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 Company executives said the accelerating switch from packaged
software to so-called "cloud" software would shave about 200 million
euros off a previous profit forecast, but that cloud contracts would
bolster sales and profit in the future.
The corporate software industry is undergoing a rapid shift from
packaged software which customers run on their computer systems to
software run over the Internet in remote datacenters, making data
easier to manage, analyze and use on mobile phones.
SAP said it now expects 2014 operating profit, excluding some
special items, of 5.6 billion to 5.8 billion euros ($7.1-$7.4
billion), down from 5.8-6.0 billion euros previously.
Packaged software sales are recognized immediately, while cloud
orders are booked as sales over the life of multi-year contract,
which officials said largely explained its new outlook.
SAP shares dropped 4.2 percent at 0955 GMT (1.55 p.m. EDT), making
it the worst performer in the German blue-chip DAX index and leading
European technology stocks lower.
Analysts said there was concern that a rising proportion of cloud
sales would lower the company's profitability.
"Growth dynamics are increasing, but at the cost of margins as the
cloud cannibalizes SAP's license business," said Mirko Maier,
analyst at Germany's Landesbank Baden-Wuerttemberg, who has a "buy"
rating on SAP shares.
SAP specializes in providing a mix of business applications for
companies from accounting to human resources to supply chain
software, but has come under pressure from rivals that offer cheaper
services over the Internet, or in the "cloud".
Europe's largest software firm aims to boost the proportion of its
software sold via the cloud to compete with arch U.S.-rival Oracle
Corp and purely cloud-based competitors such as Salesforce.com and
Workday Inc.
"De-acclerating in the cloud would make absolutely no sense," SAP
finance chief Luka Mucic said on a conference call. "We are hitting
the gas pedal as much as we can," he said. "We will then see the
positive returns in the longer run."
CLOUD SALES RISE
SAP's said third-quarter sales rose 5 percent to $4.25 billion.
Solid sales in Germany and a recovery to double-digit sales growth
in Japan helped offset a 10 percent drop, excluding the impact of
foreign exchange, in Latin America which it blamed on macroeconomic
woes and its own sales execution there.
The company expected 2014 revenue from the cloud part of its
business to range from 1.04 billion to 1.07 billion euros, up from a
prior forecast of 1 billion to 1.05 billion euros and 757 million
euros in cloud software sales for the whole of 2013.
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The company, based in Walldorf, Germany, said new orders for
cloud-based software had risen each quarter this year and were now
equivalent to more than a third of revenue from its classic packaged
software business. SAP's chief financial officer said cloud orders
as a percentage of classic software sales stood at "somewhere in the
twenties" at the end of 2013.
SAP reported a 5 percent rise in third-quarter operating profit,
excluding special items, to 1.36 billion euros, which was slightly
below average expectations of 1.37 billion euros, according to a
Reuters poll of analysts.
To cut up-front spending on new datacenters, SAP announced a
partnership deal with IBM last week to run more of its cloud-based
services in IBM facilities.
SAP's multinational customers, which include Coca-Cola, McDonald's
and Vodafone, are moving to cloud computing because there are no
upfront costs for software licenses, dedicated hardware or
installation, giving them more flexibility to respond to shifting
market demand.
Reflecting that long-term shift in its business mix, SAP in January
pushed back its 35 percent operating margin goal by two years to
2017, citing faster growth in its cloud business.
Its third-quarter operating margin was 31.8 percent, down from 32
percent a year earlier, but up from 29.8 percent in the second
quarter of 2014.
Global business spending on cloud services is expected to jump 20
percent this year to $174 billion, research firm IHS estimates, and
rise to more than $235 billion by 2017.
Last month, the German software giant agreed to buy U.S. expenses
software maker Concur for $7.3 billion, aiming to strengthen its
position in cloud computing.
(1 US dollar = 0.7839 euro)
(Additional reporting by Ilona Wissenbach; editing by David Clarke)
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