SAP revenue in fourth quarter boosted by cloud, HANA, mobile

The company has forecast software and software-related service revenue will grow by 11 to 13 percent this year

SAP's revenue in the fourth quarter grew by 12 percent, helped by strong growth in the market for its cloud applications, its HANA in-memory database and mobile applications.

Revenue in the fourth quarter ended Dec. 31 was A!5 billion (US$6.6 billion at the exchange rate on the last day of the quarter), up 12 percent from the same quarter a year earlier, according to IFRS (international financial reporting standards). Software and software-related service revenue for the quarter was A!4.2 billion, up 14 percent from a year earlier.

The business software vendor also forecast Wednesday non-IFRS software and software-related service revenue growth of 11 to 13 percent at constant currencies this year, with software and cloud subscriptions revenue to increase in a range of 14 to 20 percent.

While revenue from software grew 9 percent to A!1.9 billion in the quarter, cloud subscriptions and support revenue grew by a whopping 2,000 percent to A!126 million from A!6 million a year earlier. Revenue from HANA was nearly A!200 million in software revenue in the fourth quarter, totaling almost A!400 million for the full year, while the mobile business contributed more than A!220 million to software revenue, SAP said.

HANA is "the fastest growing product in the history of the enterprise software business," co-CEO Jim Hagemann Snabe claimed during a conference call with analysts on Wednesday.

SAP has said it now has about 1,000 HANA customers. The number that has actually gone live on the system is "approaching 200," executive board member and technology chief Vishal Sikka said during the call. There are also about 300 implementations of HANA One, a service that runs on Amazon Web Services, Sikka said.

HANA revenue is expected to reach A!650 million to A!700 million this year, according to SAP. In addition, the number of customers that begin running SAP's flagship Business Suite on top of HANA should get to "triple digits" this year, Sikka said.

SAP launched the new Business Suite capabilities earlier this month. Over time it hopes to displace rival databases, such as Oracle's, from its customer installed base with HANA.

"These are complex systems," and there are "complex choices customers have to make," Sikka said.

SAP's operating profit was however down by 5 percent in the fourth quarter to A!1.6 billion because of expenses on share-based compensation and acquisition-related charges, and net profit dropped by 8 percent in the quarter from a year earlier. The company acquired cloud-based human capital management tools company SuccessFactors in February, and cloud-based e-commerce vendor Ariba in October.

For the full year, total revenue was A!16 billion, up by 14 percent from the previous year. Software and cloud subscription revenue of close to A!5 billion was up 19 percent, while support revenue was A!8 billion, an increase of 14 percent. Operating profit was down 17 percent to A!4 billion, also impacted by costs of acquisitions and share-based compensation. Net profit was down 18 percent to A!2.8 billion. The number of employees has gone up by 8,700 FTE (full-time equivalents) in the year, of which more than 4,800 came from acquisitions.

SAP added 1,800 salespeople in the year, with an eye on capturing big business in 2013, said CFO Werner Brandt during the call.

"We want to create a sales organization that knows more, will do more and cares more for customers," said co-CEO Bill McDermott. Salespeople were added in all regions with some of the headcount growth occurring in emerging markets such as Turkey and North Africa, "where we know the size of the prize is big," McDermott said.

SAP's numbers were dampened a bit by a "significant investments in a limited number of customer projects," which "negatively impacted our service margin," Brandt said. The precise nature of these projects wasn't immediately clear Wednesday.

The company has said that its profits were also lower in 2012 because of a large reduction in the provision for the TomorrowNow litigation with Oracle in the previous year.

SAP expects full-year 2013 non-IFRS software and cloud subscriptions revenue to increase in the range of 14 to 20 percent at constant currencies. The full-year 2013 non-IFRS cloud subscription and support revenue contributing to this growth is expected to be around A!750 million at constant currencies, it said. SAP also expects full-year non-IFRS operating profit in 2013 of up to A!5.95 billion at constant currencies, from A!5.21 billion in 2012.

The company is facing a heated battle in the cloud software market with the likes of Oracle and Salesforce.com. McDermott repeatedly and directly invoked Oracle as SAP's "next closest competitor." While this has long been assumed by most industry observers, in the past, SAP officials have often avoided referring to Oracle by name.

By 2015, SAP's cloud business will be worth A!2 billion, executives said.

SAP's cloud applications are seeing "shocking uptake," particularly in the last two quarters of the year, said Lars Dalgaard , founder and CEO of SuccessFactors, who now serves on SAP's executive board and heads up its cloud strategy. "All deal sizes are up significantly. We're seeing a quadrupling of multimillion dollar deals."

A big factor behind this is the level of access Dalgaard's cloud sales teams have into SAP's core accounts, he said. "We're doing deals now that couldn't have been done before." He recalled meeting last year with a number of SAP's biggest customers, who at the time "were not ready to buy cloud." But "six to seven months later, they all bought multimillion dollar deals."

But SAP's on-premises business is doing fine as well, according to McDermott. "We also feel great about the core," he said. "Everything is growing."

SAP is continuing to look to the channel for growth opportunities, executives said. The number of consultants certified for SAP technology grew 14 percent year-over-year to 370,000, according to SAP.

The vendor has also inked a deal with Ingram Micro, which will offer SAP-based managed mobility offerings to small and medium-sized businesses, McDermott said. "Now we have a non-payroll sales force working for us at Ingram Micro."

But don't expect SAP to pursue significant inorganic growth, at least for now. "We're not planning any big acquisitions in the near future," Snabe said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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