SAP eyes China SOE spending uptick in Q2

The software giant believes spending by state-owned enterprises will rebound and this, together with its support for China's economic plans and local channel partners, will help grow its Asia business.
Written by Ryan Huang, Contributor

SINGAPORE--Software giant SAP believes its success in China will come down to its investment in the channel ecosystem and supporting the country's five-year economic plan for IT. It added that China's solid double-digit growth would likely continue and is eyeing further tech spending from state-owned enterprises (SOEs) in the second half of 2013.

In an interview with ZDNet Thursday, Steve Watts, president of SAP Asia-Pacific Japan, said China and India have consistently posted growth of around the 20 percent mark. The two markets were key contributors to SAP announcing its 12th consecutive quarter of double-digit growth of 20 percent--or 720 million euros (US$962 million)--for the Asia-Pacific and Japan market today, he noted.

Steve Watts
Steve Watts, President of Asia-Pacific Japan at SAP. (Credit: SAP)

Zooming in, he said year-on-year revenue from software and cloud subscription grew 22 percent to 2.24 billion euros (US$2.99 billion), while its in-memory computing appliance HANA increased by 53 percent. Mobile spiked 213 percent, analytics went up by 23 percent, and database and technology rose 17 percent.

The top-performing industries for the year include banking, oil and gas, and industrial manufacturing, he added.

Overall, SAP reported fourth-quarter earnings of 1.1 billion euros (US$1.47 billion) on revenue of 5 billion euros (US$6.68 billion), up 12 percent from a year ago. Cloud revenue was 126 million euros (US$168 million) in the fourth quarter and software revenue was 1.94 billion euros (US$2.59 billion), up 9 percent from a year ago.

"If we help China, China will help us"

For 2013, Watts said the company is bullish, as it has a strong pipeline of customers, especially in China, driven by the trends of increased mobility and demand for predictive analytics.

Spending by Chinese SOEs should pick up again in the second quarter. He explained that SOE tech spending slowed down in the last quarter and this is expected to drag on to the first quarter, partly due to the country's leadership transition in November 2012.

The customer mix in China is usually an even split between commercial and SOEs, but last year saw SOE contribution drop to 40 percent, he noted.

The SAP executive pointed out that the software company is doing an "enormous" amount of work to invest in the country's ecosystem. This includes supporting China's 12th economic blueprint, which runs from 2011 to 2015, and identified cloud computing as a key driver for the IT industry.

"If you look at some of the elements of the five-year plan, we're doing a lot of work on education, building core skills," said Watts. He pointed out that SAP has partnerships in China with over 17 universities to help build a skilled local workforce.

There are also plans to expand SAP's reach outside tier-1 cities, building on the six new offices already opened in China. The growing reach will help expand its distribution network and support its channel partners. SAP had in November 2011 pledged to invest US$2 billion in China through to 2015 to expand its businesses and double its workforce there.

"Our first view is if we help China, China will help us," Watts said.

Channel partners key to growth

Currently, channel partners are responsible for around 30 percent to 40 percent of revenue in the Asia-Pacific and Japan market, the executive said. According to SAP, it has over 1,100 partners in the region.

There is also a trend of customers increasingly becoming channel partners. For example, traditional customers such as those in retail or the telecoms sector would diversify into new businesses, driving the need for more collaboration or the development of products based on SAP technology, he explained.

SAP will focus on working with partners to further innovate on its HANA offerings and accelerate new business models with mobility and cloud, Watts noted.

By 2015, the company forecasts at least 40 percent of software revenue will be come from partners in the region.

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