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SAP to hike prices as inflation bites: Cloud surges, profits tumble

SAP CEO Christian Klein has confirmed to investors that the company will put up prices within the coming months, possibly sooner, as it reacts to broader inflationary pressures.

He made the comments in the Q&A on a Q2 earnings call, as SAP confirmed that cloud had become its biggest revenue stream for the first time as it continues a pivot to a SaaS model.

Despite strong revenue growth, SAP reported a sharp slump in operating profit (down 32% to €673 million), a fall it blamed on “reduced contribution from software licenses revenue, as well as significant bad debt expenses related to the war in Ukraine” adding on July 21 that it suffered further restructuring expenses of €130 million “primarily incurred due to the exit from Russia and Belarus”.

SAP price hike warning comes as S4/HANA migrations pick up momentum

SAP, like other large Enterprise Resource Planning (ERP) software providers, has faced headwinds in persuading customers – many of which have complex, heavily customised and deeply entrenched on-premises ERP software systems – to move to the cloud and its S4/HANA platform, but reported “strong momentum for S/4HANA in the cloud, with approximately 6,000 customers and over 600 wins in Q2”.

“We will release our new price schedule… in the upcoming weeks and months. But definitely, of course, we will and have to react to this inflationary pressure” Klein told analysts, without providing further details.

It was a broadly positive quarter for the German software company. It reported total quarterly revenues of €7.5 billion, up 13%, cloud revenues of €3.05 billion, up 34%, and a cloud backlog of €10.4 billion, up 34%

Forrester Vice President and Principal Analyst Liz Herbert added: “SAP continues to highlight cloud and S/4HANA momentum and to boast good growth numbers in both of those areas. This is generally consistent with what we see in the Forrester client base with SAP and other major enterprise applications as we see significant ERP modernization initiatives underway (across the industry, not just SAP).

“However, we also see some deeper issues that are not obvious from the SAP earnings. For example, some customers are buying these next-gen solutions but underutilizing them due to rollouts still in progress and/or adoption goals not fully achieved (for example, a customer can be listed as an S/4HANA win but only partly deployed or still planning deployment for major business segments).

“We see a lot of the customer base in a state of transition with old and new software co-existing at this point in time,” Forrester’s Herbert added in an emailed comment, noting that “we continue to hear from customers that they are still weighing the business case of their ERP modernization and still considering multiple ERP vendors for their future state. We also see that suites strategies of the past are yielding to more ecosystem strategies, which poses a risk for large suites vendors like SAP.”

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