SAP Targets Cloud for Growth

ERP maker has 5,000 salespeople pitching cloud technology.

SAP AG co-Chief Executive Officer Bill McDermott, targeting the growing online software market, said he plans to tap a greater portion of customers’ spending.

“We’ll lead with the cloud,” McDermott told investors in New York yesterday. Today’s clients spend about 5 percent of their technology budgets with SAP, he said. “Why not 20?”

The remarks by McDermott -- an American who will take over as sole CEO in May -- come two weeks after the German software maker cut its profit forecast. The biggest supplier of business applications is reconfiguring its products for the cloud, part of a trend transforming sales and development across the technology industry.

SAP, whose software helps clients from Coca-Cola Co. to Bayer AG manage finances and supply chains, has 5,000 sales people working on cloud technology. “SAP is a growth company and it is our intent to remain a growth company,” the 52-year-old said.

Walldorf, Germany-based SAP’s competitors Oracle Corp. and Salesforce.com Inc. are also vying for sales among businesses that don’t want to manage and update their software and prefer to outsource the job to the companies that wrote the programs.

Microsoft Corp. today named Satya Nadella chief executive officer, tapping an insider steeped in business technology. At Microsoft, Nadella accelerated the move to Internet-based computing and worked to better connect cloud software with Microsoft’s programs for internal corporate networks.

Nadella also promoted interoperability with rival programs and helped strike a deal to offer Oracle’s competing database software on Microsoft’s Windows Azure cloud service.

For SAP, moving customers to Web-delivered products is hurting profit margins. The company said on Jan. 21 that a shift from programs that run on customers’ servers and personal computers to those delivered from remote data centers would cause it to fall short of its 2015 operating profit goal.

When SAP reported its fourth-quarter earnings, the company said the cloud-computing shift would delay a goal of reaching a 35 percent operating margin until 2017, from its original target of 2015. It also said it had a cloud subscription and support backlog of 1.2 billion euros ($1.6 billion).

SAP’s sales in 2015 may reach 19.1 billion euros, according to the average estimate of analysts surveyed by Bloomberg. The company had previously forecast 20 billion euros in sales that year.

 

Late Arrival

“The company has challenges as it is late to the cloud,” Daniel Ives, an analyst at FBR Capital Markets, said in a Jan. 21 note to clients. He has a “market perform” rating on SAP.

McDermott will become the sole CEO in May after co-CEO Jim Hagemann Snabe steps down. The two have been joint leaders for the past four years.

Shares of SAP fell 0.2 percent in Frankfurt, taking the drop to 7 percent in a year, compared with an advance of about 20 percent for the DAX index. Oracle climbed 0.2 percent at 11:53 a.m. in New York, taking the 12-month rise to 2.3 percent.

SAP is also courting new types of software buyers with its Hana data-processing technology, designed to quickly analyze large volumes of information. “Data scientists” are emerging as a customer category alongside the chief information officers and managers who make up the company’s traditional audience, Robert Enslin, president of global customer operations, said today.

 

Bloomberg News

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