How serious? Does $2.2 billion and 15 percent EBIT profits sound serious to you? It does to me, and also to Deutsche Bank analyst Chris Whitmore.

Having slogged through Oracle’s 72-page document dump with a better eye for detail than mine, Whitmore noticed a line in a January 2010 email from Dave Donatelli, now head of HP’s Enterprise Group (specifically Exhibit 17, for those who want to scroll through and find it) saying that HP’s Business Criticial Server business combined with its Technology Services business, which includes the support and services associated with the Integrity line of servers that uses the Intel-made Itanium chip, was at that time larger on a revenue basis than HP’s personal computer business.

The same document, he says, showed that at the time, HP’s “owned operating profit” for the combined hardware, software and services tied to the business of selling and supporting Itanium servers was about $2.2 billion. All in, HP derives — or at least at that time derived — about 15 percent of its profits on an EBIT basis from Itanium and related businesses.

No wonder, then, that HP considered Oracle’s March 2011 decision to stop creating software that runs on the Itanium chip so earth-shattering that it hauled the software giant into court last June. That case is expected to head to trial any day now.

The disclosure is the clearest sign yet of how much HP stands to lose if its Business Critical Server business can’t recover. It has always been known to be a highly profitable business; exactly how profitable was a closely guarded HP secret. But sales of Business Critical hardware have been on the decline. In 2009, sales of BCS hardware were $2.6 billion. In 2011, they had fallen by 19 percent to $2.1 billion. And in the quarter ended Jan. 31, sales were $405 million, down 27 percent from the same period in 2011.

The uncertainty about Itanium’s future is one of the many reasons that Whitmore has been particularly bearish on HP’s turnaround prospects: “Given the growing uncertainty around the long-term viability of Itanium, we expect customer defections to continue, if not accelerate in future periods,” he wrote in a research note to clients, issued yesterday.

However, much as HP lawyers would like to argue that Oracle’s motivation is to help bolster long-flagging sales of its new Sun Microsystems hardware unit, Whitmore argues that the main benefactor is IBM: “While Oracle is responsible for shining a bright light on Itanium’s precarious future, it is probably doing IBM the biggest favor. … We expect IBM to be the greatest beneficiary of Itanium defections and view Power [IBM's server chip] as the market consolidator and eventual standard in the UNIX/RISC server market over the medium to longer term.”

And even if HP prevails in its suit, Whitmore isn’t seeing much benefit: “Regardless of the outcome of this particular suit, we expect HP-UX customers to continue fleeing what is increasingly looking like a dead platform — creating a major headwind for HP’s medium-term earnings.” Ouch.

Well, today we heard from another bank, and its opinions about Intel’s Romley chip and what it means for data center spending couldn’t be more different. Chris Whitmore, an analyst with Deutsche Bank Market Research, published a note to clients today, arguing that Romley will indeed spur a new round of spending in corporate data centers, and that it will have an equally strong secondary effect on the fortunes of enterprise storage companies, specifically EMC and NetApp.

One of the things that Romley will encourage, Whitmore writes, is a growth in the density of virtual machines running in each server. (Remember that, more often than not, a physical server is virtualized or subdivided into many virtual servers, allowing each machine to act like several machines.) More virtual machines allows you to consolidate your physical machines and add more in the same footprint if you want, which in turn means more computing work getting done overall. Whitmore estimates that, in general, data centers will boost their workloads by 20 to 25 percent by the end of next year.

Roughly 26 percent of Romley chip purchases will be used in these virtualized environments, Whitmore estimates. And that tends to spur demand for storage to support the virtual machines. In fact, the growth of terabytes worth of storage products shipped mirrors closely the unit growth of servers. (See the graphic, below, which I screen-grabbed from the report; click to see it bigger.) In short, it’s good news for NetApp and EMC. Whitmore says both are taking share from other vendors, including IBM, Hewlett-Packard and Dell, with sales growing at north of 20 percent a year — a growth rate that’s higher than that of the overall market, which grew 14 percent last year. He rates shares of both EMC and NetApp a “buy,” with price targets of $35 and $60, respectively.

Great news for EMC and NetApp, but what does it mean for Intel? Whitmore says to expect a mixed bag. Companies wanting to boost their use of virtual machines will be buyers. Companies that aren’t into virtualization so much, maybe not. “We believe our estimate of x86 servers shipped into virtual environments growing from 21 percent in 2011 to 26 percent in 2013 could prove conservative,” Whitmore writes. “As a result, although we expect Romley to have a relatively muted impact on overall server unit demand, we do expect it to drive another leg of virtual machine growth.”

The social networking giant has just added five more lead investment banks to its IPO from the original six, according to an updated filing. On top of that, Facebook added another 20 investment banks that will get a piece of the action.

The new members to the lead group are Citigroup, Credit Suisse, Deutsche Bank Securities, RBC Capital Markets, Wells Fargo Securities.

Read the rest of this post on the original site »

Dell’s earnings were 51 cents and missed the consensus of analysts by a penny; the company also said that revenue would decline by 7 percent in the current quarter. In a note to clients today, Shaw Wu of Sterne Agee dropped his rating to “underperform,” the equivalent of a “sell,” arguing that Dell’s PC business continues to suffer at the competitive hands of Apple, Acer and rejuvenated Hewlett-Packard. “We are concerned with the company’s longer-term fundamental position and may face more difficulty making further operational improvements,” Wu wrote.

Richard Kugele, of Needham and Co. in New York, downgraded Dell to a “hold” from a “buy.” Rich Gardner of Citigroup also cut his rating to “hold” and dropped his target price to $19 from $20, citing declining prospects for improvements to Dell’s gross margin in the current quarter.

But the chorus of analysts wasn’t all negative. Chris Whitmore of Deutsche Bank, who last week suggested that, all things considered, Dell’s results might turn out “pretty good,” saw it differently. He blamed the ongoing shortage of hard drives brought on by last year’s flooding in Thailand and weak public sector buying, and still finds Dell attractive. The shortage, he says, was the primary reason that Dell’s gross margins — which came in at 21.7 percent — missed estimates. “Gross margins were light due to negative hard drive impact — shortages hampered the ability to sell richer high-end systems — and soft public sector results,” Whitmore wrote in a note to clients today. He maintained his “buy” rating.

Brian Marshall of ISI maintained his “neutral” rating. He wrote in a note today that Dell’s plan of shifting its revenue base away from consumer and business PCs and toward higher-value enterprise IT, software and services is going to take years. “We believe changing the composition of a $60 billion revenue base is non-trivial and takes years not quarters to successfully navigate. [We're] still scratching our heads on how earnings per share grows in 2012. … In the face of flat revenues, declining gross margins and continued operational expense growth, we struggle on how EPS will be up in 2012. We like the plan, just not the set-up.”

