Maybe the end to fiscal 2020 wasn’t so bad — SAP and AVEVA update

First things first: the lack of financial news in the PLMish world is encouraging. If the December quarter (meaning October+November+December) had been far below expectations, we would have heard from companies issuing earnings pre-announcements. There’s only been one of those, from SAP, so, so far so good.

And even SAP’s wasn’t dire. SAP said last night that business improved sequentially –meaning that the fourth quarter was better than the third– “even as the COVID-19 crisis persisted and lockdowns were reintroduced in many regions”. We’ll get details when they release their full details on January 29, but here are two possible interpretations: SAP customers are learning how to work within these restrictions and are using more SAP kit to do it and/or SAP has learned to sell from afar. Of course, even that can’t help all parts of SAP’s business; the company said its business travel-related cloud service continues to struggle.

Overall, though, SAP says preliminary data for Q4 has software licenses revenue down 15% year over year (down 11% in constant currencies, cc). Cloud revenue was up 8% (up 13% cc), and total revenue was down 6% year over year to €7.54 billion (down 2% cc). That doesn’t sound great but is better that SAP (and its investors) had expected.

SAP CFO Luka Mucic said, “In a uniquely challenging environment, 2020 was a record year for cash flow in every single quarter and the full year. Our better-than-anticipated top line performance combined with our quick response on the cost side drove strong operating profit. SAP’s expedited shift to the cloud will drive long-term, sustainable growth while significantly increasing the resiliency and predictability of our business.”

We heard more upbeat news from AVEVA, which released a trading update this morning. The company said the December quarter was “strong [with] Organic constant currency revenue growth over 26%. This was driven by a significant number of scheduled subscription renewals, including a large three-year contract renewal in the Food sector. It also benefited from the early renewal of a large three-year EPC contract that had been scheduled for AVEVA’s Q4 [meaning, the March 2021 quarter], and the conversion of two large contracts in the Marine sector from annual fees to multi-year subscription, giving the customers more flexibility in a challenging Marine market environment.”

So much to unpack there. First, 26% cc growth is astonishing. Remember that the December 2019 quarter was still normal, pre-COVD, business-as-usual, so not obviously an easy comparable. Next, early renewals are awesome but rare and show how important AVEVA is to that customer’s business. Last, good news from the Marine sector! I can’t remember the last time that happened.

AVEVA said the strong December quarter boosted revenue growth to “approximately 1.5% in the nine months to 31 December 2020 on an organic constant currency basis.”

The company also gave a quick update on its acquisition of OSIsoft: The deal is a go, with only the US’ Committee on Foreign Investments (CFIUS) still to approve. AVEVA says it expects to receive that by early February, and that the transaction should close shortly afterwards.

What does it all mean? I think we’re in for a bumpy ride this earnings season. Good news when buyers and sellers find each other, even in a remote selling situation. Bad news when sales require a lot of in-person contact or on-site services. More good news where vendors have and buyers want cloud technology. And bad news when the inverse are true.

Based on two data points, though, business in the December quarter was better than in September quarter. Let’s hold on to that.