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Analysts question pace of SAP users moving to S/4HANA
CEO claims 60 percent of deployments are new buyers. It may all depend on how you define deployment
In a week when SAP lowered its profit outlook due to Russia’s invasion of Ukraine, one analyst firm highlighted “deeper issues” with the global ERP vendor’s plans to move customers to its latest software.
The Germans software giant has bet the farm on shifting customers to its S/4HANA platform, a business transformation and technology overhaul based on an in-memory database system. However, the intransigence of ERP has made it progress slow.
In SAP's latest earnings report, CEO Christian Klein said there was an increase in customers queuing up for the transition to S/4HANA in the cloud. “We are winning market share underpinned by the very strong 100 percent growth of S/4HANA current cloud backlog,” he said.
However, this was not the whole picture, Forrester veep and principal analyst Liz Herbert pointed out.
A customer can be listed as an S/4HANA win but only partly deployed or still planning deployment
“SAP continues to highlight cloud and S/4HANA momentum and to boast good growth numbers in both of those areas," she said. "This is generally consistent with what we see in the Forrester client base with SAP and other major enterprise applications as we see significant ERP modernization initiatives underway — across the industry, not just SAP.
“However, we also see some deeper issues that are not obvious from the SAP earnings. For example, some customers are buying these next-gen solutions but underutilizing them due to rollouts still in progress and/or adoption goals not fully achieved. For example, a customer can be listed as an S/4HANA win but only partly deployed or still planning deployment for major business segments.
“We see a lot of the customer base in a state of transition with old and new software co-existing at this point in time. We continue to hear from customers that they are still weighing the business case of their ERP modernization and still considering multiple ERP vendors for their future state. We also see that suites strategies of the past are yielding to more ecosystem strategies, which poses a risk for large suites vendors like SAP."
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Financial investment advisory company Jefferies also said SAP’s move to cut its guidance may not represent the true risks it faces. “While macro caution is sensible, the revised targets don't necessarily de-risk the year," it said in a note. "If we say 2Q22 included a €100m license shortfall, the revised FY only removes €150m of license from 2H. Given the slowing macro, questions will remain over whether this is prudent enough.”
However, on a call with Wall Street analysts this week, CEO Klein hit an upbeat note, claiming 60 per cent of customers committing to run S/4HANA on the cloud were new to SAP. He said these were “very successful, high growth” companies that “need scalability, also wants to go expand the business now into other segments.”
“This is where we are winning net new. We're also winning net new in larger customers but of course, much less as ERPs very sticky. The share of net new customers, shows you what kind of value the product has to offer,” he said. ®