(Michael Dell photo by Asa Mathat)

Is Whitmore just seeing the world through some rose-tinted shades? After all, consider the state of the industry — PC sales are suffering generally from a prolonged case of iPad envy among the consumer set, the ongoing shortage of hard drives brought on by the flooding in Thailand, and a global economy that has Europe flat on its back, the U.S. recovering but wobbly, and every other region tenuous. Meanwhile, HP and Dell aren’t exactly their old selves.

And yet here’s Whitmore explaining his positive expectations from both, in a note to clients today: “Investors appear to be positioned for solid results from both HP and Dell as recent data suggests enterprise IT spending finished 2011 well. We expect IT spending to gain momentum through 2012 due to an improving US macro backdrop and forthcoming product cycles.”

Pretty good, relatively speaking. Whitmore goes on at length on each company. About HP, he says its recently lowered expectations — CEO Meg Whitman has designated 2012 as a rebuilding year — will be easy to beat. Revenue might even come in below expectations of $30.1 billion, but per-share earnings will probably beat the consensus of 87 cents. The reason? Corporate demand for IT hardware, specifically PCs and servers, remains healthy in the face of weaker demand for PCs among consumers — the iPad is sapping demand — and a weakness in sales of printers. Recent cost-cutting, favorable prices on commodity components, and other changes made in recent restructurings will combine to give HP a slight edge on the EPS front, Whitmore says.

That’s not to say there isn’t still some messy business yet to finish at HP. While its official guidance forecasting a per-share profit of $4 in 2012 still stands, there’s still the ongoing strategic question of addressing its weakness in the consumer PC business with a tablet that can take on Apple’s iPad. Also, results from Lexmark and Canon, Whitmore says, show continued weakness in the printer business, which will hit HP right where it hurts.

Then there’s the longer-term questions, like Whitman’s ultimate plan to save HP, and how the $10.6 billion acquisition of Autonomy is going to further that goal. “We believe investors will continue to focus on Meg Whitman’s long-term vision for HP and her efforts to revitalize HP’s growth strategy,” Whitmore wrote. “Specifically, an update on the integration of Autonomy, plans to reposition Services, growth plans for printing and its PC strategy are all important topics that need to be addressed.”

Then there’s Dell: As with HP, Whitmore says to expect soft results on the revenue side, but healthy profit margins and a decent upside to per-share earnings. Healthy demand from big companies should be offset by weaker demand from government clients and consumers. The consensus estimate has Dell reporting $15.9 billion in sales and 50 cents a share in earnings. Dell’s server sales finished strong in 2011, Whitmore says, and its customers tended to shift toward higher-priced, more profitable machines. He expects Dell’s gross margin to be 22.5 percent, up slightly from the 21.5 percent seen in the year-ago quarter.

He expects Dell to have a pretty good year, too: Modest growth in revenue should be accompanied by ever-better gross margins. Dell made some big investments in 2011 that added to operating expenses, and Whitmore expects the company to put those investments to work in 2012. As such, the $2.04 per-share profit that Dell has forecast for the year could prove conservative. He sees Dell reporting a profit of $2.20 for the year.

Correction: I initially got the days that Dell and HP are reporting their results wrong and have since fixed it. Sorry about that.

(Larry David image is on this T-shirt.)

Deutsche Bank analyst Chris Whitmore expects some difficulties for Big Blue stemming mainly from the company’s exposure to the troubled economies of the euro zone and related currency weaknesses there. He expects the company to report sales of $29.8 billion and per-share earnings of $4.62, with his sales forecast slightly more optimistic than that of the consensus of Wall Street analysts.

Even so, he expects the strength of the U.S. dollar relative to the euro in recent months will create a headwind effect worth about 2 percentage points compared to IBM’s prior forecast in October. “Although the stronger dollar is likely to impact reported revenue, IBM remains one of the most defensive names in our universe due to its high exposure to recurring profit streams, past backlog growth and wide geographic and business diversification,” he wrote in a note to clients yesterday.

Hardware sales should be in line with forecasts as IBM has continued to gain market share away from Hewlett-Packard and Oracle. Services should continue to be a sign of IBM’s strength as its backlog of prior contracts should continue to deliver a stable stream of revenue.

One problem may come from service bookings. Whitmore thinks the consensus estimates on this closely watched number are, at $21.5 billion, a little high and thus could disappoint. IBM announced only five deals in the fourth quarter compared to seven in the same quarter of 2010. And though information about the size of the deals was limited generally, two of them combined to amount to about $740 million. “IBM’s services bookings figure is always a wildcard and the lack of many announced deals clouds visibility,” Whitmore wrote. He rates IBM a buy with a price target of $210.

The earnings report will also be the first with Ginni Rometty as IBM’s new CEO. Having already had a busy first few days on the job, it will be interesting to see if she uses the occasion of an earnings conference call to announce anything new, though that’s unlikely.

This fact caused chipmaker Intel to slash its sales forecast for the quarter by $1 billion, to $13.7 billion plus or minus $300 million. Today we’ll see just how bad the damage was, and how bad it’s going to be going forward, as the company reports its results after the close of markets today.

In a note to clients, Deutsche Bank analyst Ross Seymore says not to expect many surprises from Intel. Despite the lower sales guidance, he sees little change to Intel’s overall profitability. He expects Intel’s gross margins, a key metric in measuring profitability, to come in only slightly below the 64.5 percent that Intel had previously forecast. “We see little risk to gross margins despite the lower revenue because product mix continues to be solid,” Seymore wrote.

And while the first half of the new year is always seasonally slower than the second half, Seymore expects it to be slower still for Intel. He’s expecting sales in the first quarter of 2012 to come in at $12.73 billion, with a per-share profit of 51 cents, which is below the consensus of analysts who expect Intel to book sales of $12.8 billion. He also expects the hard drive shortage to hit Intel harder in the first quarter, as the supply of hard drives dries up. Gross margins in the quarter, he expects, will drop below 61 percent. Expect conservative guidance on PC demand for the quarters ahead.

Even so, Seymore rates Intel a Buy, with a $27 price target. “We believe Intel is well-positioned to benefit from new product introductions, improved execution and stable PC demand,” he wrote. He said that competition in chip prices from Intel rival Advanced Micro Devices should “remain benign,” mainly because AMD is fabless and so is at a competitive disadvantage with Intel. Other sectors of Intel’s business, including its flash memory operations, are showing improvement.

The company’s troubles aren’t anything you couldn’t intuitively guess: Consumer PC sales are weak for a variety of reasons, ranging from the popularity of tablets like the iPad to a frail consumer economy, combined with slumping sales to state and local governments facing squeezed budgets. Dell’s strengths: Sales of PCs and servers to enterprises and the federal government.

