SAP AG (NYSE:SAP) will announce its quarterly earnings report on October 24. In its previous quarter, total revenue grew by 18% y-o-y to Euro 3.9 billion (~$4.8 billion) driven by software revenue that increased 26% y-o-y to Euro 1,059 million (~$1,323 million). Its software and software-related service revenue increased 21% to Euro 3.14 billion (~$3.85 billion ) while operating profit increased by 15% to Euro 1.17 billion (~$1.43 billion).
Among its highlights last quarter, the company posted double digit growth in its HANA database products and is was the 10th consecutive quarter where SAP reported double digit revenue growth. Its recent acquisition SuccessFactors, which was acquired in 2011, provides cloud based human capital management software and has strengthened SAP’s move to the cloud and mobile.  We highlight some of the key factors affecting its business and what we expect from the company below.
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Big Data Driving SAP Growth
Big Data is the largest growth opportunity for SAP and it is targeting revenue from HANA to be at least Euro 320 million ($422 million) for 2012 and has already outperformed the worldwide RDBMS market growth rate of 15.1 percent by growing 44 percent from 2010 to 2011. SAP Sybase ASE, SAP Sybase IQ, SAP Sybase SQL Anywhere and SAP HANA revenue led to the growth mainly driven by the addition of SAP HANA into its RDBMS product portfolio.
The SAP HANA platform and solutions from Sybase help organizations unlock the business value of ‘Big Data’ by enabling them to access and deliver information faster than before with real-time insights. It also claims the HANA platform can deliver information up-to 1,000,000 times faster than before due to its in-memory computing. 
Cloud Based Management Apps Becoming Popular
To strengthen its cloud based product portfolio and compete with the likes of Salesforce.com, SAP is now set to unveil a line of cloud-based EPM (enterprise performance management) applications that run on top of the HANA platform. The pricing for apps will be on a subscription basis and will depend on the complexity of the management app and the customer’s size.  The cloud based management apps such as EPM OnDemand, include capabilities to investigate and fix errors related to expenses, and it allows for real-time analysis of P&L and capital project planning. The company expects to release more products in the future with a design focus on smartphones and tablets. EPM Unwired, is one such app, and is a mobile client that will serve as a launch pad for all of SAP’s EPM software. The focus on mobility is to cater to the sales force, which is always on the move and for professionals such as retail managers who spend a lot of time away from their desks and need mobile access.
SAP All-in-One To Cater To Small And Medium Businesses
On site ERP systems are resource heavy, expensive and take years to implement. This makes traditional ERP viable only for very large organizations. This left the small and medium business space under-served and provided growth opportunities for cloud based systems. To gain market share in the fast growing SME segment, the company has introduced SAP All-in-One, a business software brand for small and medium sized enterprises. It includes a range of products like SAP CRM, SAP ERP, SAP Product Lifecycle Management, SAP Supply Chain Management, SAP Supplier Relationship Management, SAP Human Resources and SAP Financial Management. The company has now certified this application for cloud-based deployments on Amazon Web Services (AWS) and will run on both Windows and Linux-based instances.
SAP and Amazon claim that customers can save up to 69% over a five-year period on infrastructure and operations costs compared to running a 100-user Business All-in-One on site. This is in addition to SAP products already available on AWS such as Business Objects and Rapid Deployment Solutions. Though SAP offers stand-alone cloud based services as well, such as Business ByDesign ERP suite, it seems to rely more on the AWS infrastructure, and we may see SAP move away from its own infrastructure and deploy on AWS and OpenStack. We expect smaller businesses to be the main target market compared to the 100-user benchmark used.
SAP is increasing its focus on mobile and cloud businesses, and these are likely to drive revenues for 2012 as it diversifies its business mix. It is targeting mobile revenues of about Euro 220 million ($290 million) in 2012. The cloud business will put it in direct competition with Salesforce.com – the leader in cloud-based CRM.
Cloud, Mobile and HANA to Drive 2012
SAPs increasing focus on the mobile, cloud and HANA businesses is already paying off as these are the divisions that have been driving revenue growth. These divisions are likely to drive revenues for the rest of 2012 as it diversifies its business and moves to the cloud.
We currently have a $73 Trefis Price Estimate.Notes:
- SAP Announces Best Ever Second Quarter Performance Significantly Outperforming Market Expectations By Exceeding €1 Billion in Software Revenue, www.sap.com, July 12, 2012 [↩]
- SAP Becomes Fastest-Growing Vendor in Relational Database Management Systems Market, www.sap.com, June 8, 2012 [↩]
- SAP Unveils HANA Powered Management Apps, www.pcworld.com, Sept 10, 2012 [↩]