Sushil Jethwani co-authored this note

Salesforce.com (CRM:NYSE) showed a significant improvement(~200 bps qoq) in operating margin in 4QFY08 (QEJan08)to 5%, displaying the ability to lever its operating expenses. However, CRM will be operating in a vastly different competitive environment in the year ahead, with SAP’s aggressive push in the SaaS(Software as a Service) market with Business ByDesign, Oracle’s recently upgraded version of its on-demand CRM product, and Microsoft’s Dynamics Live CRM.

We looked at the past performance of CRM on various parameters such as margin improvement, sales productivity, subscriber growth and price realization to understand the levers available to CRM to shore up its margins. From our analysis and assumptions for the next two fiscals (FY09/10) based on competition, market dynamics and trends, we conclude that CRM is on the path towards margin improvement although competition will restrict the gains to a high single digit operating margin by FY10. read more…