SAP: Oracle-PeopleSoft merger would boost competition

Exec says Oracle would become number one provider in the U.S.

An Oracle Corp.-PeopleSoft Inc. merger would boost competition in the market for enterprise applications, an SAP America Inc. executive testified Wednesday in the U.S. government's case to block the proposed merger.

"We anticipate a greater amount of competitiveness," Richard Knowles, vice president of SAP America, a subsidiary of Germany's SAP AG, said. Knowles was called in federal court in San Francisco by Oracle, which is challenging the U.S. government's attempt to block its $7.7 billion hostile bid for rival PeopleSoft.

During questioning by an Oracle attorney, Knowles also said all SAP buyers have high functional needs and that SAP competes against numerous vendors, not just PeopleSoft and Oracle. The testimony undermines the U.S. Department of Justice's (DOJ's) argument that only Oracle, PeopleSoft and SAP can meet the human resources and financial management software needs of large and complex enterprises.

In the U.S., SAP currently holds 34 percent of the enterprise application market, Knowles testified. If the acquisition of PeopleSoft by Oracle goes through, Oracle would have 38 percent market share, leaping SAP, he said.

"Oracle would become the number one provider in the U.S., and would do anything to keep that position. We, from an SAP position, think that would be highly competitive for us," Knowles testified. "We're going to see more sales people being marshaled into a position competing against us."

Still, asked if SAP has a position on the merger, he said the Walldorf, Germany, enterprise applications giant is "neutral."

The answer appeared to surprise Judge Vaughn Walker, who oversees the case. The direct question if SAP would mind if one large competitor was eliminated because it was folded into another was not asked.

The DOJ doesn't see Knowles' testimony hurting its case, said Thomas Barnett, deputy assistant attorney general, speaking during a break in Knowles' testimony.

"The notion that two competitors are going to be better than three competitors does not follow," Barnett said. "Customers have consistently testified that they would prefer three options, rather than two. I put more weight on the customers."

The DOJ's argument is that Oracle, PeopleSoft and SAP dominate the market for human resources and financial management applications and that an Oracle-PeopleSoft merger would create a duopoly, hurting competition and resulting in escalating prices. Oracle's argument is that there are several other viable vendors in the segment such as Lawson Software Inc., American Management Systems Inc. and Microsoft Corp.

The DOJ has yet to cross-examine Knowles. Later on Wednesday the head of Microsoft's Business Solutions group, Doug Burgum, is scheduled to take the stand. Burgum is expected to testify that Microsoft is not targeting the high-end of the enterprise applications market, but focuses on small- and mid-sized businesses.

Copyright © 2004 IDG Communications, Inc.

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