The Six Five team discusses SAP Q1/24 earnings.
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Transcript:
Patrick Moorhead: If you recall, SAP got a little bit of a slow start on the cloud and was a monkey on their back for many, many years, and there’s two ways to look at this. One way is ERP is one of the most strategic workloads on the planet. You do not want to mess with that. You mess with the ERP and you break something, you shut down your factory. That is not a good thing. You mess with the ERP and you can’t close your books, your stock goes down 25%. I worked at a company where we had SAP in the early days and yep, we transitioned, couldn’t close our book, and our stock went down 15 points.
So, you just don’t want to mess around with it, but if you don’t cloudify things and that’s private cloud, public cloud, hybrid multi-cloud, and getting into that rhythm and method, it’s going to be very hard for you to move to AI, your agility goes down. So, SAP absolutely crushed it on cloud record, cloud backlog growth of 28%. Again, if you don’t go to cloud and have the new bits from SAP, you’re not going to be able to leverage AI. A new breakout called Cloud ERP, now we can finally compare to Oracle, Fusion, and NetSuite. I like that, because we like to compare, because it’s easy. 32% growth, and it’s a 3.2 billion euro business, which means it’s big. The company also announced has 27,000 customers using “business AI”. I think that’s pretty impressive.
And of course, because everybody needs to talk about Jensen and NVIDIA on their calls, we got a watch this space from Christian Klein, so great to see cloud growth as that’s about the AI. Good to see the Cloud ERP call out. What I would’ve liked to have seen a little bit more of was some more details on customers and the benefits they’re getting from AI, X percent improvement, X percent efficiency from AI. A little bit more on data management, like we heard from Mark Benioff lean into on his Salesforce calls. Mark talked 75% about his data cloud. I want to hear more about that. Final comment, unlike the US where we have this awesome non-gap EPS, SAP accelerated some restructuring charges from 12 months to one quarter, and it hit their IFS and hit their profitability. Had there been a US company, we would’ve ignored it and moved forward.
Daniel Newman: All right. Look, I think SAP, the IFRS stuff is tough, because it made it look like the company didn’t make money, just note that in the US, the way they would do adjustments to that, you would never have probably seen or even heard about it. It would be some line item buried deeply inside of a 30, 100-page disclosure, and it would’ve looked like some sort of multi-dollar or whatever cent beat of EPS. Having said all that, the situation related to SAP, I do want to see a little bit more of a base to which to compare the Cloud ERP. So, one of the things I have enjoyed about Oracle has been how prescriptive it’s been with its numbers and its disclosures, but I do like the fact that we’re getting closer. I’ve put my asks in.
You and I have both had interactions with both CEO Christian Klein and Dominik Asam, the CFO. Dominik was great. We’ve got to spend some time with him. He was very approachable and I like the fact that you have someone like that in a CFO role. The thing though, Pat, about SAP, and you covered off a lot of what I would wanted to say as a whole is AI transparency is going to be critical. And by the way, part of the reason you may not be getting it is also IFRS, it’s also European reporting is in the US, these numbers are what you have to report and how much you can validate this. I really do wonder, I really do, because like I said, I love that Amy Hood reports the 7%, but how is that? Would you like to see how that’s actually calculated, how they determined that AI actually created demand in a workload that maybe would’ve been used, what, for machine learning in the past or some sort of accelerated compute requirement that was already…
How are we really deterministically creating… With NVIDIA, it’s easy. It’s like every GPU is for AI, but with a Salesforce AI or with a Microsoft AI with Google, if they’re using it for many different things and AI is part of it, does it count? Does it count partially? Does it count entirely? But at the same time, the market’s unapologetically going to move dollars in concentration into companies that can declaratively explain the role that AI is playing.
So, it was a good quarter, it was some good growth in the cloud space. That’s the number to watch. I continue to say that’s the number to watch. That’s what’s all about the transformation of the company. They’re also going to continue to push their best AI features into the cloud. So, companies that are on SAP that want benefit of SAP are going to need to move to the cloud or they’re not going to be able to get the best AI capabilities. So good quarter, good quarter, good quarter, good quarter.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
