software manufacturer
SAP lowers forecast for cloud business
The bottom line is that SAP is making profits. photo
© Uwe Anspach/dpa
The software giant SAP sees the future in the cloud, i.e. online-based services. In the end, however, the customers did not go along with it as they had hoped. There’s a reason for that.
Europe’s largest software manufacturer SAP also showed weaknesses in its declared future business in the second quarter. The Dax heavyweight corrected its annual targets on Thursday because the cloud revenues were weaker than expected.
Some large customers from the public sector have opted for a license instead of a cloud solution due to ongoing economic uncertainties, said CEO Christian Klein. “But that’s not a trend away from the cloud.”
stock falls
The news was not well received on the stock exchange. In New York trading, the group’s papers were down more than five percent in the early evening.
In its new forecast, SAP assumes a currency-adjusted increase in cloud sales of 23 to 24 percent for the current year. Previously, SAP had an increase of 23 to 26 percent over the previous year on the slip.
Customers who use cloud-based SAP software pay a lower amount over a period of usually three years – but then often remain customers longer because they can no longer use the software without a contract. Sales can therefore be planned better for SAP than in the license business, where the software is sold for a high one-off payment.
In the second quarter, cloud revenue was weaker than expected. Compared to the same period of the previous year, they increased by 19 percent to 3.3 billion euros in continuing operations. On average, however, analysts had expected more.
Overall, revenues climbed 5 percent to 7.6 billion euros. The adjusted earnings before interest and taxes (EBIT) were 2.06 billion euros, 23 percent more than in the same quarter of the previous year.
The search for the cause
The board of directors mainly blamed the weak economy for the dent in the cloud business. The business is temporarily suffering from the fact that customers from the public sector, for example, do not want to opt for a permanent cloud and thus a long-term solution, said Klein.
“They’re not deciding against the cloud, they’re just postponing entry.” The order backlog is still excellent, also for the second half of the year.
The weakening economy is also putting pressure on the cloud business from other sources, said CFO Dominik Asam. Because the demand for temporary workers is shrinking, transactions on the Fieldglass brokerage platform have also declined. The more temporary workers are placed through the SAP subsidiary, the higher the income of the parent company.
Still high profits
The bottom line is that SAP’s profits were bubbling up – but not because of day-to-day business. With the sale of the US market researcher Qualtrics, the Walldorfers will benefit from a special income of around 3.2 billion euros. All in all, SAP made a profit of 3.4 billion, almost 17 times more than in the previous year.
When presenting the figures, CEO Klein also emphasized the growth opportunities through artificial intelligence (AI). With its data from the business world, SAP is excellently positioned to capitalize on the trend.
Products with integrated AI solutions would be around 30 percent more expensive than without, driving sales, Klein said. The potential total market for SAP products is expected to double to $1 trillion by 2028.