SAP cuts 2017 outlook, sees cloud profit power in 2020

SAP provided its five year outlook and sees its cloud business reaching parity with software in 2018 and delivering better profits in 2020. Is a five year outlook in technology reliable?

SAP on Tuesday cut its outlook for 2017 as it continues to invest in its cloud computing business, which it expects to equal the software unit in size by 2018. Meanwhile, SAP is retooling its services business in an attempt to simplify customer deployments.

The enterprise software giant's fourth quarter results weren't a surprise given SAP outlined them a few days ago. SAP has been talking up its cloud computing and HANA analytics unit. The former has been beefed up with acquisitions such as Concur and Fieldglass.

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SAP used its fourth quarter earnings call and statement to update what it calls its "mid-term outlook."

For 2017, SAP said it expects its cloud business to continue to grow and hit €3.5 billion and €3.6 billion in 2017. For 2017, SAP said revenue will be between €21 billion €22 billion, down from its previous outlook of hitting €22 billion. The company said operating profit excluding charges will be between €6.3 billion and €7.0 billion in 2017. SAP's previous margin outlook equated to about €7.7 billion.

Also: Oracle woos cloud customers: Time for a kinder, gentler enterprise experience?

SAP noted that its cloud business will deliver more growth and ultimately boost profits with a more predictable revenue stream. SAP also said its cloud and support revenue will be close to parity with its software business by 2017 and pass it in 2018.

For 2020, SAP said it is expecting cloud and support revenue to be between €7.5 billion and €8.0 billion with revenue between €26 billion and €28 billion. Operating profit for 2020 will be €8 billion and €9 billion and cloud revenue will lead to more predictable sales.

The five-year outlook for SAP is interesting, but could also present a big challenge. IBM has provided a long-term outlook, but also boxed itself in with Wall Street. SAP is risking the same mistake.

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For 2015, SAP said it expects its cloud business to deliver revenue €1.95 billion to €2.05 billion with an 86 percent growth rate, largely fueled by Concur and Fieldglass. The growth is at constant currency rates. The company sees 2015 operating profit excluding charges between €5.6 billion and €5.9 billion.

What's also notable to customers is that SAP is "radically simplifying" its services unit and how it engages with customers. Note that Oracle also talked about simplifying engagement last week.

In a nutshell, SAP's ONE Service will put its services in one unit. Services will now have one revenue line in future results and include premium and professional services. It's worth noting that the bulk of SAP deployments are delivered by outside consulting firms.

Here's a look at the fourth quarter final tally.

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