SAP slashes revenue, profit forecasts as virus outbreak bites into biz prospects

First quarter started off so well...

ERP giant SAP has cut its annual revenue estimates by as much as €1.9bn in the face of COVID-19 disruption which saw a "significant amount of new business" postponed in the first quarter.

Pre-announcing its first-quarter results, the global software company said total revenue grew 7 per cent year-over-year to €6.52bn. But the end of the quarter had seen a big drop-off in orders.

SAP said it had responded to the new environment by adopting a virtual sales and remote implementation strategy, as well as slowing hiring and reducing discretionary spending.

The company cancelled its annual SAPPHIRE NOW conference, due to be held in Orlando during April, at a cost of €36m.

As a result of the drop in new business, SAP has reviewed its projected financial performance for the year. Total revenue is now expected to be between €27.8bn and €28.5bn at constant currencies compared with €27.63bn in 2019. These are down from the previously stated estimates of €29.2bn to €29.7bn.

The company expects operating profit to be in a range of €8.1bn to €8.7bn down 1 per cent or up 6 per cent at constant currencies. The previous forecast range was €8.9bn to €9.3bn at constant currencies.

In a joint statement, co-CEOs Jennifer Morgan and Christian Klein were at pains to smooth the news for investors and customers alike. "As the world navigates the COVID-19 pandemic, SAP has remained focused on our employees, customers, and communities," they said. "To support them, we made our vast business networks and technology available for companies to find new sources of supply and manage demand, understand and act on sentiment across value chains that went virtual overnight, and support learning efforts at scale."

Analyst TMV's Angela Eager opined: "The burning question is the shape of the business over the rest of the year and at the moment SAP appears fairly confident. Indeed, while other suppliers have withdrawn guidance, it has opted to revise its own... based on a view that the business environment will deteriorate in Q2 and gradually improve in Q3 and Q4 as economies reopen and population lockdowns end."

She added: "While fully aware of the high level of uncertainty associated with the COVID-19 crisis, SAP's confidence is based on a relatively short sharp shock and rapid recovery, plus the work it has done to build its share of predictable revenue, which reached 76 per cent in Q1. Predictable revenue from existing customers does provide stability."

In March, SAP told The Register its locked-down offshore project managers had developed remote work plans for clients. "Every Project Manager in India is working with their individual clients to implement clear action plans to support remote working while delivering the right quality of execution and governance to the client," it said.

In response to the virus outbreak, the enterprise application firm has also made some previously paid-for courses free for 90 days in response to mass home working. Some 35 courses are now available at no charge to help students prepare for SAP Global Certifications, while the first attempt at the certification exam is also gratis. The German-headquartered ERP company is also offering 90 days' free SAP Live Access, which cost $450 for 20 hours previously.

In March, Oracle suggested the impact would be of the virus outbreak would be minimal because its subscription-based revenue had already contracted.

With IBM's preliminary figures due later this month, the market may begin to understand the true impact of COVID-19, and whether dire predictions of its effect on software and services are correct. ®

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