SAP Tips Hand On Cloud Plans As Profits Soar

SAP Wednesday announced strong preliminary financial results for the first quarter of 2010, highlighted by a 12% increase in top-line revenue and a near doubling of profits. In an exclusive interview with InformationWeek, co-CEO Bill McDermott also fleshed out sparse public comments made today on SAP's plans for innovation and leadership in a market that is witnessing radical change.

The strong financial results reported Wednesday come as relief to a company beset by anemic sales and financial results in 2009. The poor performance ultimately led to the dismissal of Leo Apotheker as CEO, the departure of Executive Board Member John Schwarz and the appointment of Bill McDermott and Jim Snabe as co-CEOs.

The new co-CEOs split duties on Wednesday's conference call, with Jim Snabe commenting on SAP's product strategy and plans for innovation. Snabe stuck to a familiar script, pointing to efforts to expand SAP's primacy in on-premise enterprise applications, to enter into the software-as-a-service (SaaS) market with the delayed Business ByDesign suite, and to deliver mobile access to enterprise applications.

The freshest news on these three technology fronts is on SAP's mobile strategy, which got a significant lift in March with the release of CRM and mobile workflow applications built in partnership with Sybase on its Sybase Unwired Platform. If the partnership lives up to its billing, it will help SAP beat rivals including Oracle and Salesforce.com in quickly delivering deep, interactive access to applications with native-device support across platforms including RIM Blackberry, Apple iPhone, Nokia and Google Android.

Addressing SAP's SaaS and on-demand developments, Snabe offered the months-old mantra that a revamped Business ByDesign SaaS suite will be ready by mid 2010, though he noted, "it's not just a me-too, but a next-generation, on-demand platform. We believe that there is an opportunity to disrupt the market based on this platform."

Whether it's Tuesday's announcement that VMWare and Salesforce.com have partnered to support virtualized application development or Microsoft's growing embrace of cloud-delivered applications, there are signs everywhere that the industry and, more importantly, customers are embracing new application delivery modes. Yet Snabe said nothing about cloud computing, virtualization or growing interest in these developments among large enterprises.

But if Snabe's references to SaaS and on-demand seemed somewhat dated, McDermott made it much clearer, in an exclusive interview with InformationWeek Wednesday, that SAP is paying attention to larger shifts. "If you look at the cloud computing scenario... we clearly get that it's a significant force and one that customers want," McDermott said. "We will announce partnerships at SAPPHIRE that make it clear to the world that we believe in the extended business network, that we believe in the ecosystem around SAP, and we will demonstrate our passion for the cloud, whether it's at the network, storage or virtualization layer."

McDermott would not divulge the names of the partners to be announced at SAPPHIRE -- simultaneous May 17-19 events in Frankfurt, Germany, and Orlando, Fla. But he did note that SAP will also demonstrate its own on-demand solutions for private- and public-cloud deployment.

Addressing SAP's financial results in this morning's call with analysts, McDermott pointed to strengths including the 12% increase in first-quarter sales to $2.55 billion (1.94 billion Euros -- all figures are according to International Financial Reporting Standards), up from $2.28 billion (1.74 billion Euros) in the same quarter last year. Operating profits increased 81% for the quarter to $731 million (557 million Euros), up from $403 million (307 million Euros) last year.

"Our growth was solid, driven by an increase in software revenues in all key regions, our established markets, our fast-growing markets and in key segments of business users, including small- and midsize-enterprises," McDermott said.

Software and service revenues increased around the globe, with SAP's European, American and Asian markets growing 11%, 9% and 8%, respectively. Leading industry-specific sales increases included a 31% increase in retail, 17% increases in financial services and consumer package goods, and a 14% increase in sales to utilities. SAP said retailers are moving from legacy back-office systems toward more modern core merchandizing and financial back-office platforms.

Pointing to signs that trust in the SAP brand is strong, McDermott said the vast majority of customers are now choosing the Enterprise Support option. SAP's maintenance and service plan became a flash point of customer anger in 2009, but McDermott told InformationWeek that nearly 100% of new customers and nine out of ten existing customers are choosing what is now the higher-priced option among two support plans.

"It seems like the debate is now behind us on enterprise support," he said. "The value is best-in-class in terms of the competition and it's the best offering we have."

On the topic of innovation, SAP promises were more plentiful than details today. But the upcoming SAPPHIRE event should provide fresh evidence as to whether the best that SAP can offer is best-in-class in delivering business value, a topic Bob Evans writes about in this analysis of today's SAP news and McDermott interview.