Even with weaker sales, that mix should allow Dell’s profits to hold up. Whitmore writes in a note to clients: “We expect solid margins due to favorable product mix — healthy corporate demand and softer consumer demand — benign commodity prices and greater contribution from Dell’s higher margin Storage and Server offerings.” Memory chip prices are down by 17 percent and LCD display prices are down 3 percent, giving Dell a little wind at its back from a cost perspective, and possibly offsetting the expected impact from a shortage of hard drives caused by the flooding in Thailand.

Whitmore expects Dell to report sales of $15.6 billion and margins of 22.2 percent, and an operating margin of 7.2 percent, implying per-share profits of 44 cents. Whitmore’s estimates are slightly below the consensus view of analysts’ calls for Dell to report earnings per share of 47 cents on sales of $15.7 billion.

Looking ahead, Whitmore expects Dell to emphasize an ongoing cycle of upgrades to corporate PCs and servers. He expects estimates for the 2012 fiscal year could improve, because right now they “appear conservative.”

When the device became available for preorder last Friday in Hong Kong, it sold out within 10 minutes. And in the States, retail inventories are reportedly being depleted almost as quickly as Apple can replenish them.

Deutsche Bank’s Chris Whitmore says a great majority of Apple’s U.S. stores are running out of 4S supplies on a daily basis.

“Our retail checks reveal Apple is experiencing daily stock outs at 85 to 90 percent of the ~30 retail stores we called,” Whitmore wrote in a note to clients. “Apple employees are directing customers to make an online appointment (first come first serve) for next day pick up at nearby Apple retail stores as stocks appear to be refreshed daily at most locations.”

Interestingly, availability at Apple’s carrier partners — AT&T, Sprint and Verizon — seems to be a bit more sporadic. “Our calls to carrier stores reveal infrequent shipments and no certainty when the next shipment will arrive with widespread shortages,” Whitmore explains. “It appears that Apple is prioritizing its own stores with new iPhones.”

Understandable, of course, though potentially a bit frustrating for carriers. Anyway …

So once again Apple is working hard to keep up with massive demand for its latest iPhone. And, once again, supply is likely the only factor limiting how many handsets it will sell.

Says Whitmore: “Continued strong demand (ahead of the holidays with more countries to be rolled out) makes our 28 million iPhone estimate for the December quarter appear increasingly conservative.”

HP shares have been bashed about in recent days, in no small part because of the dismal revenue outlook issued by rival Dell on Tuesday, and also on the heels of a downgrade by BMO Capital analyst Keith Bachman. Word that the TouchPad tablet isn’t selling well at Best Buy didn’t help. Dell shares gave up more than 10 percent of their value, and HP shares appeared to fall in sympathy by nearly four percent, closing at $31.39, or more than 36 percent off their 52-week peak.

So, what to expect? More lowered estimates, if Bachman is to be believed. In a note to clients Wednesday, Bachman cut his rating on HP to “market perform” from “outperform,” even though HP is trading at an inexpensive valuation. “Poor execution, low revenue growth and negative operating income growth” have caused him to slash his price target on HP to $36 from $43.

Bachman said he expects HP to fall short on PC sales, which may cause it to miss its previously issued revenue guidance. “We think HP will modestly miss July top-line estimates, and more meaningfully miss current top-line estimates for HP’s October quarter,” he wrote.

The consensus view of analysts calls for HP to report per-share earnings of $1.09 on revenue of $31.2 billion.

Chris Whitmore, an analyst at Deutsche Bank, wasn’t quite so dour as Bachman, though he wasn’t exactly whistling Dixie about HP’s prospects, either. Saying he expects HP to report results that are in line with the consensus expectations, Whitmore wrote in an Aug. 14 note to clients that he sees a “modest risk to revenue expectations.” The continuing investment to beef up HP’s investment in the services business will put some pressure on future earnings potential, Whitmore worries.

Citing checks of HP’s supply chain and distribution channel, Shaw Wu of Sterne Agee said in a note to clients yesterday that he thinks HP will “meet or exceed” the consensus estimates, and that, as in recent quarters, enterprise hardware sales will be stronger than consumer PC and device sales. “We believe this favorable product mix, in addition to lower component costs, should benefit gross margin,” he wrote. At least there’s one vote of confidence.

Back to services for a moment. HP’s long-term strategy has been to transform itself into a bigger player in IT services, so that it can rely less on sales of personal computers and printers, both of which are subject to violent sales-cycle swings. It’s a strategy that worked out well for IBM, and the $14 billion acquisition of EDS in 2008 was a key part of it.

During HP’s last earnings call in May, Apotheker grumbled that under previous CEO Mark Hurd, now a president at Oracle, HP “over-executed operationally and under-invested strategically.” Essentially, Apotheker blamed Hurd — known as an aggressive cost-cutter — for cutting too deeply without making sufficient investments to fuel growth in higher-profit lines of businesslike services. As a result, Apotheker explained, some expensive investments would be needed over the next several quarters to get that services business where it needs to be, and these investments would eat into results for the next several quarters. (You can hear him explain it himself in a CNBC video from May, below.)

It will be interesting to see if that “Hurd’s fault” narrative is still on the table. If it is, it’s not likely to fall on sympathetic ears. In his downgrade note, Bachman at BMO criticized HP harshly for pressing this message. “We suspect that management will make the point that previous management cut HP too much. However, previous management did not provide guidance, and then miss for three quarters, particularly right after having an analyst event. We would leave blaming the previous administration to politicians — it does not work with investors.” Ouch.

Among the top notebook vendors — Acer, ASUS, Dell, HP and Samsung — Apple ranked last in global market share in the second quarter of 2011, according to Deutsche Bank analyst Chris Whitmore.

But that’s without the iPad.

With it, Apple was the single largest notebook vendor during the period, with a 20 percent market share — greater than the 15 percent held by PC giant Hewlett-Packard.

An interesting exercise, regardless of how you view tablet computers. To some, the tablet is an entirely new category of device; to others — Microsoft CEO Steve Ballmer, for example — it’s just another PC. And the difference between the two is the difference between market leader and market laggard — though, as Whitmore observes, Apple could hardly be considered the latter.

“Within the computing market, we see significant opportunity for Apple to take meaningful share in the second half as the Microsoft / PC ecosystem is relatively stagnant, lacking meaningful new offerings,” Whitmore wrote in a note to clients. “On the other hand, Apple will be competing with an upgraded Mac OS, new MacBook Airs (and other forthcoming Macs) and a new iPad iOS. Within the Tablet market, the iPad remains the Gold Standard as competitors struggle for mindshare and traction (note HP’s price cuts on the TouchPad). Meanwhile, competing PC manufacturers have suggested Ultrabooks won’t ramp in material volumes until 2012 due to challenges driving price points meaningfully below Apple’s Air. As such, Apple appears particularly well positioned for more share gains heading into the back-to-school and holiday selling season.”

