SAP: Leading and Winning By Example

By Charles King, Pund-IT, Inc. October 23, 2013

SAP’s recent Q3-2013 earning announcement certainly offered cause for smiles at the company, and for good reason. SAP’s revenues totaled $5.5 billion for the quarter, 2 percent better than the year-ago period. Plus, SAP’s earnings per share of $1.03 soundly beat the consensus of analysts who predicted 98 cents.

Some may view these results as pedestrian but they are in line with earnings recently posted by other enterprise software vendors. IBM’s software and middleware earnings were (adjusting for currency) 2 percent and 4 percent, and HP’s Q3 software revenues saw a 1 percent rise. In September, Oracle announced a 4 percent rise in software and SaaS revenues but the company also missed analysts’ predictions for the third quarter in a row.

More impressive than SAP’s overall results were the achievements in two of its highest profile solutions and strategies:

SAP’s efforts in cloud continue to expand; Q3 non-IFRS software and cloud subscriptions revenue increased 13% at constant currencies year-over-year (6% at actual currencies) to €1.17 billion. The company said its non-IFRS cloud subscription and support revenue is growing faster than most competitors, and its approximately 33 million cloud users means SAP has the largest subscriber base in the cloud market. The company also recently closed a significant new cloud contract: EMC, a US-headquartered Fortune 500 IT vendor, selected SAP’s Cloud solutions including Employee Central to attract, retain and reward employees, and achieve better visibility and collaboration with suppliers.
SAP HANA, the in-memory database platform for real-time business applications, continues to be a major growth engine for the company. In Q3, HANA revenues totaled $204 million, up over 50 percent from $134 million in Q2, and delivered more impressive year-to-year growth of 79 percent. SAP noted that over 2,100 customers are currently deploying HANA-based solutions. In addition, at its annual TechEd conference in Las Vegas this week, SAP announced a high profile partnership with SAS to create a joint technology and product roadmap to leverage the SAP HANA platform and SAS analytics capabilities.

Final Analysis

Cloud is a ripe development target for many enterprise vendors but SAP’s position there has been solidified both by astute deals and innovative developments. In particular, the company’s acquisition of Ariba (completed in October 2012) has played a major role in its cloud strategy and efforts. According to SAP, Ariba is the world’s largest Web-based business trading community with some 1.2 million connected corporate customers, and the company says Ariba application billings are growing in high double digits. SAP also noted that trailing twelve month Ariba network spend volume is approximately $500 billion, suggesting that robust sales growth is sustainable.

In-memory database technology is an area where SAP’s pioneering efforts have led to a firm and rapidly expanding leadership position which can be seen in the growth of HANA sales and customers. In the IT industry, like elsewhere, imitation is an obvious form of flattery, as in-memory efforts by vendors, including IBM (with the Blu Acceleration for DB2 10.5 it launched in April) and Oracle (with the In-Memory Option for Oracle Database announced at OpenWorld last month) would seem to prove. However, neither of those offerings is entirely analogous to HANA.

That’s largely because rather than being a systems vendor with proprietary solutions to promote, SAP remains a devoted to software and open to working with virtually any vendor willing to develop systems that are able to pass the company’s rigorous HANA certification process. Nearly every major server vendor is a SAP HANA partner (Oracle, unsurprisingly, is the main holdout) and many have achieved significant market success. Consider the fact that the $204 million in Q3 revenues SAP accrued from HANA software sales represents a fraction of the total spent on related systems and services. In essence, HANA qualifies as a classic case of a vendor doing well for itself by doing good for its partners and customers.

Overall, SAP’s latest quarterly earnings report highlights the success available to a vendor that strives to improve or maintain its position in traditional markets while proactively pursuing new and emerging opportunities. At the same time, SAP is clearly a software vendor that understands and respects the value that properly designed and implemented hardware can add to both its prestige and bottom line. Given the results of the company’s efforts to date, we expect HANA, cloud and other solutions to continue driving considerable, escalating benefits for SAP and its customer and partner ecosystems for some time to come.