SAP Cuts 2014 Forecast as Third
Bloomberg News
SAP SE, the world's largest supplier of business-management software, cut its full-year earnings forecast after third-quarter operating profit trailed analysts' estimates as clients shift to programs accessed over the Web.
Non-IFRS operating profit will be 5.6 billion euros ($7.1 billion) to 5.8 billion euros this year, SAP said today in a statement. In July, it had predicted 5.8 billion euros to 6 billion euros. Third-quarter earnings on that basis rose to 1.36 billion euros, compared with the 1.37 billion-euro average of estimates compiled by Bloomberg.
Chief Executive Officer Bill McDermott is spending to add software that can be delivered and updated over the Internet rather than installed on businesses' servers, marking a rapid shift in the way companies acquire technology. SAP last month agreed to buy Concur Technologies Inc. for $7.4 billion in its biggest ever acquisition to expand in cloud technology.
'SAP has a sticky, high-margin customer base that's very cash generative,' Paul Moran, head of research at Aviate Global in London, said before the announcement. At it moves those clients to the cloud, 'the uncertainty now is what's going to happen to margins in the next few years.'
The shares rose 4 percent to close at 54.01 euros on Oct. 17. They have lost 13 percent this year, giving the Walldorf, Germany-based company a market value of 66.4 billion euros.
Euro Weakness
'Due to our aggressive shift to the cloud we expect to have a little less upfront and more subscription revenue,' McDermott said on a conference call with reporters. Although that will 'pressure' profit margins in the short term, SAP can be more profitable over the long run because of the shift, he said.
New software license sales, an indicator of future revenue potential, fell about 3 percent to 952 million euros. Analysts on average had estimated 967 million euros. Total non-IFRS revenue rose 5 percent to 4.26 billion euros. Analysts predicted sales of 4.23 billion euros.
The euro fell almost 8 percent against the dollar during the third quarter. It ended the period at $1.26, compared with $1.35 a year earlier. A weaker euro translates into more revenue when SAP books overseas sales back into its home currency.
The proliferation of software on tap via remote servers and mobile devices connected to those applications is bringing sweeping changes in the technology industry.
said on Oct. 6 that it plans to split into two companies: one producing personal computers and printers, and the other supplying data-center equipment. SAP rival named Mark Hurd and Safra Catz as CEOs last month to succeed Larry Ellison, who will become chairman and concentrate on products, including a platform for customers to run cloud applications.
To contact the reporter on this story: Aaron Ricadela in Frankfurt at aricadela@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Tom Lavell, Ville Heiskanen
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