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SAP Q3 2015 results: On-premise and cloud grow in parallel, says Cohen

SAP’s third-quarter 2015 results show overall cloud revenue growth of 116% year on year, and SAP European president Cohen says parallel on-premise growth is strong

SAP’s third-quarter 2015 results show cloud revenue growth of 116% to €600m over the same quarter in 2014. This represents 12% of overall quarter revenue of €4.9bn, similar to the second-quarter proportion of 11%.

Franck Cohen, SAP president of Europe, the Middle-East and Africa, said the on-premise revenue (€3.5bn for the quarter) was also growing on a strong parallel path with cloud revenue.

“In Europe, growth is happening on both sides of the business, both on-premise and in the cloud. It’s always been my theory that one is feeding the other and not cannibalising the other,” he said.

As for cloud revenue as a proportion of overall revenue, Cohen said: “That is not a good way to look at our cloud business. If you look at cloud bookings, you see the traction in the market.” Cloud bookings are 102% up on the same quarter in 2014, according to a company statement.

However, the on-premise business is still important to SAP, according to Cohen.

“The majority of our customers are still investing in on-premise. Companies will have a hybrid model for years to come, with applications on-premise and in the cloud. We want to offer the choice, versus competitors who are dictating that everything has to be in the cloud. We believe in the cloud, but we want to give customers choices,” he said. 

Cohen commented that he considered it interesting that “traditional industries, such as consumer goods and discrete manufacturing, are investing in SAP’s innovation agenda”.

The supplier’s in-memory database platform Hana has been at the core of its innovation programme in recent years, along with its cloud properties, such as the SuccessFactors human capital management acquisition, and the FieldGlass and Concur acquisitions. Also evident is the Hybris acquisition, which is now part of the supplier’s omni-channel “customer engagement and commerce” business.

In this quarter, SAP signed up 400 customers for S/4 Hana, the Hana-based version of its full-scale enterprise resource planning (ERP) system, and now has 1,300 customers using it.

Cohen argued that Hana adoption beyond S/4 Hana in general tends to pull enterprise customers into also adopting Success Factors, and the supplier’s other “business network” services, which include the procurement network Ariba, as well as Concur and Fieldglass.

He used Italy’s aerospace and defence company Finmeccanica as an example of a recent S/4 Hana customer aiming at simplifying their financial and business processes, which are adopting Success Factors for human resources. “When you sign one, you sign the other,” he said.

“S/4 Hana is a strategic decision, not a CIO decision – otherwise you’d have to explain to the board what the business value of adopting this new platform would be. You can’t sell it by saying it will go faster. The story is to improve processes, increase market share and gain a better understanding of the customer.”

Customers in Europe

As a UK example, he gave Essex and Kent police, which he said are using Hana for crime fighting, as well as for internal services.

Other recent customer contracts are the UK Land Registry, British American Tobacco, Alstom in France and Bosch in Germany. He also highlighted wins for Success Factors against Workday in the European region.

“Success Factors was US rather than European centric when we acquired it. We have confined Workday to the lower end of the market,” he said.

In an earnings statement, SAP CEO Bill McDermott said: “Whether it’s optimising the customer experience, collaborating with partners across a digital network, engaging your workforce or managing your core operations with S/4 Hana, we are helping our customers go digital.”

SAP chief financial officer Luka Mucic added: “What I am particularly pleased about is that our operating profit grew faster than our revenue. This reflects the positive impact of our business transformation, as shown by an almost nine percentage point year-over-year increase in our cloud gross margin.”

According to the statement, the Europe, Middle-East and Africa region had a 13% increase in non-IFRS cloud and software revenue. Cloud subscriptions and support revenue grew by 67%, with high double-digit growth in new cloud bookings.

In the Americas region, non-IFRS cloud and software revenue rose by 32%. Cloud subscriptions and support revenue grew by 139%, with new cloud bookings seeing triple-digit growth.

In the Asia-Pacific and Japan region, non-IFRS cloud subscriptions and support revenue grew by 88% and new cloud bookings saw double-digit growth.

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