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Cloud Services Boost SAP Profits

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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Europe’s largest software maker recorded strong cloud growth, while on-premise licence sales recovered

SAP on Tuesday reported total revenues and operating profits that beat analysts’ expectations, expanding its revenues from cloud-based products even as its standard on-premise licence business recovered.

The results, brought forward by a week, indicated that SAP is making the transition to the cloud without sacrificing profits, according to industry analysts. They contrasted the German company’s performance with that of Oracle, which last month reported first-quarter revenues that fell short of analysts’ expectations, in part due to the company’s shift to cloud products.

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SAP said sales and earnings growth was also strengthened by a weaker euro, something US-based competitors don’t benefit from.

SAP competes in cloud-based services with newer companies such as Salesforce.com and Workday, as well as more established companies such as Oracle and IBM.

Cloud services, which are offered over the Internet rather than hosted on-premises, have grown rapidly in popularity but bring in lower short-term revenues, since users pay only for what they use on a subscription basis. Cloud software makers argue that in the longer term they can make up the shortfall through subscription and services revenues.

SAP’s third-quarter operating profit rose 19 percent to 1.62 billion euros (£1.06bn), beating analyst estimates that topped at 1.59bn euros. The strong results were largely driven by sales in established markets, SAP said.

‘Resilience’

“SAP’s global resilience helped us also sail through stormy waters in emerging markets where we expect to continue to see volatility and economic challenges,” said SAP chief financial officer Luka Mucic in a statement.

Cloud subscriptions and support revenue more than doubled to 600m euros in the quarter, while the company’s on-premise licence sales recovered from a weak second quarter, growing 4 percent.

Total revenues of 4.98bn euros beat analysts’ estimates of about 4.93bn euros.

SAP said it was standing by its outlook for the full year for operating profit of 5.6bn euros to 5.9bn euros, a rise of up to 5 percent from last year’s 5.6bn euros.

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