SAP sees high cloud profit potential in long term

Reuters News
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Posted: Jan 24, 2015 8:34 AM

FRANKFURT (Reuters) - Europe's biggest software group SAP could eventually see its software delivered via the cloud deliver higher profit margins than its traditional packaged software, its finance chief told a newspaper.

"Such contracts become profitable over time. In the long term, they can definitely become more profitable than our classic licence sales," Luka Mucic told the Euro am Sonntag business weekly in an interview published on Saturday.

SAP said last week its push to deliver cloud-based products via the Internet - which allow customers to access powerful remote data centers for processing and storage - would dampen profitability until at least 2018.

Unlike the packaged software SAP has been selling for decades, for which clients pay a immediate licence fee, cloud-based software is generally paid for by subscription over time, but most of the costs for the software provider are upfront.

Mucic said such contracts were loss-making for the first year of operation.

To strengthen its position in the fast-growing cloud market, SAP agreed in September to buy cloud-based travel and expenses software maker Concur for $7.3 billion in cash, its biggest takeover ever.

The company issued a triple-tranche, 2.75 billion-euro ($3.08 billion) bond in November to help finance the deal.

Mucic said SAP might add another, smaller tranche, perhaps as soon as the first half of this year, but said otherwise the company had no need for further capital.

"We are just examining whether this would be advantageous for us," he said.

($1 = 0.8923 euros)

(Reporting by Georgina Prodhan; Editing by Stephen Powell)