SAP: Is HANA growth overstated?

SAP has shown strong growth with its HANA in-memory analytics systems, but at least one analyst is questioning the growth and adding that the company may be allocating other products to the category.

In a research note, Cowen analyst Peter Goldmacher did a deep dive into SAP's HANA results. SAP has said that HANA's two year license compound annual growth rate through fiscal 2013 has been about 120 percent. If that growth rate is true, Goldmacher noted that "the other 90% of SAP's license business, apps and business intelligence, is growing at a combined two year CAGR of roughly 2%, materially below category growth rates."

Ultimately, Goldmacher noted that SAP is adding licenses to HANA to show better growth.

His theory wouldn't be unheard of. For instance, Oracle has noted that its Exa- hardware strategy revolves around software licenses too. Tossing software deals into HANA would rhyme with that approach.

Goldmacher questions that approach over the long run. His take is the opposite of Oracle's Safra Catz, president and CFO, who talked up Exa- on Wednesday. Goldmacher's conclusion:

We believe the trend in compute is massively distributed commodity boxes, and while there is a market for products like HANA and Exadata, it is significantly smaller than optimistic descriptions by SAP and Oracle. We believe HANA revenue is being inflated by subjective product revenue allocation to HANA at the expense of its traditional Apps and BI businesses, and swapping HANA for unused licenses. We think this inflates seat count with no incremental cash to the firm. At some point investors will likely start to worry about the implications on the other 90% of license sales we expect will eventually turn negative. We believe the offense in this case is getting into the data management business with old product (Sybase) and high priced hardware (HANA). While the impact on the model is low, the reputational cost to management could be high.

Goldmacher arrived at his conclusion by breaking down SAP's database, mobile, business intelligence and application sales. Note that SAP doesn't break those groups out, but rolls them up under software and software related services.

In a nutshell, Goldmacher said it's likely that SAP is discounting applications and business intelligence and offering few deals on databases and mobile. That move also inflates database and mobile growth.

Why would SAP discount apps and not other items? Goldmacher noted:

We caution investors that our research indicates that HANA and Sybase’s growth likely stem from either arbitrary revenue allocation/discounting in enterprise license agreements, or SAP’s willingness to swap licensed products instead of reducing maintenance revenues as customers switch to SaaS alternatives like Salesforce.com and Workday. We continue to struggle to find data points in the field that HANA is going mainstream and/or gaining ground in competitive engagements.

SAP said Goldmacher's analysis is off base. A spokesperson said:

No such discounting is taking place on any SAP product and that half of SAP HANA transactions are standalone deals.  We have been consistent in our no-discount policy and our reporting of growth rates and revenue results. Hana, Mobile and Cloud are seeing the fastest growth in our solution portfolio and that our core business (Apps and Analytics) continue to grow,  too.