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SAP sees edge in cloud security, raises sales forecast

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[July 17, 2014]  By Harro Ten Wolde

FRANKFURT (Reuters) - German business software maker SAP raised its sales forecast for web-based software on Thursday, saying competitors were unable to match the security of its cloud computing systems.

Cloud computing allows businesses to cut costs by ditching bulky servers for network-based systems using remote data centres run by technology companies.

The company said it expected revenue from cloud subscriptions and support of between 1 billion and 1.05 billion euros in constant currency terms this year, up from a previous forecast for 950 million to 1 billion euros.

Revenue from its cloud business jumped by 32 percent to 242 million euros in the second quarter, helping overall revenue grow 2 percent to 4.2 billion euros.

Chief Executive Bill McDermott said he expected to snatch business from pure cloud service providers such as Salesforce.com and Workday Inc.

SAP shares were up 3.2 percent at 0800 GMT (4.00 a.m. EDT), at the top of a European technology share index, which was up 0.7 percent. The stock has fallen 4 percent so far this year.

"Cloud growth is encouraging," said Harald Schnitzer, analyst at DZ Bank. "SAP seems to perform better than some of its competitors."

Schnitzer said he was keeping his "buy" rating on SAP. A Frankfurt-based trader said the news should be good enough for a relief rally in the stock.

Global business spending on cloud services is expected to jump 20 percent this year to $174 billion, research firm IHS estimates. By 2017, spending will be at more than $235 billion, triple the 2011 level, they expect.

SAP's smaller German peer Software AG is also making the transition to the cloud but has difficulties offering a fully integrated platform the way SAP does. Earlier this week, Software AG warned sales would disappoint, sending its shares to their lowest in almost five years.

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SAP aims to boost its annual cloud revenues to as much as 3.5 billion euros by 2017, from 787 million in 2013.

McDermott said SAP's smaller rivals faced a big challenge because company CEOs wanted to integrate multiple cloud software applications into one platform but those providers could not provide enough security for that to happen.

"I think (smaller cloud players) are getting more and more tough questions on security and encryption and that is why I think the banks, that I personally dealt with, are thinking of moving them out as quickly as possible," McDermott told reporters on a conference call. "I see them in a lot of trouble in the market."

SAP, which is competing with global rivals including IBM and Oracle to exploit surging demand for web-based software, reported a 4 percent rise in second-quarter operating profit, excluding some special items, to 1.24 billion euros.

That was slightly below the average forecast of 1.26 billion euros in a Reuters poll.

SAP said it still saw full-year operating profit of between 5.8 billion euros and 6 billion euros, up from 5.51 billion last year.

Analysts polled by Reuters are broadly more pessimistic, seeing operating profit of 5.74 billion, with individual estimates ranging from 5.59 billion euros to 6.03 billion.

(Reporting by Harro ten Wolde; editing by Maria Sheahan and Tom Pfeiffer)

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