Analysts polled by Thomson Financial expect IBM to report sales of $25.35 billion and a per-share profit of $3.03. Analyst Chris Whitmore of Deutsche Bank Securities says, in a note to clients today, that he expects sales that are slightly above the consensus at $25.9 billion, which would amount to growth of more than nine percent over the year-ago quarter, and earnings of $3.01 or slightly below.

Whitmore says that checks of IBM’s sales and distribution channels indicate that demand remains strong for IBM’s mainframe systems as well as servers running its Power Architecture chip, and he says it’s taking meaningful share away from Oracle’s UltraSparc business, the line of servers Oracle absorbed when it acquired Sun Microsystems last year.

The service business should turn in a beefy quarter on the heels of new contract wins. Expect service revenue to come in line with previous forecasts of $12 to $13 billion, Whitmore says, with help from a favorable environment for foreign currencies.

That’s not to say there aren’t worries: Whitmore points out that IBM announced only five deals during the quarter, which is half as many as in the year-ago quarter. It’s also been disclosing less information about each deal, and only one — with India Infoline — was north of $50 million. “IBM’s services bookings figure is the biggest wild card this quarter due to the limited data,” he writes. Still, he expects it to track in line with prior forecasts, mainly because several five- and 10-year deals have been announced, even though their size hasn’t been disclosed.

We suspect consensus bookings expectation is $12B to $13B for the June Q and believe IBM is tracking in line with this estimate with solid long-term signings, as several multi-year deals (five and 10 years) were announced (although not sized).

Even so, Whitmore expects no change to IBM’s confident prediction that it will deliver $20 per share of earnings in 2015, and that implies annual growth of between 11 and 12 percent, which for now doesn’t seem unreasonable. As usual, all eyes will be looking for any hint that Big Blue is throttling back on its shorter-term guidance.

IBM has been a fairly solid performer this year, having seen its share price increase by more than 19 percent since the start of the year, beating both the Dow Jones Industrial Average and the Standard & Poor’s 500. Its shares closed Friday at $175.54, up $1.31, but were trading lower in premarket action this morning. We’ll see how it all turns out later in the day. See you then.

Among the most likely are J.P. Morgan, Bank of America and Deutsche Bank.

The Washington, D.C.-based company, which is the second-largest daily deals company after Groupon, is seeking $1 billion at an implied valuation between $10 billion and $15 billion.

Groupon is seeking to raise $750 million in an IPO, which it filed with the SEC in early June.

The lead underwriters that LivingSocial is likely to work with do not overlap with the ones leading Groupon’s offering, although there might be some overlap if others join later.

LivingSocial has raised a significant amount of money from Amazon.com. Its last round of capital totaled $565 million at a valuation of $3 billion.

Richard Gardner of Citigroup is in the bullish camp. In a note to clients today, he said that HP shares “remain significantly undervalued” and reiterated a $65 price target. HP, he wrote, has an “under-appreciated set of assets” that should help deliver strong earnings growth over the next five years, observing that it trades at a 35 percent price-to-earnings discount versus IBM, and a 30 percent P/E discount when compared to Cisco Systems.

Chris Whitmore of Deutsche Bank was much more muted. In a research note to clients issued today, he said that HP is fairly valued based on the risks associated with execution on the strategy combined with an anticipated increase in spending, while revenue from such businesses as PCs and printers is growing more slowly. Nor was he impressed by CFO Cathie Lesjack’s announcement that HP will boost its quarterly dividend, and that it expects to increase its per-share earnings by $7 between now and 2014. “In aggregate, we believe the long term EPS target and the dividend increase suggests no large transformative acquisitions in the near-term.” Finally, he doesn’t seem to expect much from HP’s plans for webOS, the mobile operating system it acquired with Palm last year. “While we believe the webOS offering has potential, it is late to market (Android and iOS have 12-18 month lead) and HP risks alienating Microsoft which is a key partner. Finally, HP has yet to ship a Touchpad into a market that is showing enormous demand for the recently refreshed iPad 2.” Apple has, he said, “an insurmountable lead” in the market for tablets and smartphones. He rates HP stock a “hold” with a price target of $42.

Robert Cihra of Caris and Company said he found Apotheker’s comments to be “relatively familiar.” Talking about leveraging scale to approach the cloud computing business, as Apotheker did yesterday, is “similar to those same strategic opportunities being targeted by virtually every HPQ competitor.” He conceded that, while consumer technology is leaving an indelible mark on corporate IT–that trend often described as “the consumerization of IT”–HP is in a unique position, given its reach in both areas. He’s just not convinced that HP knows what to do to take advantage of that position.

“HP stock certainly looks cheap if it can achieve targeted numbers, but we see it getting tougher for the company to navigate its massive IT superstore (after all this is HP + Compaq + EDS) while also keeping pace with competitors we consider more innovative and defensible, including Apple, EMC and IBM.”

PREVIOUSLY:

• Apotheker Sets Hewlett-Packard on a Cloud-Centric Path
• Léo Apotheker: Hewlett-Packard Will Build a Cloud
• HP’s New CEO Has a Big Day Planned, and a Bigger Job Ahead
• Another Advisory Firm Singles Out HP Director Babbio
• Shareholder Group Contends HP’s New Board Is Too Chummy
• “Peripatetic Polyglot” Léo Apotheker Wants to Save HP’s Soul by Buying Software Companies
• HP Earnings Today: Will Léo Apotheker Speak?
• Michael Dell Thinks HP Paid “Way Too Much” for 3Par
• Judge: HP Can Re-Investigate Hurd Departure
• Is This the HP Board That Will Allow Us to Stop Thinking About HP’s Board?
• Meg Whitman, Patricia Russo Among Five Joining HP Board
• HP Plans Another Probe Into Hurd Departure
• Léo Makes It Official: SAP’s Bill Wohl Joins Hewlett-Packard
• Want Enterprise Growth, HP? Think Services
• Mark Hurd Really Wants to Keep the Jodie Fisher Letter Private
• Mark Hurd Doesn’t Want You to Read the Letter That Cost Him His Job
• HP Networking Head: “People Are Tired of Paying for Cisco”
• HP Names Ex-SAP Chief Apotheker as CEO

Of the upgrades I saw, the most aggressive was that of Chris Whitmore at Deutsche Bank, who boosted his price target on IBM to $200 from $175. At the Tuesday meeting, IBM repeated its promise to double its earnings per share to $20 and to boost sales by $20 billion by 2015. That was good enough for Whitmore to say his his prior price target was “conservative.”

“We believe there is ample flexibility for IBM to beat this target and expect investors to place a larger premium on IBM’s earnings stream as confidence in this goal increases,” he wrote.

