SAP’s packaged software suffers amid switch to cloud

Thursday, 23 July 2015 00:00 - - {{hitsCtrl.values.hits}}

FRANKFURT (Reuters): German business software maker SAP posted quarterly profit at the low end of forecasts, hit by weak sales of its traditional packaged software and a rapid shift by customers to lower-margin cloud software delivered via the Internet.

Like established rivals such as Oracle, IBM and Microsoft, SAP is striving to boost Internet-based sales to head off fast-growing newer competitors such as Workday and Amazon.com’s web software unit.

While such software is less profitable in the short term, providers hope to win higher revenues over time from subscription payments.

SAP, Europe’s largest software maker, said on Tuesday its second-quarter revenues jumped 20% to 4.97 billion euros ($5.38 billion) – or 8% excluding exchange rate moves – as cloud software sales more than doubled. That beat analysts’ forecast range of 4.81 billion to 4.96 billion euros.

But sales of higher-margin packaged software rose just 2%, slower than the expected 6.6% increase, due to weakness in emerging markets, particularly Latin America. At constant currencies, packaged software revenues fell 7%.

With the operating margin, excluding special items, falling to 28.0% from 29.8% a year ago, the result was underlying operating profit at the bottom end of expectations – up just 1% at constant currencies to 1.39 billion euros.

“Expect a volatile but at the end negative share price reaction,” said one Frankfurt trading, saying investors were likely to be disappointed by the weak packaged software revenue and profit margins.

SAP shares fell more than 2% in early trading, though by 0945 GMT there were up 0.8 percent at 69.27 euros.

SAP, whose customers include the world’s biggest multinationals, specialises in business applications ranging from accounting to human resources to supply-chain management.

It stuck to its full-year forecast for non-IFRS operating profit of 5.6-5.9 billion euros at constant currencies, compared with 5.6 billion last year.

Oracle, for its fiscal quarter to end-May, reported a 29% jump in sales of its keenly watched cloud-computing software and platform service, still not enough to compensate for weak sales in its legacy database business.

SAP said customers signing up for its big new product hope, the S4/HANA software platform which targets Oracle database customers among others, more than doubled to 900 during the second quarter.

SAP’s pure cloud-based rival Salesforce.com reported a profit for the first time in seven quarters in May and raised its revenue forecast for the full year.