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SAP losing ground

by on19 October 2017

Profits down – if only there were some good software to help it restructure

The maker of expensive management software, which no-one really knows what it does, SAP has seen its profits take a dip.

The outfit missed market expectations for third quarter profit as it invested heavily to shift business customers into cloud computing.

SAP said it is in the middle of a transition to offering cloud-based services to its business customers and management had flagged that 2017 would see a trough in profit margins as it invested in datacenters and redeployed staff.

The outfit said it should see a recovery next year and had a “very good shot” at stabilising margins in the fourth quarter. Chief Financial Officer Luka Mucic told a conference call:  “Going into 2018 we see a margin turnaround.”

Revenue for the German business planning software provider grew eight percent to 5.59 billion euro from a year earlier, falling short of the mean forecast of 5.71 billion euro from 16 analysts surveyed by Reuters.

Core profit excluding special items rose by four percent to 1.64 billion euro at constant currency rates, SAP said, below the 1.69 billion euro expected by analysts.

The euro’s strength sliced four percentage points off core profits, which was flat after taking currency moves into account. Analysts at Baader Helvea said they expected currency headwinds to continue for the next three quarters.

The company nudged up guidance for the full year core operating profits to 6.85-7.0 billion euro and said 2017 total revenue would range from 23.4-23.8 billion euro, marking year-to-year growth of around six to eight percent, excluding currency effects.

Cloud subscriptions and support revenue rose 27 percent in the third quarter to 938 million euro, excluding currency effects, compared with the 29 percent analysts had expected, on average.

This was offset by its classic software license and support business revenue, which rose four percent to 3.72 billion euro, slightly above the 2.2 percent growth rate expected by analysts.

Chief Executive Bill McDermott was bullish for the fourth quarter: “We are gaining share against our competitors. SAP is growing faster in the cloud - and we are doing it organically.” During a conference call, he contrasted his company with the the acquisition-fuelled growth of its rivals.

Last modified on 19 October 2017
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