Confidence in Big Blue was all over the analyst-verse today. As Robert Cihra wrote in his research note, “IBM took more time than usual to showcase some advanced tech initiatives, we get the sense IBM has rejuvenated pride in its massive $6 billion annual research and development spend, in contrast to more standards/commodity-reliant competitors, seeing continued opportunities toward ever-higher margin mix.” By “standards/commodity-reliant competitors” he means Hewlett-Packard. We’ll see what its peripatetic polyglot CEO has to say about that at HP’s analyst/press meeting next week.

Also, IBM is spending aggressively to grow in emerging markets, which Cihra said is a likely to prove to be a good thing: “Whereas much of IBM’s focus in mature/developed markets comes down to efficiency and improving margin mix, the company’s emerging geo strategy includes happily spending on growth.” Cihra raised his price target to $185, and practically all the analysts covering IBM are now expecting it to hit $180 or more.

Oh yes, and IBM once again showed off the Watson supercomputer that so brilliantly got the whole world talking anew about the man vs. machine struggle last month. Maybe it scared them into all those upgrades? Time will tell.

As Oppenheimer analyst Yair Reiner said in a note raising his target price on the company’s shares to $425, “It’s no surprise when Apple tops expectations, but it’s fairly rare to see it trounce Street’s targets on almost every line. Bottom line: big as Apple is, it shows no sign of slowing, not with the Verizon iPhone launching in 2Q11 and China growth accelerating to 400% year-over-year.”

Piper Jaffray analyst Gene Munster raised his price target to $483 from $438, observing in a research note that this quarter was the first in three years in which Apple issued EPS guidance above Street consensus (10 percent ahead of the Street). “Apple’s vision for itself as a mobile device company has come to fruition,” he said. “[The company] guided the March quarter more aggressively than it typically guides the out quarter relative to the Street. We see this as sign that it is bullish on the prospect of the iPhone at Verizon.”

At Deutsche Bank, Chris Whitmore slapped a price target of $440 on AAPL. “Apple continues to show impressive growth despite its size and is well positioned to benefit from the confluence of three major product cycles, namely: iPad, Macs and iPhone,” he told clients. “These product cycles coupled with greater geographic expansion (Verizon iPhone, iPad 2, iPhone 5, China expansion, Carrier deals) increases our confidence in AAPL’s ability to continue to outperform.”

At Barclays, Ben Reitzes raised his target to $450 from $420 to account for higher unit sales across Apple’s product portfolio. His take on Q1: “This very strong quarterly report left no holes to punch in the fundamental story. We believe the above-consensus revenue and EPS guidance and new products to come bring potential for further upside. We continue to believe the company is in very capable hands with COO Tim Cook and the rest of the team.”

Raising his price target to $450 from $430, Goldman Sachs analyst Bill Shope said essentially the same thing. “While the news of Steve Jobs’ medical leave may continue to add some headwinds to the share price momentum in the near-term, we continue to believe improving underlying fundamentals and the strength of Apple’s overall management team will counter this uncertainty. In addition to the strength of the December quarter and the recent Verizon iPhone release, we believe the next-gen iPad launch and the June iPhone refresh will serve as critical catalysts in the first half of 2011.”

UBS analyst Maynard Um ratcheted his price target up to $465 from $415, predicting what “could be the largest pre-order & sales ever experienced by Verizon Wireless for the iPhone” and continued success for the iPad. Said Um, “Though there has been increasing concern with regard to ramping competition, we see Apple’s ecosystem and ease of use as offering a more compelling value proposition than its competitors today and expect its tablet market share to more closely match its iPod market share in the mp3 player market rather than its share in the more fragmented smartphone market.”

And, finally, there was Ticonderoga’s Brian White, who took a “F@&k Everything, We’re Doing Five Blades” approach and raised his target price to a staggering $550. That’s about 60 percent higher than the price Apple shares have been trading at recently, a target that if the company were to hit, would value it at $506.6 billion. Said White, “Despite Monday’s news regarding Steve Jobs’s medical leave of absence, we believe it will be difficult to keep Apple’s stock from reaching new highs given the much stronger than expected quarter and outlook reported by the company.”

Bullish, or another word with a lot of the same letters? Hard to say. But as you weigh that question, remember this: This is the 33rd consecutive quarter in which Apple has beaten estimates. And this time it beat them by $2 billion.

Taking first place is highly improbable, because by launching the iPad when it did, Apple claimed the lead not just in the tablet market, but in a handful of other areas on which that market depends–user experience, content acquisition and integration, and supply chain and build cost.

Whitmore figures Apple has a 12-18 month lead versus competitors on content and apps, and a multiyear lead on other media acquisition and integration through iTunes. He suggests that its early investment in capacitive touch technology and prepayments to touchscreen suppliers in order to guarantee supply will give it a meaningful cost advantage for some time.

And then, there’s the obvious: The iPad has been shipping for nearly a year, and its successor is already in the pipeline. “We expect iPad 2 to ship this spring, before most vendors will be introducing their first generation tablet,” said Whitmore. “For instance, Google’s Android 3.0 Honeycomb will ship in late 1Q at the earliest, suggesting meaningful [tablet] volumes won’t ship until 2H-11. We expect HP to announce its Palm Tablet in early February with significant volume shipments ramping in 2H-11. By then, iPad 2 will have been shipping for 3-6 months and its massive developer support lead will have expanded.”

With strong global demand for its products and few retail stock-outs over the holidays, Deutsche Bank analyst Chris Whitmore believes the company racked up sales above already lofty expectations. And he raised his estimate on Apple today, following channel checks that revealed better-than-anticipated iPad and Mac demand and unwavering demand for the iPhone–even ahead of an expected Verizon announcement.

Over the holidays, Whitmore’s team checked up on 50-plus Apple Stores and retail partners, and found long lines, heavy store traffic and limited stock-outs at the majority of them.

“Apple continues to benefit from the strongest product offering in its history and the strong double-barreled product cycle is driving massive global demand for iPads and iPhones,” Whitmore said. “Both categories are benefiting from additional carriers, international expansion and limited competition. In addition, while we expect an onslaught of new tablet announcements at CES this year, we do not expect material competition to arrive until the second half of 2011. We have not seen anything that matches Apple’s iOS product suite in terms of form factor, usability, integrated hardware/software and the breadth and depth of the App store.”

Whitmore now expects Apple to sell 60 million iPhones in calendar 2011, up from 55 million. And that’s without a Verizon iPhone. With it, he says, iPhone sales should rise by another five million to seven million units. “We expect a CDMA based iPhone to be a significant positive for AAPL with limited cannibalization at AT&T,” he said. “Our DB colleague Brett Feldman, who covers Telecom Services, estimates that Verizon will add roughly 15M iPhones in 2011 with 6M cannibalized from AT&T.”

