Cloud boosts SAP revenue, despite demand drop in Asia

By John Ribeiro and Chris Kanaracus, IDG News Service.

SAP reported strong growth in cloud subscription and support revenue in the first quarter, even as the company saw a decline in software and cloud subscription revenue in the Asia-Pacific and Japan region.

The business software company said Friday that total revenue grew 7 percent to €3.6 billion (US$4.6 billion), according to IFRS (international financial reporting standards).

The company’s profit for the quarter was €520 million, an increase of 17 percent from a year earlier.

Software and software-related service revenue was €2.9 billion, up 11 percent year on year, while revenue from software and cloud subscriptions grew 19 percent to €794 million. Support revenue grew 8 percent year on year to €2.1 billion.

Revenue from HANA, the company’s in-memory database, tripled year on year, adding €86 million to software revenue in the quarter. SAP also reported double-digit growth in its mobile business.

In the first quarter, SAP customers began standardising their businesses on HANA, rather than just accelerating certain processes or running analytic workloads, co-CEO Jim Hagemann Snabe said during a conference call with press and analysts.

SAP recently made it possible to port its flagship Business Suite ERP (enterprise resource planning) software to HANA. A “double-digit” number of customers are now in a “ramp-up” programme for the Suite on HANA, and the capability is expected to be generally available mid-year, Snabe said.

There are now 1,300 HANA customers with “many, many implementation projects now ongoing,” Snabe added. “When companies have tried it and have seen the magic of HANA then they go on and increase the scope very rapidly,” he said.

But the highest growth was in the company’s cloud business. Its cloud subscription and support revenue was €137 million, up 373 percent year on year. SAP, however, holds that the cloud subscription revenue for the quarter is not a correct measure of performance in the cloud computing market as SAP cloud subscription and support revenue includes only proportionate revenue recognised in the quarter of multi-year, non-cancellable cloud subscription contracts entered with customers.

The “deferred cloud subscription and support revenue,” which includes committed future cloud subscription and support revenue already paid by the customer for subsequent quarters of the year, was €344 million, up by over 100 percent from the same quarter last year.

The 2013 revenue and profit figures include the revenue and profit from SAP’s acquisition of cloud-based human capital management tools company SuccessFactors and cloud-based e-commerce vendor Ariba. The comparative first quarter numbers for 2012 only include SuccessFactors starting on Feb. 21, and do not include Ariba as the acquisition did not occur until Oct. 1, SAP said.

SAP is “winning against pure-play vendors in the cloud every single day,” Snabe said during the call. In addition, SAP remains confident it will become the industry’s first “really profitable cloud company,” he added. The industry’s largest pure cloud vendor, Salesforce.com, runs at a loss but has spent vast sums on marketing and acquisitions in order to achieve rapid growth.

Meanwhile, SAP has forecast full-year 2013 non-IFRS software and cloud subscription revenue will grow in the range of 14 to 20 percent at constant currencies, helped by full-year non-IFRS cloud subscription and support revenue of around €750 million at constant currencies. It expects non-IFRS software and software-related service revenue in the year to increase in the range of 11 to 13 percent at constant currencies. The company also expects non-IFRS operating profit in the year to be in the range of €5.85 billion to €5.95 billion at constant currencies, up from €5.21 billion in 2012.

The quarter is SAP’s 13th consecutive of double-digit growth in software and software-related services, said co-CEO Bill McDermott on the conference call.

SAP believes its performance in Asia-Pacific was weaker than expected due to recent leadership changes in a number of countries there, including China, causing some deals to “slip into the second quarter,” McDermott said. “We are confident that we will be back on track in APJ in the second quarter,” he added. SAP has a “very healthy” pipeline of sales leads in the region, McDermott said.

Recent budget issues such as the sequestration debate in the US also impacted government IT spending, McDermott said. “The environment in the public sector has been very, very choppy and slow.” McDermott. “The good part is there’s a lot of pent-up demand.”

In the meantime, SAP is going after other industries that are buying now, such as financial services and retail, he said. “We’re aggressive and ready to roll.”

SAP also expects its annual Sapphire conference, which kicks off next month in Orlando, to help spark more sales. “Customers wait for our point of view [at Sapphire],” McDermott said.