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SAP Suffers Coronavirus-Induced Stock Plunge

A top partner says the German software giant’s long-term plan of shifting its ERP base to a recurring revenue model is a winner, but the transition isn’t easy.

While the coronavirus crisis has been a boon for some in the tech industry, SAP took a major hit to its value Monday after lowering its earnings expectations for the rest of the year—a disappointing revision attributed to the pandemic.

SAP CEO Christian Klein said his company had “assumed economies would reopen and population lockdowns would ease” in the company’s Q3 2020 earnings call on Sunday. Loosening restrictions would boost spending for the rest of the fiscal year, the company hoped.

Instead, more parts of the world are seeing new lockdowns, which has again stifled demand, Klein said.

[Related: SAP To Take Its Qualtrics Business Public, Will Retain Majority Ownership Stake]

The toll on SAP stock was brutal, with an overnight collapse that wiped out $33.1 billion in market capitalization—a percent loss eclipsing anything the enterprise software giant has seen in 20 years.

But one of SAP’s leading partners is still bullish on working with the enterprise software giant despite the short-term pain the company is experiencing.

Syntax, a global SAP solutions provider headquartered in Montreal, has seen the pandemic impact customer demand for new projects, especially in Europe and Asia, Global CEO Christian Primeau told CRN.

As customers adapt their roadmaps to evolving needs and the diverse economic conditions of their industries, “it‘s no surprise SAP is feeling pressured on new software and professional services sales,” Primeau said.

But the SAP Gold Partner sees the software giant as making the right long-term moves by working to accelerate the shift to cloud-based delivery of its enterprise products and recurring revenue.

“SAP is doing everything right in re-focusing efforts to better meet core ERP and industry specific solutions that will help them make their business case stronger,” Primeau said.

The big task is making the business case for S4/HANA more compelling as far as delivering savings and value—convincing new and existing customers to adopt its latest ERP will shift customers more broadly into the cloud, according to Syntax’ CEO.

“Transitioning to a recurring revenue model is a challenge for most traditional software companies, and SAP is no exception,” Primeau said.

SAP’s CEO pledged in his company’s Q3 earnings call to accelerate cloud growth and expand the share of “more predictable” revenue to 85 percent of all sales.

Klein sees the current challenge, one that’s driving the expected decline in cloud revenue for the rest of the year and into next, is that customers are waiting out the coronavirus crisis before making major buying decisions.

“COVID-19 has created an inflection point for our customers. The move to the cloud combined with a true business transformation has become a must for enterprises, to gain resiliency and position them to emerge stronger out of the crisis,” SAP said in a statement presented with its earnings report.

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