* Expects to hit 35 pct margin target in 2017, not 2015
* Says additional investments needed to meet demand
* Sees 2017 cloud revenue at 3.0-3.5 bln euros
* Shares underperform German blue-chips
(Repeats with link to Breakingviews)
By Harro Ten Wolde
WALLDORF, Germany, Jan 21 German business
software maker SAP pushed back its profit target as it
waits for subscription revenue from cloud-computing to gather
pace and invests more in the business to keep up with a
SAP said on Tuesday it now aimed to hit its operating margin
goal of 35 percent in 2017 instead of 2015. The margin was 32.6
percent last year.
The Walldorf, southern-Germany based company and global
rivals such as IBM and Oracle are racing to
meet surging demand for web-based software products.
Known as cloud computing, this allows businesses to reduce
their costs by ditching bulky servers for network-based software
in their own offices and using remote data centres run by
technology companies instead.
The global cloud services market last year grew by almost a
fifth to an estimated $131 billion, according to research firm
Gartner. IBM Markets Intelligence estimates the market could be
as big as $200 billion by 2020.
SAP's customers, which include Coca-Cola, McDonald's
and Vodafone, are moving to cloud computing
because there are no upfront costs for programme licenses,
dedicated hardware or installation, making them less vulnerable
to any economic downturn.
Instead they pay smaller license fees over a longer period
of time. For SAP, that means income from such services will be
spread over more years in smaller chunks but will be easier to
SAP entered the cloud business in 2012 after spending $7.7
billion on buying internet-based computing companies Ariba and
The company said on Tuesday that it needed to invest more in
the business, but declined to give any details. SAP has not
disclosed how much it has spent in total so far.
"Next year's cashflows might be spent on acquisitions of
cloud companies. The aim of reaching 3-3.5 billion in cloud
revenues by 2017 will hardly be achieved without acquisitions,"
said Warburg Research Andreas Wolf, who rates SAP stock as
Co-Chief Executive Bill McDermott told reporters he did not
exclude more acquisitions but said SAP aims to grow by itself
for now. "When an acquisition makes sense, we will do it," he
SAP shares pared earlier losses to trade 0.8 percent lower
at 1211 GMT, underperforming a 0.3 percent stronger German
blue-chip DAX index.
The company expects total revenue to rise to at least 22
billion euros ($29.8 billion) by 2017, of which 3-3.5 billion is
expected to come from the cloud business compared with 787
million euros last year. SAP made 16.9 billion euros in total
revenue in 2013.
"Revenue from cloud services does not come up front. It is a
subscription cycle with recurring revenues. So three years down
the road, revenues and profits will climb based on that
subscription model. But in the short term it lowers your margin
rate," McDermott said.
He said SAP wants 65 percent of its revenue to be recurring
by 2017. That compares with about 50 percent now.
For 2014 SAP expects operating profit at constant currencies
of 5.8-6.0 billion euros, up from 5.51 billion last year.
SAP published preliminary results on Jan. 10.
($1 = 0.7373 euros)
(Additional reporting by Ilona Wissenbach; Editing by Erica