By Friedrich Geiger
FRANKFURT-- SAP AG's sales and profit rose in the first quarter
because of growing demand for Internet-based applications and
despite currency headwinds, the German business-software maker said
Thursday.
Revenue increased 3% on the year to EUR3.70 billion ($5.11
billion). Revenue from cloud subscription and support jumped 60% to
EUR219 million while sales of traditional software for installation
on computers almost stagnated. Net profit at the vendor of software
for accounting and customer-relation management rose 3% to EUR534
million.
Strong growth in SAP's cloud business appears to endorse the
strategy of Europe's largest software maker to focus on the new
technology. Customers increasingly prefer to use applications
through Web browsers because it reduces the requirements for
information-technology hardware and maintenance. Cloud-focused
rivals such as Salesforce.com Inc. and Workday Inc. have enjoyed
strong growth in recent years.
"We are reiterating our 2014 outlook with confidence," said SAP
co-Chief Executive Bill McDermott. He maintained a forecast of
operating profit of EUR5.8 billion to EUR6.0 billion for the year,
after adjustments for currency swings, up from EUR5.51 billion last
year. The company said it expected exchange rates to cut its profit
for the year.
The U.S. dominated SAP's cloud business in the first quarter,
contributing more than half to of the segment's revenue.
"The U.S. was first to adopt the cloud," said Mr. McDermott.
He said Europe and Asia are catching up, but the small
differences in regional growth rates indicate that it will take
years for other countries to reach the U.S. level of cloud usage.
SAP's adjusted revenue with cloud products rose 43% in Asia-Pacific
and 39% in Europe, Africa and the Middle East--only slightly above
the 37% growth rate of the Americas.
The regional breakdown of other cloud application vendors'
revenue looks similar to SAP's, said David Bradshaw, research
manager at International Data Corp., an IT adviser. The U.S.
accounts for more than half of the global market for public cloud
services, Mr. Bradshaw estimated. The country is thus far ahead of
both Asia and Europe, which have been slower to embrace the cloud.
He estimated Europe's share at 30%.
Salesforce.com, the world's largest vendor of business cloud
applications, generated 71% of its revenue in the Americas last
quarter.
Mr. Bradshaw said it would take up to 15 years for cloud
applications to become as popular in Europe and Asia as in the
U.S.
"Cloud is far more cost-effective than on-premise software," he
said, and "as the market matures, regional differences will become
smaller."
Mr. Bradshaw said vendors of cloud services tend to target the
U.S. first because it is the largest market and home to many of
them. In other countries, translations, varying currencies and
differing rules slow adaptations, he said. U.S. companies' demand
for cloud applications is also stronger because they are, on
average, larger than their European counterparts and require the
applications' support to handle their higher complexity, he
said.
Cautiousness on privacy also makes Europeans more reluctant to
use cloud services, he added.
SAP's overall revenue also showed differing trends. Chinese
growth was near 40% and therefore very strong, said co-CEO Mr.
McDermott.
Southern Europe and France also performed well as their
economies started to recover from the debt crisis. "Things are
getting much better in this region for sure," he said, adding that
Russia didn't perform as well because of the Ukraine crisis.
A number of acquisitions have contributed to SAP's growth in
recent years, including Sybase, Ariba and SuccessFactors. Mr.
McDermott suggested that the era of big takeovers may be over.
"If something were to happen, it would be more in the tuck-in
category" than a big deal and the company's focus is on organic
growth, he said.
Write to Friedrich Geiger at friedrich.geiger@wsj.com
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