SAP fast-tracks transition to Cloud aiming €22 bn in Cloud revenue

SAP said its revenue dropped 4 percent in the third quarter of 2020 to €6.535 billion as Covid-19 forced enterprise customers to slash their IT spending.
SAP event at IT conference
But SAP’s Cloud revenue rose 11 percent to €1.984 billion during the third quarter. SAP’s Cloud and Software revenue dipped 2 percent to €5.544 billion. SAP’s operating profit fell 12 percent to €1.473 billion.

SAP’s Cloud plans

SAP said it will accelerate transition to Cloud, targeting more than €22 billion in Cloud revenue by 2025.

The public cloud services market is forecast to grow 6.3 percent in 2020 to $257.9 billion from $242.7 billion in 2019, according to Gartner report in July 2020. Public cloud services serve as the one bright spot in the outlook for IT spending in 2020.

“The use of public cloud services offers CIOs two distinct advantages during the COVID-19 pandemic: cost scale with use and deferred spending. CIOs can invest significantly less cash upfront by utilizing cloud technology rather than scaling up on-premises data center capacity or acquiring traditional licensed software,”  Sid Nag, research vice president at Gartner, said.

The global public cloud services market, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS), grew 26 percent in 2019 to $233.4 billion, according to IDC.

“Cloud is expanding far beyond niche e-commerce and online ad-sponsored searches. It underpins all the digital activities that individuals and enterprises depend upon as we navigate and move beyond the pandemic,” said Rick Villars, group vice president, Worldwide Research at IDC.

The top 5 public cloud service providers such as Amazon Web Services (AWS), Microsoft, Salesforce.com, Google, and Oracle captured more than one third of the worldwide total and growing 35 percent.

SAP’s current cloud backlog rose 10 percent in the third quarter to €6.60 billion amid COVID-19 effects on SAP’s cloud business.
SAP revenue Q3 2020
SAP is responding to these market demands by providing the technology and expertise to help its customers migrate their existing IT environments to the cloud and truly transform their businesses end-to-end on top of SAP’s Business Technology Platform (BTP).

SAP plans to accelerate the modernization of its cloud delivery, arriving at a harmonized delivery infrastructure earlier than planned. SAP will significantly increase the efficiency and resiliency of its cloud delivery operations.

SAP will increase R&D investments to accelerate its customers’ transformation in the cloud and to establish a leading position in categories like Industry Cloud.

“Together with customers and partners we will co-innovate and reinvent how businesses run in a digital world. SAP will accelerate growth in the cloud to more than €22 billion in 2025 and expand the share of more predictable revenue to approximately 85 percent.” SAP CEO Christian Klein said.

Lower transactional revenues, particularly in Concur, impacted cloud growth by 6 percentage points. Cloud revenue from SAP’s SaaS/PaaS offerings and its IaaS offering grew by 26 percent and 24 percent, respectively.

New Clients

SAP added over 500 SAP S/4HANA customers in the quarter, taking total adoption to more than 15,100 customers, up 20 percent year over year, of which more than 8,100 are live. In the third quarter, more than 45 percent of the additional SAP S/4HANA customers were net new.

Organizations such as Lenovo, Æon, Shanghai Land (Group) and Naturgy selected SAP S/4HANA. Toyota Peru went live on SAP S/4HANA.

Companies such as Rabobank, Iugu and Basic-Fit selected SAP S/4HANA Cloud. Sharks Sports & Entertainment, and Korea Gas are now live on SAP S/4HANA Cloud. Schwarz Produktion, the manufacturing organization within Schwarz Group (Lidl, Kaufland), has chosen SAP Digital Supply Chain solutions.

Regional Revenue Performance

SAP had a resilient performance in the EMEA region with cloud and software revenue increasing 2 percent. Cloud revenue increased 22 percent with Germany, the Netherlands and Switzerland being highlights. Russia, Spain and Switzerland had strong quarters in software licenses revenue.

SAP had a solid performance in Americas region. Cloud and software revenue decreased 5 percent. Cloud revenue increased 4 percent with Brazil, Canada and Mexico being highlights. Canada had a solid quarter, while Brazil and Mexico had strong quarters in software licenses revenue.

SAP had a solid performance in Asia Pacific Japan region. Cloud and software revenue was down 1 percent. Cloud revenue increased 14 percent with Japan, Singapore and South Korea being highlights. Japan had a solid quarter, while Australia and India had strong quarters in software licenses revenue.

Baburajan Kizhakedath

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