SAP Eyes Growth After Unveiling Major Software Overhaul

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SAP Eyes Growth After Unveiling Major Software Overhaul
SAP has launched the most high-stakes overhaul of its core software line in more than two decades, aiming to convince multinational corporate customers that its software can now run their most critical applications to predict business conditions.

Europe's biggest software company said on Tuesday its widely used suite of corporate planning applications and newer cloud-based Internet software are set to work together using a single, modern user interface. Analysts estimate this means hundred or even thousand-fold improvements in SAP data-crunching times.

The unified database platform, called S4 HANA, promises to cut the time it takes to compile business accounts and forecasts to minutes, instead of hours or days, by analysing vast amounts of data in local memory rather than slower magnetic disk drives.

"I expect a nice tailwind of growth out of this," Chief Executive Bill McDermott said of S4, speaking at SAP's annual capital markets meeting at the New York Stock Exchange. "We are really ready to come out and start accelerating," he said.

Established software makers such as SAP are battling to boost Internet software sales and fend off pure cloud-based rivals such as Salesforce.com and Workday.

All major database vendors including Oracle, IBM, Microsoft and Teradata also offer "in-memory" versions and dozens more rivals supply predictive analytics software in the cloud.

Yet, SAP has staked out a big, early lead in the market for real-time business planning software by signing up around 2,000 of its corporate customers to HANA, according to some analysts.

SAP's existing Business Suite is used by around 50,000 multinationals to manage financials, sales and marketing and manufacturing, and results in a big chunk of profits.

Predicting the future
For most firms, accounting requires an elaborate scheduling effort known to managers as quarterly closing, which involves synchronising financial data company wide to create a snapshot in time. This is often days or weeks old before results are ready.

SAP's newer approach, in development for four years and used for thousands of customers already, combines its super-fast, 'in-memory' database with business analysis. This lets company planners look at actual financial transactions to create current financial reports or to predict future business conditions.

"It's about managing a business in detail rather than in the aggregate," Forrester analyst George Lawrie said of deep changes in the way many companies may now be run. "That means looking through the windshield rather than the rear-view mirror."

Speaking to investors, SAP executives defended a shift to deliver more software as cloud-based Internet services rather than packaged software running on customers' in-house computers.

Chief Financial Officer Luka Mucic predicted that gross margins for its cloud business would grow nine percentage points by 2020, while margins in its software licenses would expand by a more modest 2 percentage points in that period. But he said the blended rate of the two was likely to be hit in the near to mid term.

SAP argues the move to the cloud eventually leads to faster revenue growth and bigger operating profits.

McDermott said S4 HANA represented a reinvention of the core business while downplaying risks SAP could be cannibalising that classic software license business in favour of the cloud. "The core (business) is more stable and consistent than some people have given the SAP share price credit for," he told investors.

Shares of SAP in New York closed up 2.1 percent while the investor meeting was still in progress. Earlier, the stock closed up 1.1 percent in Frankfurt. SAP trading has been range-bound for two years as margins have been hit by increasing investments in, and acquisitions of, cloud services.

© Thomson Reuters 2015

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