SAP announced earlier today that it was raising its full-year revenue target as a result of strong software sales of its own products and with an extra boost from its acquisition of Ariba, which closed on October 1.
All executives on the earnings call said that the quarter was “solid” especially in comparison to the very strong quarter reported in Q3 2011. They told investors that, “[a]ssuming that the macroeconomic environment does not deteriorate the company expects to reach the upper end of the 10.5% – 12.5% non-IFRS software and software-related service revenue growth range (at constant currencies)”. That’s actually higher than earlier projections, so the company is quite optimistic about the rest of 2012.
The highlights of Q3, 2012:
total revenue in Q3 was €3,952 million, up 16% as reported
software revenue was €1,026 million, up 17% as reported and up 12% at constant currencies — ahead of the €995 million forecast.
by geography, software revenue from the Americas was up 37 % to €458 million, led by “exceptional” performance from Mexico and Brazil. Asia delivered an “impressive quarter” with software revenue up 18% to €194 million. Revenue from China was up over 40%; China is now SAP’s sixth largest by revenue. Revenue from EMEA, at €374 million, was “basically flat [over last year] which was a solid performance considering the tremendous Q3/11.”
mobile and cloud still represent a tiny fraction of total revenue, but are growing nicely. Mobile revenue was €48 million for Q3 2012, more than double the €22 million for the year-ago quarter. Cloud revenue was €80 million for Q3 2012, up from a negligible €4 million a year ago. Year-to-date, cloud revenue is €183 million, well on the way to the company’s target of €220 million.
SAP execs told investors that its large, loyal installed base will accelerate adoption of cloud technology. The cloud business isn’t profitable yet, but is expected to be by 2015. SAP feels its advantage is that it has HR, finance, CRM, supplier relationship (via Ariba) solutions already available in the cloud, in an offering that integrates on-premise and cloud “out of the box”. SAP said that it thinks most of its traditional competitors don’t understand the cloud, and that they are trying to recast on-premise solutions as being in the cloud — customers want specific point solutions on the cloud, with a tailored user experience, that lead to SAP making competitive strides.
To further emphasize the importance of its cloud business, the company changed how it will report revenue. SAP used to report 3 segments: products, consulting and training. Starting in Q4, reports will center on 2 main segments, each with 2 sub-segments: On-Premise will include product and service; Cloud will include applications and Ariba. Under this new scheme, Ariba added no revenue in Q3 (makes sense, since the acquisition closed on October 1); the continuing cloud applications business reported external revenue of €101 million (subscriptions and services) and a segment loss of €17 million.
The company forecast that growth in software and related services sales will reach the upper end of its earlier range of 10.5% to 12.5% this year, because of contributions from the Ariba and SuccessFactors acquisitions. That would take software and related services revenue to around €12.7 billion.
I really like SAP’s current tag line: “My people, my money, my customer, my suppliers” — it’s descriptive of what they offer and takes technology completely out of the value proposition. You’ll notice that “my product” isn’t mentioned; there’s been no emphasis on PLM at the corporate level for a long time. SAP is going to be at PLM Innovation Americas later this week, and I’m very interested to hear what’s new with its PLM product set.
Lessons from today’s announcement and call: business isn’t slowing down, large deals keep happening, and the cloud is small but generates a lot of customer interest that should lead to future growth. Let’s see how the PLMish world’s results compare, with earnings from DS and 3D Systems coming tomorrow.
