German tech giant SAP is actually benefiting from dollar strength and supply chain issues, says CEO

German tech giant SAP is actually benefiting from dollar strength and supply chain issues, says CEO

Christian Klein, co-CEO of German software and cloud computing giant SAP, speaks during a news conference to present SAP’s financial results for 2019 on January 28, 2020 in Walldorf, southwest Germany. ‘Germany. – German software giant SAP reported a bottom line undermined by heavy restructuring costs, but raised its forecast for the year ahead.

Daniel Roland | AFP | Getty Images

The strengthening dollar, global inflation and supply chain issues from Covid-19 lockdowns in China have been major headwinds for many tech companies.

But SAP CEO Christian Klein says the European software giant is an exception to that rule.

“Our biggest competitors are in the United States, so the strong dollar actually benefits us. We have a huge tailwind coming from the currency,” Klein told CNBC, noting that SAP reports earnings in euros.

In July, the euro fell to parity with the dollar for the first time in 20 years and the greenback has continued to gain in recent weeks. SAP earned 34% of all revenue and 52% of cloud revenue in the US in its first two fiscal quarters.

Other big tech companies, including Salesforce, Microsoft and IBM, said the strong dollar would hurt their near-term earnings.

Klein also says rising inflation has accelerated customers’ shift from on-premises software to cloud services as they seek to control costs. Inflation rose 6.3% in the United States over the past 12 months, according to the Personal Consumption Expenditure (PCE) Price Index report in August.

He added that supply chain issues resulting from China’s slower-than-expected reopening following Covid lockdowns have increased interest in enterprise resource planning, or ERP, software, which helps to monitor logistics, manufacturing and human resources.

According to the Cowen company and its estimates, SAP is the dominant force in the ERP market with a global share of 23%, compared to 10% for Oracle, 4% for Microsoft and 3% for Workday.

“Companies are actually reorganizing their supply chains to reduce the risks associated with the situation in China and to become less dependent on China.” Shipping costs from Asia to the US West Coast hit record highs in September 2021 and remain around three times higher than they were in September 2019.

“Now many companies are also thinking about how they can offset this cost pressure. ERP touches 50-60% of your business processes,” Klein said. “There are so many new technologies driving process automation, [and] there are so many technologies driving intelligence and predictive analytics that help connect supply chains. You can no longer afford to sit on a 10-year-old ERP.”

In October 2020, SAP announced plans to focus on cloud computing, drop near-term earnings forecasts, and set a new target of $22 billion in cloud revenue by 2025.

The company’s cloud and software revenue rose 34% to more than $3 billion last quarter, beating analysts’ estimates, but SAP reported mixed earnings overall. The shares have fallen 12% since he announced on July 21 a lower profit outlook for the financial year 2022 – from 7.6 billion euros to 7.9 billion euros (7.4 billion euros). dollars to $7.7 billion) compared to the previous forecast of 7.8 billion euros to 8.25 billion euros. The reduction is partly due to the shutdown of operations in Russia due to the war in Ukraine and the shift from on-premises software licenses to cloud subscriptions.

“They are in a position of massive strength to move their on-premises ERP business to the cloud.” said Dan Ives, senior technology analyst at Wedbush. But he added that Oracle and Microsoft could gain market share in the transition if SAP runs into problems running or rolling out products. “It’s a very competitive space. But SAP is on the road to success in cloud ERP and they are in control of their own destiny.”

“I see that the current environment is actually accelerating the move to the cloud,” Klein said, “many companies are saying we’re seeing an increasing number of attacks on the cybersecurity side. We’re totally overwhelmed with all of these needs to to protect our data. and to protect our system. So they want to move to the cloud, hand it over to a big tech company.”

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