SAP Nears 40 Percent Channel Sales Goal But Misses Q1 Expectations


SAP Friday reported lower-than-expected sales and earnings for its first quarter, saying the departure of several sales managers in the company's Asia-Pacific/Japan sector led to a 7 percent sales decline in that region.

But the Walldorf, Germany-based company cited the overall strong sales growth for its cloud applications and HANA database software. Co-CEO Bill McDermott, in a conference call with financial analysts, also touted sales growth through the company's channel partners.

For the first quarter ended March 31, SAP reported total revenue of 3.6 billion euros ($4.7 billion), up 7 percent from the 3.4 billion euros ($4.4 billion) it reported in the same quarter last year. After-tax profit was 520 million euros ($680 million), up 17 percent from 444 million euros ($581 million) last year.

[Related: SAP Grants Channel Partners Sales Exclusivity For 'General Business' Customers]

SAP said its software and cloud subscription revenue grew 19 percent in the quarter, reaching 794 million euros (just more than $1 billion). That included a relatively slow 3 percent increase in software sales to 657 million euros ($861 million) and a 373 percent gain in cloud subscription and support revenue to 137 million euros ($180 million).

Despite the lower-than-expected results, McDermott portrayed the quarter as "a solid start to 2013. Our solid growth was primarily driven by stronger-than-expected growth in HANA and cloud revenues," he said on the call.

McDermott also sought to contrast SAP's results with those of archrival Oracle. Last month Oracle reported third-quarter results in which its overall revenue declined by 1 percent and hardware, software and cloud sales all missed internal forecasts.

"We gained significant market share from our primary competitor, especially in the areas of cloud and database," McDermott said, not mentioning Oracle by name. SAP's growth in software sales and cloud subscriptions "is in stark contrast to our primary competitor, who did not grow at all in their last quarter," he said.

A 7 percent decline in software and cloud subscription revenue in the Asia-Pacific/Japan region led to SAP's slower-than-expected sales growth. Several vacant sales management positions in that region and what McDermott called a "difficult spending environment" in China were to blame for the decline. He expressed confidence SAP's sales in the region would rebound this quarter.

In contrast McDermott said software license sales grew a robust 8 percent in North America and cloud subscription revenue grew by a factor of four.

In the past several years SAP has been expanding its channel sales efforts, and McDermott said those initiatives are bearing fruit and adding to the company's growth.

"Our [partner] ecosystem remains a key differentiator and we saw excellent ecosystem performance this past quarter as SAP partner revenue grew double digits," McDermott said. "Today, partner-driven revenue comprises more than 38 percent of SAP's license revenue and we are on track to reach our 40 percent target by 2015."

The cloud subscription figures included revenue from SAP's SuccessFactors and Ariba cloud services. SAP acquired SuccessFactors in February 2012 and Ariba in October 2012. SAP's goal is to grow its cloud business to $2 billion by 2015.

PUBLISHED APRIL 19, 2013