SAP raises outlook as cloud growth "unleashed"

FRANKFURT (Reuters) - Germany's SAP announced forecast-beating results on Thursday and raised its outlook as growth in its cloud business accelerated, with CEO Bill McDermott expressing confidence in its push into the sales software market.

SAP, Europe's biggest technology company by market capitalisation, also raised its mid-term forecast for its cloud operations after segment revenues grew by 40 percent, at constant currency, in the second quarter.

"We are increasing guidance as a signal that a new wave of growth has been unleashed," McDermott told reporters on a conference call.

Walldorf-based SAP has been undertaking a fundamental shift to subscription-based business software services hosted on remote servers, away from its traditional on-premise model that generated hefty up-front licence fees.

 

The transition began with S/4HANA, a suite designed to handle back-office functions like supply-chain management or finance and which now counts 8,900 customers - up 41 percent from a year earlier.

Last month, McDermott announced a major push into the sales software market by launching C/4HANA, a suite that will bundle its Customer Relationship Management (CRM) products and seek to challenge market leader Salesforce.

He said C/4HANA would be available as a fully integrated suite within nine months and forecast triple-digit growth in the CRM business, which SAP plans to break out as a separate segment in its financial reporting.

"We are taking the market by storm," said McDermott, describing the two products as "a combination that nobody else has".

SAP reported a 12 percent gain in non-IFRS operating profit in the second quarter, at constant currency, on non-IFRS revenues that grew by 10 percent - both ahead of expectations in a Reuters poll of 14 analysts.

It raised the lower end of its forecast ranges for full year growth in revenues and operating profit by half a percentage point to 6-7.5 percent and 9-11 percent, respectively.

Cloud subscriptions and support were now seen growing by 34-38 percent, compared to 31-36.5 percent previously.

For 2020, SAP now expects non-IFRS cloud subscriptions and support revenue to be in the range of 8.2-8.7 billion euros - up from earlier guidance of 8-8.5 billion euros. The company left other mid-term guidance unchanged. ($1 = 0.8585 euros)

(Reporting by Douglas Busvine; Editing by Caroline Copley and Muralikumar Anantharaman)