SAP’s Cloud Expansion

A recently released Gartner report titled Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 4Q12 Update pegs worldwide spending on public cloud services to increase 18% annually over 2011 through 2016 to $210 billion. Infrastructure as a Service (IaaS) will drive growth in the market by recording 41% annualized growth through 2016. Global SaaS spending is projected to grow 20% annually to $32.8 billion by 2016. The growing importance of cloud-based offerings is ensuring that the major technology players concentrate their efforts on bagging a bigger share of this market.

SAP’s Financials
SAP’s (NYSE: SAP) Q1 revenues grew 8% over the year to €3.64 billion (~$4.71 billion), but missed the market’s expectations of at least €3.73 billion (~$4.82 billion). Earnings of €901 million (~$1.17 billion) also missed the Street’s target of €968 million (~$1.25 billion).

By segment, revenues from software & cloud subscriptions revenues grew 23% over the year to €824 million (~$1.07 billion). Support services revenues increased 8% to €2.1 billion (~$2.72 billion). Software and software related service segment accounted for €2.94 billion (~$3.80 billion) in revenues.

SAP expects to end the year with earnings of €5.85 billion-5.95 billion (~$7.57 billion-$7.67 billion).

SAP’s Cloud Growth

Like many other technology players, SAP is also moving extensively to a cloud based subscription fee model. For now, they are doing quite well with this migration, which has also helped them enhance their margins. During the last quarter, cloud services brought in €28 million (~$36.21 million) in profits. Cloud is still a small segment for the company. They expect to earn revenues of €900 million (~$1.16 billion) in the year, but are planning for the segment to earn revenues of €2 billion (~$2.59 billion) by 2015.

In fact, to drive this growth, SAP recently announced that they will release their in-memory database, HANA, on the cloud as a monthly subscription as well. Till now HANA had been available through Amazon’s Web Services (AWS) as a limited cloud-based version that was priced at $0.99 per hour plus taxes and fees. However, the AWS version was slower and restricted.

But SAP will release applications powered by HANA through their own cloud. SAP believes that through the cloud they will be able to deploy HANA faster for customers. Customers will still need to go through an initial migration process of obtaining licenses. Pricing has not been disclosed, but the company confirmed that customers will need to have licenses for Business Suite, SAP HANA and SAP NetWeaver Business Warehouse, and will need to determine what applications will be best moved to the cloud. The cloud-based version is expected to be available in the second half of this year to their customers in the U.S. and EMEA. SAP has not disclosed the pricing for the new service, but it will be in the form of a monthly subscription fee dependent on the size of the company and scale of data and applications.

SAP’s stock is trading at $76.28 with a market capitalization of $9o.96 billion. It touched a 52-week high of $84.66 in March 2013.