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SAP’s cloudy future prompts a dip in profit forecast

Calm down, £5.3bn 2017 profit still coming

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German software giant SAP has cut its profit margin forecast for 2017, as its cloud offering is set to take off and dent the company's (still-bulging) pockets.

According to its results today, Tuesday, by 2017 operating profit will be around €6.3bn-€7bn (£4.8bn-£5.3bn) on revenue of €21bn-€22bn (£16bn-£17bn).

This is down from the previous forecast of an operating profit of €7.7bn (£5.8bn) on revenue of €22bn (£17bn).

Overall operating profit fell by three per cent to €4.3bn (£3.3bn) for the full-year 2014, on revenue up four per cent to €17.6bn (£13.4bn) compared with the same period in 2013.

During that period, cloud-based income increased by 45 per cent to €1.1bn (£800m), it said. However, income from software and software-related services still contributed toward the lion's share of revenue, growing seven per cent to €14.9bn (£11.4bn).

Luka Mucic, chief financial officer at SAP, said the company has also built a pipeline of €3bn (£2.3bn) in cloud revenue for the year.

“We expect cloud subscriptions to exceed software license revenue in 2018. At that time SAP expects to reach a scale in its cloud business that will clear the way for accelerated operating profit expansion,” he said.

Duncan Jones, analyst at Forrester, said the downgrade in profit forecast was not surprising given the company's headway into the cloud space. Under its on-premise software model profits show up more quickly on the balance sheet due to up-front purchases, he said.

"It is a reflection on the shift to cloud, as revenue is deferred," he said. ®

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