The iPad has given Apple a wide lead in the tablet market, so wide that rivals will be hard pressed to catch up to it anytime soon.

“We believe Apple’s lead in the tablet market will prove difficult to close by the onslaught of competing products coming over the next several quarters,” Deutsche Bank analyst Chris Whitmore wrote in a note to clients today. “Ultimately, we expect the slew of upcoming competition to fall flat from a user experience standpoint while struggling to materially undercut the iPad on price.”

Today, the company’s position in tablet user interface, applications and content availability is unmatched. Add to this the scale advantage that comes from being the world’s largest buyer of flash memory and one of the largest buyers of capacitive touchscreen technology and catching up to Apple in the tablet market becomes a daunting proposition indeed.

“What’s troubling for competitors is Apple’s growing scale advantages and leverage with the supply chain,” Whitmore explains. “Because Apple is leveraging its iPod and iPhone buying power in the tablet market, the traditional PC vendors will not have the same buying power and scale advantages enjoyed in the traditional notebook market…. Apple is the world’s largest buyer of FLASH by a wide margin. We estimate Apple buys about 20-25% of the world’s FLASH due to its large iPhone and iPod FLASH needs….Finally, due to its early investment in capacitive touch technology and lead in selling touch devices, it’s difficult to believe any vendor buys more square footage of capacitive touch technology than Apple.”

Which doesn’t bode well for anyone bringing a tablet to market in the months ahead, Hewlett-Packard most of all. Says Whitmore, “We see considerable risk that HP’s PC expectations are too high (due to severe cannibalization) and its Palm business will ramp too slowly to offset the pressure from the iPad.”

“This set of hardware specs beat anything available to date on the tablet market,” Steven Li at Raymond James said in a research note issued today. “We believe the PlayBook tablet shows RIM is starting to compete effectively on hardware specs.”

RBC analyst Mike Abramsky offered a similar opinion, describing PlayBook’s specs as “leading-edge” and arguing that the device is well positioned for enterprise. “PlayBook may be cheaper, more productive than iPad for enterprises to deploy,” he observed, noting that the device requires no additional licenses or carrier costs and leverages existing corporate apps and infrastructure. Abramsky’s preliminarily estimate has RIM selling as many as six million PlayBooks in its first year at market.

Brian Modoff of Deutsche Bank said the company’s new OS has a lot of potential, likely making it easier for developers to write for the device and future products that use it.

Finally, over at Susquehanna, analyst Jeffrey Fidacaro talked up the device’s new QNX operating system, which sounds promising, though he noted that the transition to it could take some time, slowing the development of its app ecosystem.

“An app developer contact who works closely with RIM described the recently acquired QNX OS as “rock solid” as it was designed for mission critical applications, and felt that the SDK allowed for applications to be ported over fairly easily,” Fidacaro wrote. “The QNX OS is Unix-based and supports POSIX (easy portability of code) and OpenGL (3D graphics). We view RIM’s transition to a new OS positively as the Blackberry OS was antiquated, which apparently was not fully resolved with the recently launched Blackberry 6. However, we estimate the transition period to fully upgrade RIM’s 50+ mln subscriber base to the new platform to take at least two years. Furthermore, it is uncertain how easy RIM can port its proprietary technologies, such as security and compression, to the QNX platform.”

And that’s the real problem RIM (RIMM) is facing here: PlayBook is late to the game, and, as impressive as its specs might be, the timing of its launch– early 2011–may prove to be a real detriment. “With the PlayBook only available for consumers after the holiday season, we view this as a mild disappointment,” T. Michael Walkley of Canaccord Adams said in a note to clients Tuesday. “As such, we remain cautious in modeling RIM tablet sales due to the intensifying tablet competition and uncertain demand for this product.”

A fair bit of time has passed since “antennagate” and Apple’s (AAPL) unprecedented response to it. So how’s the iPhone 4 been selling after all that criticism?

As well as ever, says Deutsche Bank analyst Chris Whitmore.

In other words, damn well.

“iPhone 4 demand remains very robust and despite efforts to close the supply-demand imbalance and the continued supply ramp, Apple still cannot meet iPhone demand (3 week lead times persist),” Whitmore said in a note detailing his recent meeting with Apple CFO Peter Oppenheimer and Ron Johnson, the company’s SVP of retail.

Which is pretty much what COO Tim Cook said during Apple’s last earnings call when the antennagate drama was still fresh. “The demand for iPhone 4 is absolutely stunning,” he said. “We’re working hard to catch up with demand. I can’t tell you when that will occur but everyone’s working hard to do it.”

Evidently that’s proving a Sisyphean task.

PREVIOUSLY

• iPhone 4 Full Coverage on AllThingsD.com
• Apple’s “Just Encase” Answer to iPhone 4 Complaints [Live Blog]
• What Will Apple Say Tomorrow? Your Guess Is as Good as My Analyst’s.
• Apple Releases iOS 4.0.1 for iPhone, iOS 3.2.1 for iPad
• The Reality Distortion Field Appears to Be Suffering Attenuation Issues as Well
• Analyst: “Highly Unlikely” iPhone 4 Recall Could Cost Apple $1.5 Billion
• Apple Snips Needling Threads From iPhone 4 Forums
• IPhone 4 Recall? Get a Grip!
• Consumer Reports: By the Way, the iPhone 4 is Also the Best Smartphone on the Market
• Duct-Tape Makers Look for Boost From Consumer Reports iPhone Verdict
• Consumer Reports: We Can’t Recommend the iPhone 4
• Apple: Your iPhone 4 Antenna Is Fine, and So Is Your Reception–But We’re Fixing Our Software Anyway
• Grip Different: Apple, AT&T Sued Over iPhone 4 Antenna Issue
• Gripping Antenna Drama Won’t Hold iPhone 4 Back, Says Analyst
• Apple on iPhone 4 Reception Problems: Grip Different

Add the 3.27 million iPads Apple (AAPL) sold in the quarter to its 2.47 million MacBooks and MacBook Pros, says Deutsche Bank’s Chris Whitmore, and Apple becomes the third-largest player. That puts it above Asus, Lenovo, Toshiba and Dell (DELL) and below Hewlett Packard (HPQ) and Acer in terms of global unit share. And with iPad sales the way they are and the device’s international roll-out well under way, the company is poised to climb higher still (click images to enlarge).

“Our retail checks suggest this share shift continues in July, where the iPad is directly cannibalizing demand for other vendors’ notebook products,” Whitmore writes. “Remarkably, Apple’s traditional MacBook business posted accelerated unit growth on a Y/Y basis in 2Q despite the launch of the iPad while every other Top 5 vendor slowed. Apple’s iPad ramped to an $8B+ annual revenue run rate in just 1 quarter. While we wait for competitive responses to the iPad (from HP, Asus, Acer, etc), we expect strong iPad uptake to extend globally as it is launched in additional countries / channels, supporting further share gains for Apple in the broader ‘converged mobility’ market.”

