Annual Report 2007
12. Forecast
1/2 forward
12.1 Future direction of the Group
The growth phase that began in fiscal 2006 is expected to continue in 2008. Implementing growth strategies will remain our primary focus, meaning that we will not rule out additional acquisitions during the current fiscal year. Furthermore, we will keep adding prominent software companies and system integrators to our partner network. We also intend to use ongoing product development to expand our technological leadership in the areas of SOA, BPM, and application modernization and gain additional market shares in this area.
Our primary operational tasks in 2008 include:
- Completion of the integration activities for webMethods in the first half of 2008
- Start of direct sales in Brazil
- Taking advantage of opportunities on the M&A market
- Expansion of technological leadership in SOA through portfolio innovation
Efficiency improvements support profitability
To further increase our profitability, we improve our global processes and accordingly our efficiency on an ongoing basis. In doing so, we continuously generate financial resources that we allocate to innovation management to support the profitable expansion of Software AG. Innovation encompasses technological progress, which includes both our own research and development as well as the purchase of technologies. Therefore we see operational excellence as a driver of innovation and growth for our company.
Long-term goals
We will systematically continue on our growth course in order to exceed the revenue threshold of €1 billion in fiscal 2010. At that time, our EBIT margin is expected to exceed 25 percent.
12.2 Overall economic outlook
We expect that the global economy will lose momentum in 2008. At this time, no end to the turmoil in the financial markets is foreseen. The real estate and construction crisis may weigh down not only the U.S. economy in 2008 but also a number of European economies. The softening of the U.S. dollar against the euro is also expected to continue for a time in 2008, as are the high oil prices. Much is expected of the development in the emerging countries of Eastern Europe and Asia. This could cushion a moderate softening of growth in the large industrialized economies. Overall, 4.7 percent growth is forecast for the global economy in 2008.
A definite cooling of the economy is expected for the U.S. The impacts of the real estate crisis on private consumption will have a profound influence on performance. Robust growth in exports and an expansive fiscal policy should have a stabilizing effect. On the whole, growth of the U.S. economy is expected to reach 2.3 percent, approximately the same level as in 2007.
The cool-down of the global economy is expected to make itself felt in the European economies in 2008. Significant contributing factors are the appreciation of the euro, lower demand in the U.S. and persistent turmoil in the financial markets. In Germany, the extent of the economic softening will depend on whether and to what extent private consumption is sustained. For the eurozone, growth is forecast to be 1.8 percent, and for Eastern Europe approximately 5.1 percent. The German economy is also expected to grow by approximately 1.8 percent and therefore slower than in the two previous years.
Economic growth of approximately 7.5 percent is expected for Asia in 2008. China (10 percent) and India (8 percent) are again expected to contribute significantly to the growth, although the pace will be somewhat lower than in 2007. By contrast, the Japanese economy will probably grow by hardly more than 1 percent in 2008.
Economic growth in Latin America is predicted to continue at a slightly slower pace in 2008. Overall, the economy is expected to grow by approximately 4.7 percent. An especially good trend is forecast for Argentina and Brazil due to higher prices for commodity exports.
12.3 Expected sector trend
The global expansion of the IT market is also expected to continue in 2008. According to calculations by the European Information Technology Observatory (EITO), the global market volume for information and communications technology (ICT) should increase by 3.8 percent to €2,194.5 billion during 2008. Growth will therefore be at approximately the 2007 level. In the U.S., volume is expected to increase by approximately 4.3 percent, and in Europe by approximately 2.9 percent. The global IT market is forecast to grow by approximately 5.3 percent to €1,030.0 billion in 2008. Growth is expected to be 4.7 percent in Europe and 5.6 percent in the U.S.
The highest growth rates within the ICT market will continue to be achieved on the software market. At an average growth rate of 7.4 percent between 2006 and 2008, the value of the software market is expected to be at €238.5 billion in 2008. The market volume in the European Union is expected to rise to approximately €81.2 billion in 2008, in the U.S. to €105.6 billion and in Japan to €24.5 billion.
According to estimates of the EITO, the market for SOA is anticipated to nearly quadruple by 2010 from a market volume of approximately €500 million in 2006 to approximately €2 billion. According to industry analysts, the market for business and infrastructure software should nearly double between 2006 and 2011, from €9.4 billion to €17.0 billion. The relevant segments Business Process Management (BPM), enterprise service bus (ESB) and application integration software (AIS) are expected to grow most robustly.
