SAP CEO - ‘Our cloud transformation has reached a tipping point’

(SAP)

SAP shares were on the rise this week as the company delivered a strong set of third quarter earnings, despite the €250 million full-year impact of winding down operations in Russia and Belarus as a result of the war in Ukraine. 

On delivering the results, CEO Christian Klein was particularly bullish about the company’s progress in transitioning to cloud-based products and services. He also provided some useful insights into how the vendor’s RISE with SAP offering is playing out, highlighting a number of customer examples. 

RISE with SAP is the company’s latest attempt to get customers to the cloud, by optimizing their processes and helping manage their relationships with hyperscalers. 

Commenting on the numbers and SAP’s outlook, Klein said: 

Businesses everywhere are dealing with a combination of profound challenges including inflation, labor and energy shortages and disrupted supply chains. Despite these challenges, our results demonstrate the relevance of our strategy during these volatile times and reflect how SAP is uniquely positioned to help our customers become stronger for the future.

The role of technology is clear. SAP solutions are directly helping our customers address their most pressing needs, whether that means redesigning or automating their business processes, helping them with supply chain resiliency or stepping up to meet their sustainability goals and new regulations.

The numbers

The key figures released this week for SAP’s third quarter are: 

• Cloud revenue of €3.288 billion, up 38% year over year

• Total revenue of €7.841 billion, up 15% year over year

• Operating profit of €1.239 billion 

• For the full year it expects €11.55 – 11.85 billion cloud revenue at constant currencies, up 23% to 26% at constant currencies.

Commenting on the results, Klein said: 

We've delivered another strong quarter in Q3. We are seeing accelerating momentum across all our key cloud indicators with cloud revenue now representing our largest revenue stream for two sequential quarters. 

And looking forward, Klein added: 

Overall, our strong cloud momentum has offset the top line impact from exiting Russia. SAP's cloud transformation has reached a tipping point, and we had an important inflection point for the company after beginning our transformation two years ago. 

We feel very positive about the resilience we have built into our future business. Predictable revenue now accounts for 80% of revenue, up from 72% in 2020, the starting point of our cloud transformation.

As noted above, SAP’s latest cloud offering is RISE with SAP, a packaged service that aims to help customers analyze and optimize their business processes, whilst also transitioning them to the cloud and helping them manage their relationships with hyperscalers. 

We at diginomica have explored how RISE with SAP is playing out, looking at use cases and the numbers behind the scenes. But Klein took the opportunity this quarter to provide some colour on not only how the service is growing, but also how customers are making use of it. He said: 

We are seeing strong year-over-year take-up since we introduced our RISE offering at the beginning of 2021. Overall, there are nearly 2,500 customers running in over 100 SAP and partner data centers around the globe who have selected RISE with SAP to transform their business processes and IT landscapes. This also reflects the increasing demand for independent government cloud solutions from SAP. RISE also continues to be a great mechanism for cross-sell and up-sell with more than 80% of RISE customers deciding for our Business Technology Platform and 86% of RISE also including additional cloud solutions.

In Q3, RISE with SAP wins included Prada, RICOH, the PBC and Schneider Electric. Prada, one of the most recognizable players in the luxury industry, have selected RISE with SAP to further accelerate their digital transformation and improve outcomes and efficiency from their global network of 635 stores. This expansion includes SAP Ariba and SAP Signavio, enabling them to analyze and transform business processes. 

RICOH of Japan has selected RISE with SAP to accelerate their transformation into a digital services company. This will accelerate standardization and efficiency improvements of their production and service parts management operations and use robotics process automation to automate internal business processes. 

Schneider Electric, a global leader in the digital transformation of energy management and automation, selected SAP S/4HANA public cloud to standardize their end-to-end operations across finance, manufacturing and logistics based on proven industry best practices. 

My take

Some had their doubts about SAP’s cloud progress not too long ago, but it seems that Klein’s strategy is taking hold and the markets are responding positively. The key now is to keep the momentum going.