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DOJ probe into Carahsoft may disrupt SAP and ServiceNow sales

EditorTanya Mishra
Published 09/25/2024, 10:17 AM
NOW
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The Department of Justice's investigation into Carahsoft Technology Corp., a government IT solutions provider, was highlighted for its potential impact on major software companies SAP (NYSE: SAP) and ServiceNow (NYSE: NYSE:NOW). The probe, which examines allegations of price-fixing on SAP products sold to the U.S. government, has been ongoing since 2022.

The investigation raises concerns due to Carahsoft's previous settlement of $75.5 million in a Fair Claims Act lawsuit in 2015, alongside a recent FBI raid on the company's offices.

The scrutiny over Carahsoft also extends to ServiceNow, a significant partner of the company, with over $1 billion in revenue attributed to its U.S. government business. Although ServiceNow was not named in the lawsuit, the investigation could potentially disrupt its operations and impact future contract negotiations.

The firm's recent dismissal of COO CJ Desai for unrelated hiring practices adds to the uncertainty surrounding the company's government sector dealings.

The analyst from Keybanc expressed worries that the investigation could prompt other public sector entities, both within the United States and globally, to reevaluate their contracts with SAP and ServiceNow. This reassessment could lead to disruptions in ongoing and future business engagements, which may have a more substantial effect than any potential financial penalties arising from the lawsuit.

The implications of the DOJ investigation are significant for both SAP and ServiceNow as they navigate the fallout of the allegations. The potential for ripple effects across their government business segments poses a risk to their sales pipeline and future growth in the sector. The ongoing legal scrutiny could potentially lead to a reexamination of their sales practices and partnerships.

Okta (NASDAQ:OKTA) and ServiceNow have been impacted by a recent FBI raid on Carahsoft Technology Corp.'s headquarters, a key partner for both companies. Analysts from Piper have expressed concerns about potential disruptions to the companies' pipeline deals, as both Okta and ServiceNow source over 40% of their disclosed federal contract dollars through Carahsoft. The FBI has confirmed the raid but has not provided further details, leading to investor speculation and concerns about the future of the companies' federal contracts.

In a separate development, ServiceNow has announced its ambition to become the most valuable enterprise software company by 2030. This was declared during the company's earnings call, where CEO William McDermott expressed confidence in the firm's innovative spirit and strong corporate culture. The company has reported a strong performance in customer service management, with revenues exceeding $1 billion, and a dominant position in the financial services sector, serving all top 24 global banks.

ServiceNow's future growth is projected to be driven by increasing enterprise investment in AI, a market expected to reach $3 trillion by 2027. The company has collaborations with NVIDIA (NASDAQ:NVDA) and Hugging Face underway to develop domain-specific large language models.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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