Faster 'cloud' orders for SAP hurt 2014 profit outlook

Mon Oct 20, 2014 7:19am EDT
 
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By Harro Ten Wolde and Eric Auchard

FRANKFURT (Reuters) - German software maker SAP (SAPG.DE: Quote) cut its 2014 operating profit forecast on Monday as customers shifted faster than expected to products delivered over the Internet, delaying when those orders can be booked as sales.

Company executives said the accelerating switch from packaged software to so-called "cloud" software would shave about 200 million euros off a previous profit forecast, but that cloud contracts would bolster sales and profit in the future.

The corporate software industry is undergoing a rapid shift from packaged software which customers run on their computer systems to software run over the Internet in remote datacenters, making data easier to manage, analyze and use on mobile phones.

SAP said it now expects 2014 operating profit, excluding some special items, of 5.6 billion to 5.8 billion euros ($7.1-$7.4 billion), down from 5.8-6.0 billion euros previously.

Packaged software sales are recognized immediately, while cloud orders are booked as sales over the life of multi-year contract, which officials said largely explained its new outlook.

SAP shares dropped 4.2 percent at 0955 GMT (1.55 p.m. EDT), making it the worst performer in the German blue-chip DAX index .GDAXI and leading European technology stocks lower .SX8P.

Analysts said there was concern that a rising proportion of cloud sales would lower the company's profitability.

"Growth dynamics are increasing, but at the cost of margins as the cloud cannibalizes SAP's license business," said Mirko Maier, analyst at Germany's Landesbank Baden-Wuerttemberg, who has a "buy" rating on SAP shares.   Continued...

 
A SAP logo is seen at its offices in the CityWest complex, Dublin September 5, 2013. Picture taken September 5, 2013. To match Special Report TAX-SAP/   REUTERS/Cathal McNaughton