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Sap Lowers Earnings Outlook

When will it stop? The market for SAP / oracle solutions is saturated. Aivars Lode avantce

Sap Lowers Earnings Outlook

Despite Reporting Profit Increase for Third Quarter

By Christopher Alessi

October 20, 2014

FRANKFURT—Business software provider SAP SE lowered its earnings outlook for this year Monday despite reporting a 15% increase in third-quarter net profit, boosted by growth in subscriptions for its cloud-based software products.
The German company said it expects its full-year operating profit to be in a range of €5.6 billion to €5.8 billion, compared with a previous forecast of €5.8 billion to €6 billion. The company anticipates short-term pressures on margins and less upfront revenue as it refocuses its business on cloud-based software technology. SAP uses its own accounting method for the guidance, which isn’t in line with international financial reporting standards.
Net profit for the period ended September 30 was €880 million, compared with €762 million during the same period last year, beating analyst expectations. Analysts had predicted a profit of €808 million, according to a recent poll by Dow Jones Newswires.
Total revenue rose 5% to €4.25 billion from €4.05 billion a year earlier, with cloud revenue rising 45% to €277 million from €197 million.
“We are raising our cloud revenue outlook thanks to stronger than expected, organic cloud performance,” said SAP CEO Bill McDermott on a conference call Monday, citing accelerated adoption of its real-time HANA database platform. The company, which said it has over 4,100 HANA customers, increased its cloud outlook for 2014 to be in a range of €1.04 billion to €1.07 billion, using non-IFRS reporting measures, and raised its cloud revenue outlook.
SAP has in recent years actively shifted its business focus away from on-site software offerings to cloud-based products, which deliver software online to business customers.
As SAP moves further into the cloud, its revenue will increasingly be distributed over longer contract periods and be based less on one-off licensing fees for on premise software, contributing to the company’s lowered guidance for 2014, SAP executive board member Bernd Leukert told The Wall Street Journal.
“In the long run, this is a more healthy business,” Mr. Leukert said.
SAP agreed last month to buy for $8.3 billion U.S.-based Concur Technologies Inc., which produces cloud-based travel and expense management software. The acquisition will make SAP the second-largest enterprise cloud-service company by revenue behind cloud computing company Inc. Despite paying a high price, Concur could bring SAP cloud revenues of more than €2 billion next year, according to analysts at J.P. Morgan.
The company’s most recent outlook didn't include potential contributions from the still-unfinished deal with Concur.
Other cloud-oriented acquisitions by SAP include human-resources application SuccessFactors, e-commerce application Ariba and workforce management software manufacturer Fieldglass.
But the centerpiece of SAP’s cloud portfolio continues to be its flagship HANA software, a high-speed database that allows customers to store, access and analyze information in real-time. SAP’s cloud strategy depends on its ability to successfully harness HANA to offer core enterprise software products like Business Suite in the cloud, analysts say.
SAP faces competition in the cloud from its longtime rival Oracle Corp. The U.S.-based software provider, which recently announced plans to acquire field services cloud software provider TOA Technologies, reported cloud revenue rose 37% to $337 million in its most recent quarterly earnings report last month.
SAP’s continued expansion into the cloud technology arena comes on the heels of a management reshuffle last spring that saw Mr. McDermott promoted to sole CEO. He is the first American to lead the company.

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