Business software vendor SAP on Monday cut its outlook for full-year operating profit due to shift to cloud business.
A Reuters report said the downward revision in 2014 operating profit is amid an accelerating shift by enterprise customers to buy its business software over the Internet than as packaged software, delaying recognition of those sales.
Germany based SAP said it now expects the 2014 operating profit, excluding some special items, will be $7.14-7.40 billion as compared with nearly $7.4-7.6 billion announced previously.
SAP executives said the accelerating switch from license-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.
“De-acclerating in the cloud would make absolutely no sense. We are hitting the gas pedal as much as we can. We will then see the positive returns in the longer run,” said SAP finance chief Luka Mucic.
SAP’s enterprise customers, which include Coca-Cola, McDonald’s and Vodafone, are moving to cloud computing because there are no upfront costs for software licenses, dedicated hardware or installation, giving the customers more flexibility to respond to shifting market demand.
While revenue from SAP’s classic packaged software is booked immediately, cloud sales are recognized gradually over three years. They require more upfront investments, temporarily hitting profit, but bolster sales and profit in future quarters.