Oct 21, 2013 (08:10 AM EDT)
SAP Sees Payoff In Cloud, Hana Bets

Read the Original Article at InformationWeek

SAP on Monday reported solid financial results for its third quarter ended in September, with company executives pointing to strong growth in two areas where it has placed big bets: cloud and the Hana in-memory platform.

"You can see from our quarterly results, again, that the shift to the cloud and in-memory is accelerating, and we are leading an industry transformation," said SAP Co-CEO Bill McDermott during a conference call with analysts. "We are gaining market share with software and subscription growth that is two times faster than our closest competitor," he added in an obvious reference to Oracle.

SAP's third-quarter Non-IFRS software and cloud subscription revenue increased 6% year over year (13% in constant currencies) to €1.17 billion ($1.6 billion). Software and software-related service revenue increased 5% over the prior-year quarter (12% in constant currencies) to €3.36 billion ($4.59 billion).

Breaking out the results, SAP's on-premises software revenue was off 5% (up 2% in constant currencies) from the prior-year quarter to €977 million ($1.33 billion). Cloud subscription and support revenue increased 146% (162% in constant currencies) to €197 million ($269 million). Conventional software demand was weakest in the U.S., precisely where cloud demand has been the most robust.

[ Is SAP shifting to the cloud computing market quickly enough? Read SAP Does The Cloud Revenue Shuffle. ]

SAP executives said reports over the weekend -- that the company would halt or slow development of the Business ByDesign cloud suite for small and midsize businesses -- were inaccurate and based on rumors. ByDesign, like all SAP software and cloud applications, is being moved onto the Hana platform, executive board member Vishal Sikka said. As part of that move, ByDesign will be "refactored" to take advantage of in-memory processing power, he said.

Asked whether on-premises software will ever return to growth, McDermott said that will happen when demand rebounds in markets including Europe and Asia-Pacific where cloud adoption is slower than it is in the U.S. He also embraced the prospect of shifting from on-premises to cloud growth, and reiterated the company's goal of eventually overtaking Salesforce.com as the leading cloud software vendor.

"There's no market that has adopted to the cloud faster than the U.S., which is why 30% of our revenue in the Americas is now coming from Cloud," he said. "It would be downright silly not to go with the trend in the market."

SAP's route to "reinvigorating the core" is to put its SAP Business Suite application onto the Hana platform and into the cloud by way of the Hana Enterprise Cloud, which was introduced in May.

SAP is also encouraging customers to move on-premises Business Suite deployments on Hana. On this front, SAP said it now has more than 450 customers signed up to run Business Suite applications on Hana, with wins in the quarter including ArcelorMittal, a metals company based in Luxembourg, and Merck KGaA, the German life-sciences firm.

Overall Hana revenue (including cloud and on-premises sales) increased 79% (99% in constant currencies) from the same quarter last year, according to SAP, and the company now counts more than 2,100 Hana customers.

Pleasing Wall Street, SAP reiterated its full-year profit guidance of €5.85 billion to €5.95 billion ($8.0 to $8.1 billion). The company expects full-year 2013 cloud subscription and support revenue of €750 million ($1.02 billion) and full-year Hana revenue of €650 million to €700 million ($888 million to $957 million).

All eyes will be on the fourth quarter, a period in which SAP earns roughly 40% of its annual revenue. McDermott said SAP has been cautious with its guidance given a decidedly mixed macroeconomic climate.