The Key Focus is Still on Cloud, but SAP Emphasizes AI

SAP has emphasized its focus on artificial intelligence (AI) in its recent results. However, the company’s primary strategy still centers around convincing customers to transition to the cloud. SAP reported a full-year revenue of €31 billion, a 6% increase. Cloud revenue saw a growth of 20% to reach €13.66 billion, with notable double-digit growth in software-as-a-service (SaaS) and platform-as-a-service (PaaS) offerings. SAP S/4HANA Cloud revenue also experienced a significant increase of 67% to €3.49 billion. SAP expects cloud revenue to range between €17 billion and €17.3 billion for 2024, along with cloud and software revenue of €29 billion to €29.5 billion and an operating profit of €7.6 billion to €7.9 billion. The company mentioned its partnerships with various organizations like Boots, Christchurch City Council, and Daimler Truck, who have chosen SAP’s RISE with SAP cloud business transformation offering. It also mentioned the implementation of SAP S/4HANA Cloud by Zurich Insurance Company. However, the most noteworthy aspect of the update was SAP’s increased focus on AI as a key area of strategic growth. The company plans to integrate AI into its products and leverage it for internal cost-saving measures. As part of its restructuring, SAP will introduce a company-wide program that could impact up to 8,000 jobs. The majority of this will be managed through voluntary redundancy programs and internal retraining. SAP expects to maintain a similar headcount throughout the year and estimates the restructuring program will cost around €2 billion. SAP’s CEO, Christian Klein, expressed satisfaction with the company’s performance, noting its ability to meet or exceed outlook on all key metrics. He highlighted SAP’s plans to invest €1 billion in AI, allowing customers to optimize their supply chains and hiring processes. Despite SAP’s emphasis on AI, its top priorities still revolve around persuading customers to adopt its newer S/4HANA offering and migrate from on-premise installations to the cloud. According to Liz Herbert, vice president and principal analyst at Forrester, SAP was relatively late in its move to the cloud compared to other ERP competitors like Oracle. Regardless, software vendors generally aim to transition customers to the cloud due to the ease of introducing new features with a unified code base and reduced support costs. Nevertheless, convincing customers to make the switch is not always straightforward, as they may have already invested significant time and resources in their current ERP systems. Additionally, customers may have other priorities or feel content with their existing solutions. SAP still faces challenges in seamlessly transitioning its core customer base to the cloud while ensuring a positive customer experience, according to Herbert. Customers may also be waiting for additional functionality in SAP’s cloud products, particularly in deep, industry-specific areas where SAP had a strong presence in previous versions. However, Christian Hestermann, senior director and analyst at Gartner, suggests that the cloud move is more suitable for administrative ERP functions, while sectors like manufacturing, retail, and distribution require more customized solutions to support their unique business processes. Gartner’s research reveals that two-thirds of SAP’s customer base are yet to begin migration to SAP S/4HANA. The reasons behind this include cost, value, and concerns about the viability of the standardization and public cloud strategy for specific customers.

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