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SAP cloud revenue rises 16%, while business AI push gets attention from CEO Christian Klein

Stuart Lauchlan Profile picture for user slauchlan October 19, 2023
Cloud, RISE and GROW are all expanding. Will SAP's claim to business AI leadership follow suit?

SAP CEO Christian Klein
Christian Klein

SAP’s cloud revenue rose by 16% year-on-year for its third quarter to €3,472 million, but fell short of market expectations of 18% growth. That said, the company is sticking to its full year projections for cloud revenue of between €14 billion to €14.2 billion, with CEO Christian Klein stating: 

Despite ongoing macro-economic headwinds, our cloud momentum remains strong and growth continues to accelerate, all in all, putting us well on track to achieve our 2025 ambition.

This 2025 guidance was first issued three years ago, he noted, and lots has happened since then: 

We weren’t aware around what exactly [would] happen during COVID. We, of course, [had] not foreseen the exit of Russia. Now we are talking about a high inflation environment and some macro-economic challenges and still we keep our 2025 guidance. 

Total revenues for Q3 rose four percent to €7,774 million with an operating profit of €1,724 million. 

At the end of the quarter, SAP had 4,300 RISE customers, with customer wins including Puma, Siemens Healthineers, and LG with its Energy Solution and Electronics units. Klein commented: 

There are multiple factors that drive the value of RISE with SAP for our customers. With the migration to the cloud, responsibility for IT operation shifts over to SAP and the hyperscaler. The combination of cloud, ERP and SAP's process expertise is key for business model transformation. 

Let's take LG Energy Solutions, for example. They chose SAP to help meet the growing demand for electric vehicle batteries. Process standardization and embedded AI increased the productivity of customers in manufacturing, supply chain, HR and finance. 

He added: 

This company is going through a massive transformation. Electric and batteries, they are producing at mass scale and this is a different business model to what they did in the past. So they not only need a new ERP, they need a new way of how they run LG Electronics. That's why they [decided] and [approved] this business case. And so this is essential to their business.

Meanwhile the mid-market targeted GROW with SAP ERP suite now has 440 customers in 80 countries after nine months on the market, he added:

GROW with SAP has also had an exceptionally strong start and these are really representing new customers to the SAP family.


And of course there was the obligatory AI pitch as Klein said: 

Earlier this year, we introduced our business AI strategy to the market, bringing together our existing AI capabilities with the new potential of generative AI to transform how businesses run. We have already made a lot of progress over the last few months. We have consent from thousands of customers to use their anonymized data to develop and train our AI use cases and foundational data model. The launch of our digital co-pilot tool was a huge success and we are starting to roll it out across our portfolio this Fall.

Key to success will be reliability, he went on: 

We are making promising progress on building foundational models to enable generative and predictive capabilities from structured business data. SAP Datasphere combines structured SAP data with data from other sources to produce highly accurate results, which is so essential in the B2B world. And our new co-pilot tool will be able to work together with many LLM [Large Language Model] models to ensure we can offer this technology across the globe. And, as a result, SAP business AI is also more relevant.

Our co-pilot speaks more than CRM. It can manage finance, HR, procurement, sales, marketing, industries and ESG data, providing answers and recommendations to even the most complex questions, and automating many activities currently performed manually by millions of SAP end users. Recent announcements by key partners, such as Accenture and Deloitte, further underscore the central role played by SAP. Let's be clear, this is just the beginning. Over time, business AI will have a revolutionary impact on the entire business landscape and SAP will be at the center of that.

Picking up on the relevancy aspect of SAP in the AI space, Klein argued there are clear use cases to back this up: 

For example, in procurement, AI was helping to source, out of thousands of suppliers, the best supplier based on cost, on quality, in the future also on ESG data. With generative AI, the opportunities and the elements will significantly increase. Joule [SAP’s generative AI assistant] will be able to answer questions like, ‘Please help me to reduce the carbon footprint in my supply chain by 10% while making sure that my profit is not getting under pressure. Give me the suppliers where I can still deliver on time, but at the same time also reduce my carbon footprint and keep my third-party contingent cost actually at the same level’. Because we can cross-correlate the data, we build this foundational data model in the neural network. And then with Datasphere, we can also enhance that with actually also unstructured data.

That data element will be crucial in the B2B space, he added, and plays to SAP’s strengths: 

In the B2B world, accuracy and data quality is of utmost important. So all the work we did on BTP [Business Technology Platform] over the last three years to integrate, but also to harmonize our data model is extremely now paying off in high-quality data and is the foundation for SAP business AI. 

My take

A solid quarter with all eyes now clearly focused on whether the company’s confidence in its ability to hold true to its full year forecast will deliver in Q4. 

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