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SAP May Be in the Catbird's Seat

For three torturous years, German software giant SAP

spun its wheels in an effort to become a Net company. The $6.2 billion specialist in enterprise systems -- the world's third biggest software company after Microsoft (MSFT) and Oracle (ORCL) -- proved too slow for the Net and took a beating because of it. Just a year ago, upstarts like Commerce One (CMRC), Ariba (ARBA), and i2 Technologies (ITWO) were not only poaching SAP's customers but also soaring on the Nasdaq.

Now, it's revenge time. SAP, still on track to hike sales and earnings by double-digit figures, is a relative rock of stability in the dot-com storm -- one that troubled competitors are eager to cling to. On Mar. 31, SAP agreed to spend $400 million to buy Top Tier Software, which, according to one source close to Dutch investors in the company, would have fetched $2 billion a year ago. And on Apr. 4, SAP announced a far-reaching alliance with Yahoo! (YHOO). The goal: to turn SAP into the Internet portal for businesses worldwide. The idea is to have an SAP page at the heart of corporate intranets. The page would feature links to the rest of the company, e-commerce ties to suppliers and customers, and a wealth of other information -- some of it supplied by Yahoo.

Of course, SAP Co-Chairman and Co-Founder Hasso Plattner has been shooting for leadership in the business-portal sector for two years. At a conference in France in 1999, he declared that SAP, with its installations at blue-chip companies from Microsoft to Coca-Cola (KO), could become a titan of the Web. "We have more eyeballs than AOL," Plattner boasted. SAP is not there yet, not by a long shot. But Plattner has a clearer path to his lofty goal -- and fewer Net ingenues to fear en route.

LOTS OF LEVERAGE. Just a year ago, nimbler competitors from Silicon Valley were raiding SAP's engineers and salespeople -- as well as its customers. In crucial markets such as supply-chain management, customer-relationship software, and B2B exchanges, SAP lost out to i2, Ariba, and Commerce One. At the height of the Net boom, in March, 2000, those three upstarts boasted a combined market capitalization of $110 billion, more than twice SAP's.

Now, even while SAP stock has tumbled 60%, its struggling competitors have fallen nearly off the charts, to a combined market cap of $9.2 billion -- barely more than half of SAP's value. More important, the upstarts are struggling in the marketplace. Ariba, for example, announced on Apr. 2 that first-quarter revenues would come in 50% short of projections, leading to further pummeling of the stock, which is 97% off its 12 month high. It closed at 4 13/16 on Apr. 4. Commerce One, even while benefiting from a spurt of orders following a 10-month-old alliance with SAP, also issued a profit warning on Apr. 5.

SAP, by comparison, is faring well. Its much-derided e-business initiative,, now appears to be catching on among blue-chip customers, including Unilever (UL) and Nestlé. What's more, its old-fashioned enterprise-software business, which appeared so slow and boring a year ago, now looks safe and profitable.

This should give the company the leverage to grow stronger through the tech downturn. SAP's Net strategy is still no sure thing. But now it can gobble up competitors and ink alliances with bruised stars like Yahoo. Looks like software's tortoise is pulling ahead of the hares. By Stephen Baker in Paris

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