be obese. That percentage is forecast to climb to 42 percent by 2030.

A study last year indicated that obesity accounts for $190 billion in annual medical costs, which is quite a burden on the U.S. healthcare system. The CDC estimate is that obesity costs the U.S. economy $147 billion annually in medical expenses.

Companies Looking to Fatten Up

Several drug companies are moving forward in the battle against Americans' expanding waistlines. One company, Vivus (Nasdaq: VVUS), last autumn it launched its weight loss drug Qsymia. The company's president, Peter Tam, told the Financial Times “It's been a very challenged category, but there is a feeling we have to do something about obesity with the realization that it is a medical epidemic.”

The last diet drug approved – Xenical from Switzerland's Roche Holding AG (NASDAQOTH: RHHBY) – was approved in 1999. The FDA has held to a very high standard for diet drug approvals since the withdrawal of “fen-phen” in 1997. That drug, created by Wyeth, was found to cause heart valve problems. This caused Wyeth, now part of Pfizer, to set aside reserves of $21 billion for legal bills and payments from lawsuits.

But now apparently, the FDA agrees with Mr. Tam and is moving forward. Last year, it also approved another diet drug, Belviq, which will be launched very soon by Arena Pharmaceuticals (Nasdaq: ARNA). Arena's partner on Belviq is Japanese pharmaceutical company Eisai (NASDAQOTH: ESALY).

A third company, Orexigen Therapeutics (Nasdaq: OREX), is preparing to submit its Contrave diet drug for FDA approval again after previous rejections. It also has a Japanese partner, Takeda Pharmaceutical (NASDAQOTH: TKPYY).

But investors shouldn't worry about the prior FDA rejections. Qsymia and Belviq were also rejected by the FDA before receiving approval. Senior biotech analyst with Cowen, Simos Simeonidis, told the Financial Times “There has been a very significant and rather sudden shift in the views of the regulator (FDA) over the past year.”

Lingering Problems

The changing of the FDA's hard stance against diet drugs is good news for these companies. But several problems still remain.

One is the limited effectiveness of these diet drugs. The weight loss impact of Qysmia and Belviq was found to be 10% and 6% respectively. Those results were under ideal conditions with tight medical supervision too.

The second problem is bigger – the risk of side effects. Diet drugs have had history of unwanted side effects with fen-phen being the worst example.

The current generation of diet drugs also has side effects. Roche's Xenical is also only moderately effective while producing unwanted side effects like oily stools. It is now sold over-the-counter as Alli by GSK, which has been trying to unload it for months now. But no buyers have stepped forward.

Qysmia can cause birth defects. So Vivus had to agree to a tight monitoring program with the FDA in order to gain approval.

But the more widespread the use of Qysmia and other diet drugs becomes (with usage perhaps not so closely monitored by physicians), the door opens wider for misuse of the drugs. Consumers may not only become disappointed by results but litigious if side effects become apparent.

That is likely one major factor keeping the stock price of company like Vivus near its 52-week low despite the approval from the FDA.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all my article for the Motley Fool at http://beta.fool.com/tdalmoe/.