According to a Boston Consulting Report published earlier this year, B2B spending on the Internet of Things ((IoT)) technologies, applications, and solutions is estimated to grow to $267 billion by the year 2020. Nearly half of this spend is expected to be driven by the manufacturing, transportation and logistics, and utilities sector. This high value market is now a prime focus area for ERP giant SAP (NYSE: SAP) that already has a sizable presence in those sectors.
SAP’s second quarter revenues grew 10% over the year to €5.78 billion (~$6.46 billion) compared with the market’s forecast of €5.71 billion (~$6.38 billion). Diluted EPS fell 18% to €0.56 (~$0.62) primarily due to higher stock-based compensation and restructuring-related expenses in the quarter. Adjusted for one-time gains, the company reported an EPS of $1.03, which was marginally better than the Street’s forecast of $1.02.
During the quarter, the cloud subscription and support’s core revenue increased 27%, but fell short of the market’s forecast increase of 33%. New cloud bookings increased 33% at constant currency to €340 million (~$380 million).
By segment, revenues from the Cloud and Software business increased 9% to €4.76 billion (~$5.32 billion). Services segment saw a 17% increase in revenues to €1.02 billion (~$1.14 billion).
HANA continues to report strong growth with S/4HANA licenses sales growing 5% over the year. S/4HANA adoption grew to more than 6300 customers, up over 70% and the company added names like Duke Energy, Carrefour Belgium, and Mercadona as its customers.
While revenues were impressive, the market was concerned about the company’s margins. Operating margin for the quarter came in at 27.2%, compared with the analyst forecast of 28.1%. The analysts are forecasting margins of more than 30% starting next year, but SAP’s continued investments in cloud computing capacity are holding down margins.
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