SAP Earnings Improve but Miss Projections, Stock Dips

The German-based company is having trouble selling conventional database-related software, and sales of cloud services are slow on the uptake.

Business-management and cloud applications provider SAP, which saw financial improvements last year largely based on interest in its fast, new HANA in-memory database, took a step back April 17 when it reported first-quarter 2014 sales and earnings that missed analysts'—and its own—projections.

Worldwide sales increased 2.7 percent to $5.1 billion (3.7 billion euros), the Walldorf, Germany-based company reported, but the totals fell short of the $5.25 billion (3.8 billion euros) average estimate of Wall Street analysts polled by Bloomberg.

Investors evidently weren't impressed, because SAP’s stock fell 2.2 percent to $79.77 on the day.

The company reported profits in the quarter of $738 million (534 million euros), up about three percent year-over-year, an improvement of $719 million (520 million euros) over the same time window a year ago.

Like a lot of similar old-school IT companies, SAP is trying to move its installed base from on-premises software in servers to cloud-based services that it runs, and it's apparently having a harder time than it imagined. The company also is experiencing a slowdown in sales of its conventional data center software packages.

While sales of HANA databases now comprise less than 10 percent of the company's income—and are projected to stay in single digits for about the next three years—SAP is hoping that current and potential new customers will take a close look at moving some of their most important business applications into cloud-based deployments instead of re-upping with older in-server instances.

Co-CEO Bill McDermott said on a conference call with analysts and journalists that the company is "running mission-critical, industry-specific processes in the cloud, which our competitors just don't do. SAP is well-positioned to achieve goals of reaching $30 billion in annual sales by 2017—$4.15 billion to $4.84 billion of which would come from sales of cloud-service subscriptions."

Sales of new software licenses, an indicator of future revenue, slipped 5.2 percent to $861 million, compared with the $907 million average estimate by the Wall Street analysts. Cloud subscriptions rose 32 percent to $305 million.

SAP creates software for managing assets, inventories, deliveries, financial performance and human resources for more than 250,000 companies around the world. It dearly wants to transition to delivery of these same applications—plus data analytics using HANA databases—through cloud subscriptions.

The company has made recent acquisitions to buy cloud-computing expertise. Three weeks ago, SAP revealed that it is buying Fieldglass, a maker of online human resources software, to compete directly with market foes and Oracle.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...