[Image credits: Deutsche Bank and Gizmodo commenter modestmouse]

Gene Munster, Piper Jaffray
While Apple had yet another stellar quarter, investors will wonder if the pace of growth is sustainable. We believe it is, given Apple has small market share in large, growing markets. We estimate that if Apple meets our Mac, iPhone, and iPad targets in 2011, the company will have only about 5 percent market share in the phone and computer markets, a number that will likely grow over time.

Mike Abramsky, RBC
Apple is now benefiting from what we are dubbing a “Cascade of Cool”–three strong, synergistic product cycles–iPhone, iPad and Mac, combining together synergistically to drive the strongest outperformance in 4 years–with more to come, as Apple remains well positioned against large, addressable markets. Additional drivers/catalysts expected include international rollouts, voice to Smartphone adoption, PC to Mac migration, enterprise adoption.

Chris Whitmore, Deutsche Bank
While current quarter results were very impressive, we see open runway for the 3 major product cycles ramping in C2H10 and beyond which should drive continued momentum. The iPad is off to a very strong start with demand characterized by Apple as “amazing” with widespread appeal to the mass market (i.e. already moved beyond “early adopters”). iPhone 4 demand is outstripping supply despite widely publicized antenna concerns (which we expect to dissipate). Both products continue to ramp internationally (iPhone with 154 carriers in 88 countries) while iPad will be available in 9 additional countries by July 23rd. Finally, we expect the recently refreshed MacBook lineup (and future updates) to perform well in the back-to-school and holiday seasons.

Yair Reiner, Oppenheimer
We were expecting Apple to deliver a strong F3Q10. But we hadn’t girded ourselves for a mammoth revenue forecast, and neither, we believe, had the Street. To those (like us) who fretted that Antennagate might hamper iPhone sales, Apple’s guidance seems to say “antennagate schmantennagate.” Apple is seeing a swell of demand across its product lines and increasingly compelling evidence that the iPhone has unleashed a halo effect in the international markets. These are facts on the ground that even Apple’s stubbornly bearish guidance can’t resist.

Charlie Wolf, Needham and Co.
This is the Apple story in a nutshell. The company remains a small fish in some very large ponds. Despite a quadrupling of shipments over the past several years, the Mac, the major surprise in the third quarter with record shipments of 3.5 million, still commands a small share of the PC market. The iPhone’s share of the fast growing smartphone market is likewise comparatively small. And while the iPad is in a class of its own, it’s beginning to cannibalize the much larger netbook PC market. Indeed, the iPad has jumped to the mainstream market, passing through the early adopter market in an instant.

Maynard Um, UBS
Guidance was much stronger than expected as the rev outlook of ~$18b was uncharacteristically higher (by $1bn) than Street ests. We believe AAPL typically guides to a conservatively achievable target, making guidance all the more impressive. With AAPL selling nearly every iPad/iPhone 4 produced, key variable to magnitude of pot’l upside will likely be the pace of capacity increases.

Katy Huberty, Morgan Stanley
The market underestimates the earnings power of Apple’s mobile Internet devices. We view the combination of new product launches, broader distribution (carrier, international, enterprise), more attractive pricing and strong upgrade rates as the key demand drivers over the next two years. Additionally, we believe iPhone, iPod Touch and iPad margins will remain above the corporate average, driving EPS upside as mix improves.

As you can see, Apple’s financial performance has sent the analyst community into paroxysms of praise. Not a week after its Antennagate press conference, the company already seems to have extricated itself from the public relations quagmire surrounding the iPhone 4’s reception woes.

As RBC analyst Abramsky quipped, there’s no deodorant like success.

According to Whitmore’s survey of 100 iPhone 4 retail outlets (Apple, AT&T, Best Buy, O2, Orange and Car-Phone stores in the U.S. and U.K.), 60 percent of Apple Stores were sold out by Thursday evening, as were 100 percent of retail-partner stores. Supplies were replenished overnight, but by end-of-day Friday, quite a few stores were reporting stock-outs. And that number only grew on Saturday.

“Our checks carried out on Saturday revealed that Apple retail stores which were stocked-out on Thursday/Friday were unable to replenish stocks with ~95 percent of stores contacted experiencing stock-out situations. Further, most Apple representatives were not certain about the iPhone 4 stock replenishments and comments such as ‘We’re out of stock’, ‘Don’t know when we will have them in store’, ‘We sold out just minutes ago’, ‘No, we don’t know when we will be getting the phone’ and ‘Your best bet is the online store’ were cited frequently,” Whitmore reported.

“In addition,” according to the analyst, “retail stores which had iPhones in-stock cited long lines (2 to 3 hours) outside the stores. Comments such as ‘We have very limited numbers, we should be sold out in a couple of hours’ and ‘Please give us a call just before you leave home to make sure the iPhones are in stock’ suggested waning inventory levels.”

Whitmore figures Apple (AAPL) sold more than one million iPhone 4s over the weekend, but notes that shipments could have been dramatically higher if there was more supply.

“While the strong start is encouraging, we believe the long-term opportunity for growth of the iPhone is even more significant as near-term shipments are being gated by supply constraints,” Whitmore wrote. “We estimate Apple to sell 44 million iPhones in CY10 (8.5 million in the June quarter) and 55 million in CY11.” (See chart below; click to enlarge.)

This is a large acquisition for SAP (SAP) and one that will give it quite a bit more fire power in its battles with nemesis Oracle (ORCL). As Forrester Research’s (FORR) Paul Hamerman told Bloomberg earlier today, “The deal makes sense because SAP is betting heavily on in-memory computing and mobile applications as the future of computing and Sybase brings to the table a capability for high-speed in-memory databases and a mobile application platform.”

Here’s the announcement:

SAP to Acquire Sybase

Strategic Move to Accelerate the Reach of SAP® Solutions across Mobile Platforms,

Help Companies Manage and Analyze Business Information and Processes on Any Device

WALLDORF, Germany and Dublin, California, USA — May 12, 2010 — SAP (NYSE: SAP) and Sybase, Inc., Dublin, California (USA) (NYSE: SY) today announced that SAP’s subsidiary, SAP America, Inc., has signed a definitive merger agreement to acquire Sybase, Inc., in a transaction that will bring the two information technology (IT) leaders together to enable companies to become better-run “unwired enterprises.” As a result of this transaction, customers will be able to better harness today’s explosion of data and deliver information and insight in real time to business consumers wherever they work so they can make faster, more informed decisions. Companies will benefit from greater productivity, speed and agility to help their businesses grow. Under the terms and conditions of the merger agreement, SAP America, Inc., will make an all cash tender offer for all of the outstanding shares of Sybase common stock at $65.00 per share, representing an enterprise value of approximately $5.8 billion.

