While SAP delivered excellent Q4 and full-year cloud results across the board, the real stunner was total cloud backlog jumping a whopping 39% to almost $50 billion as enterprise resource planning (ERP) cloud migrations among global corporations shift from concepts to reality.
With more than 20,000 on-prem ERP customers, SAP has long been tagged with the burden of great expectations because while it’s inevitable that those big companies will at some point shift many, most, or even all of their workloads to the cloud, the on-premises dam has until now held solid.
But from the looks of the Q4 and full-year numbers that SAP released last week, it’s looking more and more like some very serious cracks are appearing in that dam.
This is a momentous occasion for SAP, as its three-year transformation led by CEO Christian Klein is predicated on its ability to convince those 20,000+ customers that the move to the cloud will enable those businesses to be more nimble and better able to meet the needs of customers in the artificial intelligence (AI)-powered economy taking hold across the globe. And that stunning total-cloud backlog number of $49 billion — up a whopping 39%! — is the sharpest and clearest indication yet that those cracks in the on-premises dam are widening.
Klein, the Cloud Wars CEO of the Year for 2023, mentioned that total-cloud backlog figure a few times during the company’s Jan. 24 earnings call.
Describing the $48.7-billion total cloud backlog, Klein said, “This amount of committed order backlog, which is already sitting on the books, is coming especially from large enterprises that are now entering the design phase to redesign their business models and also drive standardization in their moves to a clear core.”
SAP Executive Board member Scott Russell, whose responsibilities include global sales, explained how the massive backlog became a significant factor in SAP’s decision to eliminate about 8,000 jobs and replace most or all of those with new positions more tightly aligned with what customers will want and need in the near future as their operations undergo enormous change.
“When we think about pipeline and the market data, clearly we have not only had strong order entry, but we’re also optimistic that as we go forward we’ll find that customer demand continues to be strong,” Russell said during the Q&A portion of the call. “And that’s underpinned by more of our large customers doing more multi-cloud solutions in the cross-sell that Christian mentioned earlier, but also the net new acquisition [of first-time customers adopting SAP solutions].”
To ensure SAP is fully prepared to meet the emerging needs of customers as their capabilities and expectations evolve, the restructuring of some of those 8,000 jobs — what Russell referred to as “our go-to-market transformation” — is “really all about accessing and expanding in new markets.
“If you consider the potential for SAP to expand across geographies, to be able to run supply chains and operations in different industries especially with GROW with SAP in the midmarket, then we believe the ability for us to be able to expand via the transformation really does allow us to access those markets,” Russell said.
“For us to be able to manage all that and then access new markets, use digital modalities, use Business AI in the ways we go to market as well, clearly the potential for SAP is strong.”
While I certainly don’t mean to take the issue of layoffs lightly, I believe what SAP is doing here makes great sense because the company is doing precisely what it relentlessly advises its customers and prospects to do: transform to meet the new and different needs of a rapidly approaching future. The shift of those 8,000 positions away from past requirements and toward future capabilities is a painful but essential necessity for being able to compete and win in the Cloud Wars, where customer success and customer loyalty are paramount.
Here are some key Q4 numbers from SAP’s stellar quarterly and full-year results:
- cloud revenue of $4.07 billion, up 25%
- within that, S/4HANA Cloud ERP revenue of $1.13 billion, up 61%, and PaaS revenue of $682 million, up 46%;
- current cloud backlog of $15.12 billion, up 27%; and
- within that, current backlog for S/4HANA Cloud ERP of $5.5 billion, up 61%.
As a result of that Q4 and full-year performance plus extremely healthy backlog numbers, SAP’s market cap jumped to what I believe is an all-time high of $204 billion.
Well done, SAP.
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