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Market analysis

In Q4’14 the software sector performed reasonably well compared to the previous quarter in terms of both revenue and net income. Adobe and VMware performed exceptionally with a more than 50% sequential growth in net income. But on a year-over-year comparison, the margins and net income declined for Microsoft, Oracle, SAP, Symantec and VMware.

In the enterprise software market 2015 spending is expected to reach a total of US$335bn, a 5.5% increase from 2014. Price erosion and vendor consolidation is expected in 2015 because of fierce competition between cloud and on-premises software providers. In particular, in the customer relationship management (CRM) market prices for segments such as sales force automation (SFA) are expected to decline by 25% through 2018. Incumbent on-premises vendors will be heavily discounting their cloud offerings to sustain their customer base. Increased price competition for cloud-based database management systems (CBMS) and application infrastructure and middleware is also expected.1

Traditional business intelligence (BI) and analytic models are undergoing rapid changes as businesses are given more access to data. The rise of data discovery, access to multi-structured data, data preparation tools and smart capabilities will further democratize access to analytics and will stress the need for governance. By 2017, most businesses will have access to self-service tools to prepare data for analysis.1

Adobe has entered into a definitive agreement to acquire privately held Fotolia, a microstock photography agency. Fotolia will be integrated into Adobe Creative Cloud.2 Adobe posted positive Q4 results with a faster-than-expected adoption of subscription licenses for its Creative Cloud product, as more of its clients chose annual subscription plans. The company reported over 3.5 million paid subscribers for the Creative Cloud product, a sizable increase of 644,000 over the previous quarter. This generated over US$1.5bn in annualized recurring revenue (ARR) in the fourth quarter. Adobe also witnessed growth in its marketing cloud initiatives during the quarter as cloud revenues grew by 4.5% year over year to US$330mn. Its LiveCycle software revenues declined by 9% while print and publishing revenues were US$1.07bn, a 5.4% increase compared to Q3’14 and a 3% increase compared to Q4’13.

SAP reported a better than expected fourth quarter with strong growth in its cloud business and the continued success of SAP HANA. Full-year revenues were €17.56bn, up 4% from 2013 revenues of €16.82bn. Software and support revenue, which includes revenue from new software subscriptions and technical support services, accounted for the bulk of the revenue and expanded by 4% year over year to reach €13.77bn. The growth was led by a 56% jump in cloud subscriptions and support revenue, which reached €1.1bn in 2014. The shift in focus to the cloud had a negative impact on professional and other services revenue, which fell by 6% year on year to €2.7bn. Operating profit fell by 3% year on year to €4.3bn, partly due to TomorrowNow and Versata litigation charges. Although part of the cloud revenue growth is attributed to the Concur and Fieldgrass acquisitions, the company still managed a substantial organic growth in cloud billings.2

  1. Gartner press release, Nov 2014
  2., Feb 2015

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