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Cloud revenue growth misses for SAP in Q2, but the future is bright with AI, according CEO Klein

Stuart Lauchlan Profile picture for user slauchlan July 21, 2023
SAP cloud revenue continues to grow, but not enough to keep investors happy for now.

SAP CEO Christian Klein
(SAP CEO Christian Klein)

SAP disappointed investors with lower-than-anticipated cloud revenue growth for Q2, causing the firm to lower its outlook for the full year. But the future’s about AI opportunities, insists CEO Christian Klein. 

Total revenue was €7.55 billion, with cloud revenue making up €3.3 billion of that. Klein was keen to point out that with 22% year-on-year growth, cloud revenue continues to climb, citing RISE as an ongoing success story:

This is SAP's signature offering, which helps customers move to the cloud and transform their business processes at the same time. It's also very important to emphasize that SAP's newest innovations and capabilities will only be delivered in SAP public cloud and SAP private cloud using RISE with SAP as the enabler. This is how we will deliver these innovations with speed, agility, quality and efficiency. Our new innovations will not be available for on-premise or hosted on-premise ERP customers on hyperscalers.

He added:

Key new RISE deals this quarter include Bayer AG and Bacardi-Martini. As one of the world's largest pharma and biotech companies, Bayer chose RISE with SAP to facilitate its extensive business transformation program known as Core. Bacardi is the world's largest privately owned international spirits company with a portfolio of more than 200 brands. They have chosen RISE with SAP to meet their ambitious growth targets.

There were also a number of important RISE Go Live this quarter, including HanesBrands, Levi's, Tech Mahindra and Versuni. Tech Mahindra of India deployed RISE with SAP in record time, going live in just 3.5 months. Versuni, a new company formed from Philips Domestic Appliances undertook one of the largest RISE transformations ever, and it was completed in just 18 months.

He argued: 

Being out there, we definitely see no slowdown in our SaaS and PaaS business. I mean S/4HANA, the cloud revenue even accelerated once again…the platform sees more and more adoption. 

AI incoming 

Looking ahead, Klein became the latest enterprise CEO to pitch a generative AI revenue stream coming in the near future: 

It's clear that generative AI will fundamentally change the way businesses run. In the business world, no one is better positioned than SAP to empower businesses to take advantage of this transformational moment, giving them the solutions to harness AI to improve business outcomes. We believe we are uniquely placed to become the leader in business AI.

He went on: 

Customers will benefit from new AI-powered solutions that step change how processes can self-learn and self automate to self-optimize business outcomes. For example, imagine supply chains that automatically initiate a different delivery route based on weather and congestion data. There will be a step change in how employees can interact with solutions in vertically more efficient and personalized ways. 

For instance, imagine your ERP system using embedded ESG data and business data to de-carbonize the supply chain by 5%, simply by asking for it. And there will be a step change in uncovering new insights that lead to better business decisions. Imagine one trusted data layer across your entire company that enables AI to pull together the wide data in seconds. This will bring us significant opportunities for market expansion through new AI-based solutions and new premium offerings.

SAP earlier this week joined Oracle and Salesforce as an investor in generative AI firm Cohere. Klein explained: 

You learn a lot by all these AI start-ups. We're exchanging a lot of knowledge and best practices. I mean, the reason why we are doing these investments is to team up technology-wise and go to market wise, but we're, of course, also exchanging a lot of thoughts, a lot of insights on how to build best this LLM [Large Language Model] model. So we are also gaining a lot of knowledge and insights by these investments, what we are doing, not to forget.

But the company already has a number of key differentiators in its approach to AI, he argued: 

Firstly, our AI is relevant because it's embedded into every part of our portfolio. More than 24,000 SAP cloud customers today can already use SAP business AI across hundreds of built-in AI capabilities and partner use cases. To provide a couple of new tangible examples. In SAP Transportation Management, generative AI will save up to 55% of the processing cost of delivery notes. The new intelligent collections in SAP S/4HANA Finance can reduce the time between invoice and payment by up to 10%.

Secondly, based on unique business data and business process context, we can deliver the most reliable business AI. Reliable AI hinges on applying the wide data to the wide model. By using SAP DataSphere to leverage substantial contact switch industry-specific data, business AI system can drastically improve accuracy, generate more relevant content and minimize AI hallucinations.

Thirdly, responsible AI is not a buzzword for us. Our customers trust us with their most critical data and can confidently deploy our AI offerings, knowing we prioritize the highest levels of security, privacy, compliance and ethics. We comply with the highest standards when it comes to customer consent, security, GDPR regulations. This is what SAP stands for.

My take

Now is another threshold moment. While nearly every company is working on the AI revolution in some way, no one sits at the nexus of technology and business like SAP.

The noise about the AI-driven future opportunities wasn’t enough to keep investors happy in the short term as the share price took a pummelling. Klein talked a lot about the potential margins on embedding AI throughout the SAP portfolio. If that starts to deliver later in the year, investor reaction may be more favorable. 

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