SAP cuts 2017 profit outlook by £1.1bn due to cloud move

My takeaways from this article are: SAP’s cloud uptake/profitability slower than expected, HANA sales only 1,450 for the 2014 year, Oracle Exadata grew by only 3% in 2014.

Keeping up with the Joneses is a pricey business

SAP has announced an estimated operating profit cut of around £1.1bn for 2017 as it continues to pump money into its expanding cloud operations.

The company had originally said it expected to make an operating margin of 35 per cent on revenue of around €22bn (£16.8bn), resulting in an operating profit of around £5.9bn.

But now, it expects to make £4.83bn in operating profit in that timeframe.

SAP saw a reported 45 per cent cloud revenue growth to €1.1bn in 2014.

SAP CEO Bill McDermott said the company is in a "market-share game", explaining that "the more users and the more scale and reach you get, ultimately the more you win on the back-end when you have high renewal rates".

SAP now expects 2018 to be the point where its cloud business begins to rival its traditional licensed software business.

"At that time, SAP expects to reach a scale in its cloud business that will clear the way for accelerated operating profit expansion," the company said, forecasting up to €9bn as an operating profit estimate for 2020.

Of course, that’s if SAP attains the renewal rates it needs, and maintains a growing customer base. But the signs are good. The company reported 1,000 new customers for its in-memory offering SAP HANA towards the end of 2014, taking the total to 1,450 in just one year.

This represents a 71 per cent growth, compared to direct rival Oracle‘s equivalent Exadata picking up just three per cent extra users.

Computing asked early last year whether 2014 would be SAP’s "year of cloud", after McDermott said it would be "going after those line of business cloud companies with everything [it has]".