SAP reported strong revenue growth in its HANA in-memory database and cloud businesses, but also saw revenue from software decline in the third quarter.
The company said Monday that its revenue in the quarter was up 2 percent year-on-year to €4 billion ($5.4 billion), according to IFRS (international financial reporting standards). Profit soared 23 percent to €762 million.
Software revenue, however, fell 5 percent from the same quarter last year to €975 million, even as cloud subscriptions and support grew by a whopping 203 percent to €191 million. Support revenue grew by 4 percent to a little over €2 billion, while overall software and software-related service revenue grew 5 percent year-on-year to about €3.4 billion.
SAP said it is well on its way to reach €1 billion in HANA software revenue since market launch about two years ago. In the quarter, HANA software revenue was up 79 percent at actual currencies to €149 million, and over 2,100 customers. Competitor Oracle announced in September an upcoming in-memory option for its recently released 12c database.
IBM and Microsoft are also working on in-memory database products.
Those competitors' efforts are "too little, and a little bit late" to market, said SAP executive board member Vishal Sikka, who heads all product development, during a conference call Monday.
The business software company also said it had reached a run-rate of over €1 billion in annual cloud revenue, with about 33 million cloud users. Non-IFRS “deferred cloud subscription and support revenue” was €382 million at the end of the quarter, a year-over-year increase of 79 percent, the company said. Deferred cloud subscription and support revenue includes committed future cloud subscription and support revenue already paid by the customer for subsequent quarters of the year.
The business from cloud-based e-commerce vendor Ariba that SAP acquired last October is also doing well with the Web-based business trading community now connecting 1.2 million companies, SAP said.
Big prospects around the globe
In the Americas region, the company saw third quarter non-IFRS software and cloud subscription revenue grow 17 percent year-over-year at constant currencies, helped by software revenue growth in Latin America and strong non-IFRS cloud subscription and support revenue growth in North America.
The company’s non-IFRS software and cloud subscription revenue in the Asia Pacific Japan region returned to growth with “solid single-digit growth” at constant currencies, backed by a strong performance in China. SAP’s non-IFRS software and cloud subscription revenue in the region declined 7 percent in the second quarter.
The 2013 revenue and profit figures include the revenue and profits from Ariba, SuccessFactors and Hybris, a commerce technology company SAP acquired in August. The comparative numbers for 2012 do not include SuccessFactors, Ariba and Hybris for varying periods.
However, SAP is apparently giving up on Business ByDesign, its cloud-based ERP (enterprise resource planning) suite, as a major pillar of its cloud strategy.
SAP originally hoped that Business ByDesign would have 10,000 customers and would be generating €1 billion in revenue by 2010, but failed to meet that goal. The vendor was also forced to retool the application’s architecture in order to be sure it would be profitable when run at large scale.
Reports surfaced in recent days that SAP would be winding down active development of Business ByDesign.
Business ByDesign will be rolled into SAP’s broader HANA Cloud product line, co-CEO Bill McDermott said during Monday’s conference call. The application will also “continue to be supported and actively promoted in its current scope,” he said.
Meanwhile, SAP is seeing strong interest from customers in the Business Suite on HANA hosting service announced earlier this year, co-CEO Jim Hagemann Snabe said during the call. About 450 customers have signed up so far, with half being existing SAP customers and another half new ones, he said.
While revenue from the service is still low, its becoming “the default choice” for new SAP ERP deployments, Snabe said.
The Suite on HANA service will “reinvigorate” SAP’s core ERP business, according to McDermott. “The ease of consumption in the cloud for large companies has now been realized by 450 of them but there’s thousands of them that should be doing it,” he said.
SAP has maintained its guidance for the full year 2013 that it announced last quarter, when it forecast, for example, at least 10 percent growth in non-IFRS software and software-related service revenue at constant currencies for the year. The company, however, cautioned that exchange rates could negatively impact the company in the fourth quarter and full year by up to 5 percentage points in non-IFRS software and software-related service revenue growth rate, and by 7 percentage points in non-IFRS operating profit growth.
Updated at 9:03 a.m. PT with more information from a Monday conference call.