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April 25, 2017

SAP accelerates S/4 HANA cloud adoption

Q1 revenues rise but operating profit falls.

By James Nunns

SAP reported mixed financial results as its transition to a cloud business model hit profits.

The German software maker’s Q1 results saw revenue rise by 12% to €5.29bn, beating analyst predictions of €5.16bn, while operating profit fell 17% to €673m.

Profit after tax fell by 7% from a year ago to €530m but new cloud bookings continued to be on the rise, this time up 49% to €215m, while cloud subscription and support revenue rose 34% to €905m.

“SAP’s outstanding first quarter results are a decisive follow-on to our record setting 2016. Led by S/4HANA, we are seeing mass customer adoption of our solutions globally. Our inspired workforce is firmly committed to staying focused on the success of our customers and shareholders,” said Bill McDermott, CEO, SAP.

Further good news came in the form of new customers for SAP’s S/4 HANA which added 400 customers in the quarter, bringing the total number of customers up to 5,800.

Luka Mucic, CFO, SAP said, “We continued our rapid expansion in cloud, accelerating to 49 percent growth in new cloud bookings. … We’re off to a good start to reach our full year targets and we are confident that we will grow our profitability in 2018 and beyond.”

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The company predicts that its 2017 cloud subscriptions and support revenue will be on track to hit €3.8bn to €4bn, a growth rate of up to 34%.

The good news for SAP is that its flagship product and overall cloud strategy seems to be doing well, but like others transitioning to a cloud focused business model, it is still weighed down by the legacy software business that has long been its backbone.

SAP’s been busy applying new technologies to a raft of different areas, although one of its strengths remains in the manufacturing sector. The company has, for example, begun participating in Mitsubishi’s Electric e-F@ctory Alliance partner program. The idea of the partnership is to enable Mitsubishi Electric’s automation solutions to operate fully with SAP Cloud Platform.

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