SAP Software Sales Dip in Asia Amid Trade Feud

"Trade-related uncertainty in Asia impacted our software revenue performance in the region," CFO Luka Mucic says.
Matthew HellerJuly 18, 2019

SAP posted a 40% jump in cloud revenue on Thursday but its shares dipped as the U.S.-China trade conflict dampened software license sales in the Asia region.

For the second quarter, the enterprise software giant said total revenue increased 11% to 6.6 billion euros, with revenue from the cloud segment growing to 1.7 billion euros from 1.2 billion euros in the year-ago period.

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New cloud bookings rose 17% to 494 million euros.

But revenue from SAP’s legacy software license business fell 5% to 948 million euros, with the company citing “recent macro uncertainties, particularly in Asia.”

SAP reported that it made an operating profit of 827 million euros and that non-IFRS operating margin, at constant currencies, remained stable at 27.3% despite acquisition headwinds. Operating profit declined by 21% year-over-year due to hefty restructuring costs resulting from such acquisitions as the recent $8 billion purchase of Qualtrics.

Restructuring costs totaled 199 million euros for the quarter.

“Our non-IFRS operating profit and margin performance is remarkable considering the margin headwinds from [the Qualtrics] acquisition and the recent short-term trade-related uncertainty in Asia that impacted our software revenue performance in the region,” CFO Luca Mucic said in a news release.

“With continued strong customer demand and our tight focus on profitability we remain as confident in our 2019 outlook as we are in our mid-term ambition,” he added.

But in New York trading Thursday, SAP shares fell 5% to $127.42.

The trade friction between the U.S. and China has hurt other tech companies including Apple, which cut its revenue guidance in January, citing the effect of the dispute on China’s economy.

SAP CEO Bill McDermott has said China is likely to emerge as the company’s largest market as local enterprises embrace cutting-edge technologies such as cloud computing to accelerate their digital transformation. It is collaborating with Alibaba to offer its S/4HANA digital cloud suite in China.

Cloud and software revenue rose 8% in the Asia region in the second quarter, with cloud alone increasing 41%.

Photo by Thomas Lohnes/Getty Images

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