SAP defends cloud focus after profit outlook cut

CNBC with Reuters
Cloud business growing fast: SAP CEO

The head of Europe's largest software firm, SAP, has insisted that the company's move into cloud-based software was what investors wanted, despite it lowering its profit outlook for 2017.

"As our cloud business becomes the fastest growing cloud business in the world, we're also improving operating income. We're the only company in size and scale that's doing that," SAP Chief Executive Bill McDermott told CNBC Europe's "Squawk Box" on Tuesday.

"What you find with the cloud is that once you get the size, scale and reach in the cloud, the operating margins increase over time – that's why we gave a 2017 and 2020 view on how we nearly double profits by 2020."

It came as SAP lowered its 2017 operating profit outlook on Tuesday, saying its push into cloud-based software delivery would eat into its profit margins.

But McDermott added: "I think we're doing the right transition, we're a growth company and this is what the investor wants."

SAP said it expects 2017 operating profit excluding special items of between 6.3 and 7 billion euros ($7.3 billion to $8.1 billion) on revenues of between 21 and 22 billion euros.

The company had earlier said it expected to reach an operating margin of 35 percent on revenues of up to 22 billion euros in 2017 resulting in an operating profit of around 7.7 billion euros.

SAP said it expects revenues from its cloud business in 2018 to exceed revenue from its traditional software licences, which should result in operating profit excluding special items of between 8 and 9 billion euros in 2020.

"At that time SAP expects to reach a scale in its cloud business that will clear the way for accelerated operating profit expansion," it said.

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