SAP Reports Hefty Q2 Cloud Software Sales Growth

SAP reported strong growth in its second-quarter cloud software sales as the company continues to transform itself away from its legacy as a supplier of big, on-premise applications.

SAP also said Thursday that it has created a new division focused on small and midsize businesses with 500 or fewer employees, further evidence the Waldorf, Germany-based company is looking to the SMB market for growth beyond its traditional focus on large customers.

For its second quarter, ended June 30, SAP reported revenue of 4.15 billion Euros ($5.61 billion), up 2 percent from 4.06 billion Euros ($5.49 billion) in the same period one year before. But after-tax profit declined 23 percent to 556 million Euros ($752 million) from 724 million Euros ($979 million) one year earlier.

"We are delivering on our 'Run Simple' strategy with strong growth in cloud, HANA and the network," said CEO Bill McDermott in a conference call with financial analysts Thursday.

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[Related: SAP Partner Organization Overhaul Nearly Complete]

"Run Simple" is the marketing strategy/philosophy SAP executives unveiled at the company's Sapphire conference in May, pertaining to both SAP's technology and to how the company works with partners and customers.

HANA is SAP's in-memory compute engine the company is increasingly using as a platform for its cloud and on-premise applications. McDermott said more than 1,200 customers are now using the SAP Business Suite, the company's flagship application set, running on HANA.

SAP reported that revenue from cloud subscriptions and support grew 52 percent in the quarter to 241 million Euros ($326 million) and is now on an annual run-rate of 1.2 billion Euros, or $1.6 billion.

"We're growing our cloud one-and-a-half times faster than our closest competitor and faster than most [of] the SaaS peer group. And we are the fastest-growing cloud company at scale," said McDermott, who became SAP's sole CEO in May after the departure of Co-CEO Jim Hagemann Snabe. "We are running industry-specific, mission-critical processes in the cloud, which other cloud vendors simply can't do."

Revenue from software licenses was down 2 percent year-over-year, likely due to the ongoing shift to cloud subscriptions among customers, to 957 million Euros ($1.29 billion). But revenue from software and software-related service revenue grew 5 percent to 3.48 billion Euros ($4.71 billion).

SAP took a one-time charge of 289 million Euros ($390.9 million) against earnings related to a potential payment SAP may have to make to Versata in a seven-year-old patent lawsuit. That charge was a factor in a 12 percent increase in SAP's overall operating expenses for the quarter, leading to the lower operating profit.

The new SMB Solutions Group, focused on businesses with up to 500 employees, will become "the main entry point" for SMB customers and partners globally, SAP said. The company has hired former NetSuite and SmartFocus executive Dean Mansfield to serve as president of the new division.