June 22 (Bloomberg) -- SAP AG, whose new software sales plunged 33 percent last quarter, is struggling to wrest orders from Oracle Corp. as more customers like Jeff Kuckenbaker opt for the U.S. company’s software and services to run businesses.

Kuckenbaker, who manages technology at Star Trac, an Irvine, California-based fitness-equipment company with four million clients in 75 countries, picked Oracle over SAP last month to tie its diverse computers into a seamless network.

“Oracle demonstrated the best ability to address our globalization, working in multiple languages and currencies,” said Kuckenbaker, the vice president for information systems. Oracle’s range of products let him link operations “without having to be in the business of software integration.”

SAP, the world’s biggest maker of business-management software that tracks purchases and handles payroll, is losing market share to No. 2 Oracle. Corporations are reining in spending and seeking to buy more software from one company to get a better price. Oracle Chief Executive Officer Larry Ellison has been the most acquisitive in the industry to expand his offerings. SAP CEO Leo Apotheker has made few deals, preferring to lean on internal development.

SAP is “clearly losing market share,” said Adam Wood, a Paris-based analyst at Exane BNP Paribas who rates SAP “underperform.” “Because of the acquisitions Oracle has made recently, it’s left them with a bigger product range for their existing customers.”

Oracle Outperforming

Oracle stock is outperforming SAP’s, rising 17 percent this year compared with a 14 percent gain for its German rival. Oracle rose 2 percent to $20.66 on the Nasdaq Stock Market on June 19. SAP fell 0.2 percent to 28.86 euros. No analyst has a “sell” rating on Oracle, 21 suggest buying the stock and eight recommend holding it, according to data compiled by Bloomberg. Twenty-one analysts suggest selling SAP stock, 14 recommend holding it and 18 have “buy” ratings.

Based in the German town of Walldorf, SAP’s first-quarter license revenue plunged 33 percent to 418 million euros ($585 million). In March, Redwood City, California-based Oracle posted a 12 percent slide in new software license sales for this kind of application, to $396 million in the quarter ended Feb. 28. Oracle reports fiscal fourth-quarter results tomorrow.

Analysts watch license revenue because it is a measure of future business from maintenance and upgrades, and ensures a more sustained revenue stream. SAP’s Apotheker says his company prefers to look at product revenue, which includes software and software-related services.

SAP’s Model

“We’ve been saying for years that SAP’s model isn’t only based on licenses,” he said after an event in Paris June 17. “The real figure to look at is not licenses but product revenue, which was stable in the first quarter, or slightly down because of the crisis. I don’t think we’re losing market share. I rather have the feeling we’re gaining market share.”

Still, in a Goldman, Sachs & Co. survey on information technology spending by purchasing managers published March 9, Oracle was listed among gainers of IT spending dollars, while SAP was among the losers.

“SAP customers used to be steadfast to SAP,” Ray Wang, an analyst with Forrester Research Inc., said in an interview from Foster City, California. “They aren’t anymore. We talked to 900 SAP customers and about 816 of them said they are looking at alternatives to SAP for the first time. That means they are more open to looking at an Oracle component inside an SAP environment.”

‘Rising Faster’

This year, Oracle had orders from companies such as Kraft Foods Global Inc., Home Box Office Inc. and CherryRoad Technologies Inc. Both Oracle and SAP may be gaining on smaller rivals such as San Francisco-based Salesforce.com Inc. and Darmstadt, Germany-based Software AG.

“Oracle might be rising faster than SAP in terms of licenses,” said Ulrich Trabert, an analyst at Bankhaus Metzler in Frankfurt. “Likely they’re both winning market share from small companies.”

SAP’s market share for enterprise resource management software, which includes programs to handle financial, human resources and payroll tasks, remained unchanged in 2008 over the previous year at 18 percent, said Michael Fauscette, a San Mateo-based analyst for market researcher IDC. Oracle’s share rose one percentage point to 11 percent, he said.

Ellison’s Expansion

While SAP has mainly relied on expanding its existing businesses, Oracle’s Ellison went on an acquisition spree beginning with PeopleSoft Inc., buying more than 50 companies. That has enabled Oracle to expand beyond database software, and it now sells programs to handle a range of tasks from human resources to analyzing internal operations and manufacturing.

“The thing that we used to get criticized for, having lots of applications, is actually a pretty good thing right now,” Oracle President Charles Phillips on a March 18 conference call.

Oracle also makes money on related software when it sells applications. A business application often requires additional database features and so-called middleware, programs that help different kinds of software communicate.

SAP, under the leadership of Former Co-CEO Henning Kagermann, expanded mainly through internal growth. SAP’s biggest acquisition is France’s Business Objects SA, which it agreed to buy in October 2007 for 4.8 billion euros.

Demand Drop

“SAP has a mixed-growth model,” as evidenced by the acquisition of Business Objects, said Apotheker. “We’re the only software maker with 20 straight quarters of double-digit internal growth. The only way to measure innovation is internal growth. We will grow through organic and non-organic growth.” SAP may emulate Oracle’s acquisition strategy. This month, Apotheker told French daily Le Figaro that SAP may spend as much as 5 billion euros on acquisitions. He declined to say what kinds of companies it would seek.

Both SAP and Oracle are experiencing a drop in demand for applications that help companies run so-called enterprise resource planning, or ERP, software.

In February this year, purchasing managers ranked such software as the 34th on a list of spending priorities, compared with 11th in June 2008 and third on the priority list at the end of 2007, according to the Goldman Sachs survey.

“Traditionally, SAP customers would start with SAP first and buy as much from them as they can,” Forrester’s Wang said. “They make a commitment to a single vendor. We have seen an erosion in that strategy. These are die-hard SAP shops, and now because of the pace innovation, the support issues, and the economic conditions, they are looking to alternatives.”

To contact the reporter on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net; Simon Thiel in London at sthiel1@bloomberg.net.

Last Updated: June 21, 2009 20:00 EDT