3 Strategic Takeaways from the Recent SAP Q3 Earnings Call

SAP Q3 Earnings

And how they can inform your SAP roadmap

On October 25, SAP released its third-quarter results. Said to be its “biggest rout in 24 years,” SAP Q3 earnings reveal a weak quarter with significant drop in cloud and license revenue compared to its projections. This, despite an uptick in the industry overall, with the increase of SaaS and cloud adoption to manage the impact of the pandemic.

As an SAP licensee, what does the SAP Q3 earnings report mean for your SAP strategy management? Here are some key takeaways to help you understand the climate and formulate your SAP strategy going forward:

  1. There’s increased scrutiny of large projects such as S/4HANA migration: SAP acknowledges that large projects, which may include an SAP S/4HANA migration strategy, will face greater scrutiny: “…companies are facing more business uncertainty. Consequently, there is greater scrutiny of larger projects.”
  2. Even when licensed, S/4HANA remains shelfware as enterprises consider their SAP roadmap: While the total S/4HANA customer count is more than 15.1k, only 8.1k are running live and many may be running with a limited scope. For example, according to a very recent UKISUG survey, only 25% of respondents plan to move to S/4HANA over the next one to two years. As Constellation Research principal analyst Ray Wang says, “Most people will probably start in 2025. And there are a lot of reasons why customers are saying that. They want to learn best practices from their peers.”
  1. More than 80% of S/4HANA customers are running internally deployed versions: SAP has been pushing its licensees to the cloud to extract more value; as noted by SAP’s CFO, cloud “customer lifetime revenue and value are thus substantially higher.” Even with that push, more than 12,000 of its 15,000 licensees are running the internally deployed version of the platform. According to analysts, SAP does not expect these S/4 businesses to see much growth until mid-2021.                         

Your Next SAP Steps

How can the SAP Q3 earnings data inform your SAP strategy management? Now is the time to refocus your IT investments on projects that drive business value today while SAP likely retrenches and focuses its efforts on building out its cloud applications. Instead of implementing a high-risk, expensive SAP S/4HANA migration strategy with an unclear return on investment, extract more value from your ECC6.0 investment by innovating around the edges of SAP with other modern, best-in-class solutions.

Another approach to help quickly take advantage of public cloud is a lift-and-shift. And moving to independent, third-party support for SAP can also free up much-needed budget. Beyond dollars saved, the added team bandwidth from third-party support can be redirected to projects that impact topline business results.

Many SAP clients have gained strategic flexibility by freeing themselves of SAP deadlines and forced updates to maintain full support by moving to independent, third-party support. By transforming their SAP roadmap into a Business-Driven Roadmap, they have been able to focus on innovation that drives competitive advantage and growth. Read their stories in the Rimini Street e-book, How SAP Customers Innovate and Grow.