SAP earnings rise, but no support extension

Syda Productions – stock.adobe.c

Support for SAP ECC is due to end in 2027. The company hopes customers will choose to buy into its business AI portfolio

Cliff Saran,
Managing Editor

Published: 24 Apr 2024 12:07

SAP has reported revenue of €7bn for the first quarter of 2024, an increase of 8%. It posted an increase in cloud revenue of 24% to €3.9bn while software licences revenue decreased by 26% to €203m. However, when questioned over long-term support of its Enterprise Core Components (ECC) core ERP suite – the support of which ends in 2027 – the company said it has no plans to prolong maintenance.

Company executives chose to emphasise the growth opportunities of artificial intelligence (AI) during the earnings call, which has been posted on Seeking Alpha.

When asked about how SAP is monetising AI, SAP CEO, Christian Klein said the company’s commercial model includes some standard AI for automation of repetitive tasks in the base packages. The company also offers premium AI features. He added: “We are now delivering more and more GenAI [generative AI] models, which also require high computing power.”

In January, SAP announced a restructuring plan to transform the business and make it more focused on the opportunities presented by AI. The transformation will result in 8,000 job losses.

In its financial earnings statement, SAP said: “The restructuring is intended to ensure that SAP’s skillset and resources continue to meet future business needs and is expected to affect approximately 8,000 positions, a majority of which will be covered by voluntary leave programmes and internal reskilling measures.”

In the first quarter, it said a restructuring provision of €2.2bn was recorded, which said would over the vast majority of the programme’s total restructuring expenses.

Looking at the benefits of extending the AI built into the premium version of its Rise cloud offering, Klein said customers can deploy SAP’s GenAI Hub on BTP (business technology platform). According to the Seeking Alpha transcript of the earnings, he said: “You get native integration into the data. We can also pre-train some modules. You have integration into the security and authorisation, which matters in the business world.”

During the earnings call, Klein discussed conversations he has been having with business leaders about AI, saying: “Just last week, I had a conversation about production downs in manufacturing and how our GenAI hub can help to get the machines faster up and running again, which would result in hundreds of millions of efficiency gains for this large chemical company.”

Such use cases are not yet prevalent in business, but Klein is confident businesses are developing such capabilities, which he said lead to more consumption of AI services. “We’re going to monetise that in the upcoming quarters and in the upcoming years,” he added.

Klein claimed that the interest in AI was driving SAP’s S/4 Hana customes to deploy the company’s cloud ERP software quicker. “What we’re seeing with business AI is that a lot of customers who planned their migration start date for S/4 for the end of this year or next year now want to move faster because they see the capabilities with SAP business AI on asset management and on just automating workflows in their company.”

Looking at the company’s software maintenance offerings, CFO Domink Asam, said: “A little more than half of our €11bn maintenance base is in products, which go out of regular maintenance by end of 2027.”

Asam said for those customers, some may convert to the cloud by then, while others will opt to pay the higher extended support fees. He made it clear SAP has little appetite to continue with ECC support.

“I think it’s safe to assume that the lion’s share of all that [maintenance revenue of older products] by 2030 will in some fashion disappear because we will not prolong maintenance on these products,” he said.

Read more on Artificial intelligence, automation and robotics

SAP earnings for Q1 indicate strong cloud growth