Computer Business Review

SAP sees cloud growth as it takes legal hit on net profit

by Joe Curtis| 17 July 2014

Cloud revenue growth signals shift from on-premise, says German giant.

SAP has hailed a boost in cloud revenues as a sign of customer demand shifting away from on-premise software in its latest set of financials.

SAP's second quarter net profit dropped by 23% on last year to €556m thanks to patent litigation but the company has raised its full-year cloud revenue expectations from €950m up to €1bn.

A 32% jump in cloud revenues to €242m helped the German tech giant push its quarterly revenue up 2% to €4.2bn year-on-year, as software revenues fell by 2% to €957m.

The German ERP giant attributed the cloud boost to its acquisition of Fieldglass, the cloud-based workforce management tool, as well as more customers buying SaaS.

SAP's president of EMEA, Franck Cohen, told CBR: "Clearly we cannot ignore the fact that somehow some of the on-prem revenue is now shifting to a cloud-based or subscription model.

"People were buying CRM on-premise, payroll and HR on-premise and now in the vast majority of companies in Europe most of them are buying the same solutions in the cloud."

But he said software revenue was experiencing patches of growth, with the UK experiencing a double-digit rise in on-premise spending - though he would not reveal the exact amount.

The ERP firm has already delayed its operating margin target of 35% to 2017 instead of 2015 to invest more in cloud, with the margin last year being 32.6%.

Cohen also attributed SAP's latest results to HANA, its in-memory database that provides fast data processing power, but the company did not break out revenue figures for the platform.

Cohen claimed that is because HANA underpins many of its cloud and on-premise applications, and the company now sees the platform as central to most of its applications, with 1,200 customers using it.

Net profit dropped 23% from €724m to €556m after it was forced to book €289m in provisions for a patent litigation with Versata Software.

Cohen said: "Customers are very confident in our strategy. The litigation has of course impacted our results but it is a one-off."

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