SAP's Q2: The big questions
SAP is set to announce its preliminary second-quarter results Thursday and apart from a look into its finances, the occasion also presents a chance for media and analysts to probe SAP’s top executives for clues to the company’s future plans and strategies.
Here’s a look at some of the key topics facing SAP’s leadership team.
SAP didn’t break out revenue for its Hana in-memory computing platform in its first-quarter earnings announcement. That’s a change from previous practice. Instead, SAP emphasized the total number of Hana customers (more than 3,200), the 1,000 customers for its Business Suite on Hana offering, and the 1,200 startups using Hana to build applications.
How those numbers are reported, and how much they grow, will be closely watched this week.
If SAP once again fails to break out Hana revenue, skeptics may conclude that the Hana business is slipping.
But SAP executives may counter that it’s simply changing: Rather than selling as many Hana licenses as possible for use by customers on dedicated hardware appliances from partners, SAP is instead weaving the technology throughout its offerings and betting that seeding a market of startups with Hana will deliver big money down the road.
SAP has also entered a new phase of competition for Hana, particularly with Oracle. Even as SAP has tried to convince customers to run their SAP applications on Hana, it continues to be a major reseller of the Oracle database.
This month, Oracle is expected to release a new in-memory option for the database that it says can be easily applied with no need to rewrite applications.
That’s an entirely different proposition from a wholesale move to a new database platform, no matter how many helpful tools and services SAP makes available.
But then there’s a certain type of customer who would consider a Hana move in the first place, said Holger Mueller, vice president and principal analyst at Constellation Research.
If an SAP customer now running Oracle wants to entirely rethink their enterprise IT strategy, it makes more sense to go for Hana, Mueller said. But more conservative customers are more likely going to consider the in-memory option instead, he added.
During the Sapphire conference in June SAP unveiled its plans for Simple Suite, a revamped version of its Business Suite software that uses Hana to radically simplify the code base.
It’s starting out with an application called Simple Finance, with more modules to follow. SAP may provide an update on early customer adoption for Simple Finance as well as more insight into when future elements of the Suite will go simple.
Simple Finance runs on SAP’s Hana Enterprise Cloud hosting service. While SAP co-founder Hasso Plattner has pledged that none of SAP’s applications will be rewritten to force dependency on Hana, customers who want the most new bells and whistles will need to look at Simple Suite.
Cloud versus On-Premise
In the first quarter, SAP said its annual cloud revenue run rate was close to €1.1 billion, with billings up 36 percent year over year. At the same time, on-premises license sales fell 5 percent to €623 million.
SAP officials, like those at other traditionally on-premises software vendors, have framed the situation as simply the natural outcome of a transition in customer buying preferences.
That may be so, but observers will watch these two numbers closely when SAP makes its second-quarter report, looking for signs of weakness.
Officially, SAP’s midmarket cloud enterprise-resource-planning suite, Business ByDesign, is still alive. It’s just being “refactored” to run on Hana, as departed tech chief Vishal Sikka said late last year.
But since then, SAP has made very little noise about where this effort stands. Sikka’s abrupt departure in May and the subsequent appointment of Bernd Leukert as development head didn’t help, although some observers expect more of an application focus for SAP under Leukert’s leadership.
Since its inception nearly seven years ago, ByDesign has been a disappointment for SAP. The company initially projected it would have 10,000 customers by 2010, but it has come nowhere near that mark even today.
Still, “it makes sense for them to keep ByDesign at the moment,” said Jon Reed, an independent analyst and SAP Mentor, the name given to especially involved members of the company’s community. For one thing, it gives SAP something to compete with when rivals such as NetSuite come knocking on its customers’ doors, Reed added.
That said, if SAP manages to complete the Simple Suite vision, it may be able to use that code in a midmarket product, eliminating the need to continue developing ByDesign.
Next week’s conference calls with reporters and analysts present a good opportunity to get the whole situation sorted out.