When SAP presented its Q2 results last month it was jubilant about soaring software sales, and its top line results (an 18% revenue uplift) were certainly something to be proud of. However, as TechMarketView noted at the time, the bottom line was not a robust as the operating margin had dropped by 2.4 percentage points (see SAP software flew out of the doors in Q2). Now SAP has warned that it is falling short against its operating profit goal and will have to cuts costs to meet its full year profit target.
According to reports in the German publication WirtschaftsWoche, SAP told employees that first half operating profit was $2.35bn and that if it continued at that rate the full-year operating profit would only reach $6.23bn to $6.48bn – 95% of its goal. Despite a rise in subscription sales, the SuccessFactors acquisition has cut into profitability. It was also cited as the cause of the drop in SAP’s operating margin. As we have said many times before, cloud pure-plays struggle with profitability. That does not change overnight when vendors with deep pockets acquire them, but the expectation is that the buyer has the resources to sustain them and reduce operating costs. It is still early days, but it looks like SAP is struggling with SuccessFactors. With rival Oracle’s series of cloud purchases it will be interesting to see what impact they have on its profitability. SAP’s warning could also reflect a budget tightening or longer buying cycles amoung enterprises – Q3 results should be informative.