The esoteric management software outfit, SAP, which makes expensive software which no one actually can say what it does, is starting to lose money on its cloud set-ups.
SAP, which was slower than many expected to set up cloud offerings,cut its outlook for full-year operating profit amid an accelerating shift by customers to buy its software over the internet rather than as packaged software.
The company said that this has delayed recognition of those sales and now expects its expects operating profit of $7.14-7.40 billion down from $7.65 billion.
Company executives said the accelerating switch from licence-software sales to internet-based, so-called cloud software is to cut into its 2014 profit, but that these sales would begin to bolster revenue and profit in coming quarters.
SAP Finance Chief Luka Mucic told reporters on a conference call that there were no plans to give up on the cloud based systems and it was “hitting the gas pedal as much as we can.” He is confident that “SAP will see the positive returns in the longer run”.
SAP’s customers, including Coca-Cola, McDonald’s and Vodafone, prefer cloud computing because there are no upfront costs for software licences, dedicated hardware or installation, giving customers more flexibility to respond to shifting market demand.
But cloud sales are recognised gradually over three years. They require more upfront investments and will bolster sales and profit in future quarters.