The per share purchase price represents a 44% premium over the three-month average stock price of Sybase. The transaction will be funded from SAP’s cash on hand and a €2.75 billion loan facility arranged and underwritten by Barclays Capital and Deutsche Bank.

The Sybase board of directors has unanimously approved the transaction. The closing of the tender offer is conditioned on the tender of a majority of the outstanding shares of Sybase’s common stock on a fully diluted basis and clearance by the relevant antitrust authorities.

SAP and Sybase to Benefit from Synergies

Both SAP and Sybase will benefit from synergies across product lines and markets. SAP will accelerate the reach of its solutions across mobile platforms and drive forward the realization of its in-memory computing vision. This will drive higher user adoption of SAP software and unlock significant business value out of existing customer investments. In addition, Sybase’s innovative mobile platform can connect all applications and data (SAP and non-SAP) and enable them on mobile devices. SAP, Sybase and their customers will be able to tap into Sybase’s messaging network to reach 4 billion mobile subscribers through 850+ operator relationships worldwide and engage their consumers via alerts, transactions and promotions on their mobile devices.

For Sybase, SAP in-memory technology will provide the opportunity for dramatic performance improvements to its analytic processing capabilities. Sybase will also be able to bring its complex event processing and analytics expertise, which was built in the financial sector, to customers in other industries, markets and product areas in which SAP has a complementary, strong presence. Finally, Sybase’s core database business will be enhanced by SAP in-memory technology to deliver integrated transactional and analytical capabilities. At the same time, SAP reinforced its dedication to customer choice by stating that it will continue its commitment to supporting leading database vendors.

The synergies between the two companies will also expand opportunities for the SAP and Sybase ecosystems. Software and implementation partners can capture new opportunities by innovating on Sybase’s market-leading mobile platform, which will make it easier to create, deliver and securely manage mobile enterprise applications across major device types.

SAP and Sybase Stronger Together

“With this transaction, SAP will dramatically expand its addressable market by making available its market-leading solutions to hundreds of millions of mobile users, combining the world’s best business software with the world’s most powerful mobile infrastructure platform,” said Bill McDermott, co-CEO of SAP and member of the SAP Executive Board. “This is a game-changing transaction for SAP and Sybase customers, who will be better able to connect their employees with key functionality and information from anywhere and make it easier for companies to make faster, more informed business decisions in real time. With SAP’s customer-centric approach, we are resolute in our commitment to support Sybase customers to be best-run businesses.”

SAP said it will continue to support each organization’s product road map while enhancing products to help customers derive additional value from existing investments. It also stated that both companies’ development organizations would remain intact, with the opportunity to cross-collaborate to increase innovation for customers.

Headquartered in Dublin, California, Sybase delivers a range of solutions to ensure that customer information is securely managed and mobilized to the point of action, including enterprise and mobile databases, middleware, synchronization, encryption and device management software, and mobile messaging services.

“Mobile devices are becoming the preferred interaction point with business applications, whether the user is a factory supervisor, a retail manager or an entrepreneur in a developing nation,” said Jim Hagemann Snabe, co-CEO of SAP and member of the SAP Executive Board. “The combination of SAP and Sybase will give users the option of running their operations from leading mobile devices and will unleash the full power of mobility, including messaging interoperability, content delivery and mobile commerce services, across all companies and roles and in any location. In addition, innovation around Sybase’s established database business will pave the way for ‘real’ real-time analytics and finally remove the decade-old barrier between business applications and business intelligence.”

Sybase to Operate Stand-Alone

The two companies announced that Sybase will operate as a standalone unit under the name “Sybase, an SAP Company.” Sybase’s management team will continue to run the business. The SAP Executive Board plans to propose to the Supervisory Board to appoint the Chairman and CEO of Sybase to SAP’s Executive Board.

“This transaction better positions SAP and Sybase to bring remarkable benefits of mobility and real-time information to our customers’ existing technology investments,” said Vishal Sikka, Chief Technology Officer and member of the SAP executive board in charge of Technology and Innovation. “SAP’s in-memory computing technology is already revolutionizing business analytics and will bring a paradigm shift to enterprise data management for all applications. The in-memory team within SAP will continue its current mission to innovate in-memory technology and these innovations will enable both SAP and Sybase to bring unprecedented value to their customers.”

“This combination is a transformative event in the software industry,” said John Chen, CEO of Sybase, Inc. “SAP’s in-memory technology in combination with Sybase’s database technology will revolutionize how transactional and analytic applications are built, benefiting all businesses. Further, by combining the market leader in enterprise applications with the market leader in enterprise mobility, companies around the world will be able to run their business from many devices. This will drive a new wave of enterprise productivity. The combined SAP/Sybase will be able to provide a software offering that enables companies to transform their businesses in an increasingly data-, consumer- and mobile-centric world.”

Transaction Expected to Be Accretive to SAP’s Earnings per Share on a non-IFRS Basis in 2010 and Beyond

The transaction is expected to close during the third quarter of 2010 and will be immediately accretive to SAP’s earnings per share on a non-IFRS adjusted basis. SAP expects the combination to deliver synergies through both revenue enhancement and the realization of cost efficiencies. Additional details regarding specific product, go-to-market and other integration details will be provided after the transaction is complete.

Tender Offer Details and Disclosure Information

SAP America’s wholly owned subsidiary, Sheffield Acquisition Corp.will promptly commence a tender offer under US securities law for all outstanding shares of Sybase common stock.

The completion of the tender offer and acceptance of Sybase’s shares is conditioned on the tender of a majority of the outstanding shares of Sybase’s common stock on a fully diluted basis and the satisfaction of regulatory and other customary conditions. Approval of the transaction by SAP’s stockholders is not required and the transaction is not subject to a financing condition.

Financial Analyst and Media Conference Call

SAP and Sybase senior management will host two conference calls for financial analysts and media to discuss the transaction:

On Wednesday, May 12th, at 11:30 pm CET / 5:30 pm Eastern (Dial in numbers: +49 6958 999 0797 (Germany), +44 20 8515 2302 (UK), +1 480 629-9692 (US), Conference ID: 4301600; Replay numbers: +44 20 7154 2833 (UK), +1 303 590-3030 (US), Access code: 4301600)

On Thursday, May 13th at 8:00 am CET / 2:00 am Eastern (Dial in numbers: +49 69 58 999 0797 (Germany), +44 20 8515 2302 (UK), +1 480 629-9692 (US), Conference ID: 4301586; Replay numbers: +44 20 7154 2833 (UK), +1 303 590-3030 (US), Access code: 4301586)

The calls will be webcast at www.sap.com/investor.