There was an interesting counterpoint to SAP’s Q2 results when tier two Swedish ERP provider IFS released its Q2 results showing a notable increase in licence revenue, in contrast to SAP’s 7% software revenue decline (see here).
Overall revenue at IFS was up 7% (or 12% when adjusted for currency) to SKr 696 but within that licence revenue was up 39% (47% adjusted) to SKr 92m. The latest results compare with a slow year ago quarter (see Slow period for IFS). Earnings before tax rose from SKr 22m to SKr 55m. We see two reasons for the increase in license revenue. One is that cost conscious enterprises are looking at tier 2 alternatives – IFS is obviously gaining from this trend and securing new business on the way, along with the likes of Unit4 and Infor for example. The other comes down to the industry sectors targeted. IFS is very focussed – e.g. aerospace and defence, offshore, EPCI – and these conservative sectors prefer traditional on-premise licenced software to SaaS ERP. Given the Q2 results, it is evident that this trend is favouring IFS. The question is for how long – although SaaS ERP adoption is low it could make a breakthrough now that the heavyweights vendors are putting more emphasis behind it – Oracle Fusion and SAP’s move to put its business application suite on HANA and make it available as an off-premise solution. ERP change comes slowly however, so IFS should continue to see on-premise growth for a while yet but it does need to articulate a cloud strategy, even if only for the more peripheral ERP functions.