EUROPE'S HIGH-TECH HEAVY

SAP is no household name. but if you work for a multinational corporation, chances are you're already using SAP software to file expense reports, manage customer data or monitor product deliveries. The only non-American firm among the world's top-10 software makers, SAP is also one of Europe's few high-tech success stories. A start-up founded by German engineers working for IBM, SAP is now worth $60 billion on the Frankfurt Stock Exchange. Last month SAP and Microsoft--which are increasingly competing with one another--announced they'd been in "merger" talks but called them off. CEO Henning Kagermann spoke to NEWSWEEK's Stefan Theil at the company's headquarters in Walldorf, Germany. Excerpts:

THEIL: How close were you to getting bought by Microsoft?

KAGERMANN: Microsoft approached us about a possible merger late last year [but] after a series of talks called it off because it would have been too complex. There was never a deal on the table.

No. 1 software company Microsoft almost buying No. 3 SAP, No. 2 Oracle battling to take over PeopleSoft--what's going on in the software industry?

We are now seeing the same kind of consolidation we saw in the auto industry. Size counts--the more important IT becomes in running companies, the more they look for reliable players in terms of size, innovation, R&D budget. When you have 50,000 users running 98 percent of a company's business on SAP software, that's a much closer relationship than when you have 500 users and are only running the accounting department. Companies are dependent on these vendors' being around in 15 years. In the end there will be two to six names, not more.

Who?