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SAP closed the books on a solid year, but still faces challenges in converting its substantial legacy ERP base to the S/4HANA platform, billed as a next generation offering to enable the radical transformation of existing processes or the development of new business models.
SAP revenue was reported to be 27.55 billion euros (approximately $30.50 billion), a rise of 12% from the fourth quarter of the previous year. IFRS cloud revenue rose 39%, while new cloud bookings were up 25%. IFRS is an international financial reporting standard.
SAP reported its financial results in an earnings call on Jan. 28.
SAP S/4HANA adoption was up 24%, with a reported 13,800 total customers. They include Ford Motor Group, Decathlon, Lockheed Martin and Roche. Vodafone also went live on a single global instance of SAP S/4HANA. Several customers have adopted S/4HANA entirely or partly in the cloud, including Deutsche Telekom, ARAMEX and Mercedes Benz Formula E.
Challenges for S/4HANA adoption
However, while SAP revenue is solid and cloud growth continues to increase, significant challenges remain for SAP S/4HANA adoption to become more widely accepted.
SAP co-CEO Christian Klein, who was appointed to take the helm along with Jennifer Morgan late last year, acknowledged this in the earnings call.
Changing the technology is not the "biggest problem" when implementing S/4HANA -- SAP has tools "for the data migration and for the upgrade itself," Klein said. Changing legacy business processes -- and getting employee buy-in -- are different matters.
"Oftentimes, it's really about changing business processes, changing the business model of a company where you have to get the people with you, where you have to readapt and redefine business processes, which were standing there for very long time," Klein said. "That's for sure one of the major reasons why we see a certain delay between the license customers and the go-live customer."
SAP performed well in 2019, given the difficulty that it, and other ERP vendors, face in transitioning their core on-premises based legacy customers to the cloud, said Andrew MacMillen, research analyst with Nucleus Research.
"Because of the sticky nature of on-premises deployments, everyone's having trouble with it," MacMillen said. "But SAP is especially having trouble with it given the depth of customizations that a lot of their deployments have."
S/4HANA adoption may be over the hump
The momentum to move to S/4HANA may be over the hump if recent reports from DSAG, the German-speaking SAP user group, and ASUG, the Americas SAP user group, are any indication. The 2020 DSAG Investment Report said that for the first time in four years, IT investments from DSAG member companies in S/4HANA are more than investments in SAP Business Suite. DSAG represents users in Germany, Austria and Switzerland.
The ASUG report indicated that more than half of its member companies, 56%, plan to move to S/4HANA in the future.
The numbers show good momentum, but there is still a lot of work to be done in getting the majority of SAP customers to migrate to S/4HANA, said Joshua Greenbaum, principal at Enterprise Applications Consulting.
"[The DSAG and ASUG reports show] they're getting a good, solid uptake from their installed base, but no vendor in the market is moving as fast as they would like -- or as fast as they're pretending to -- so this is a big issue across the industry," he said. "There's still a majority of every major vendor's customers who are staying in the on-premises, pre-cloud world. SAP is definitely not alone in that regard."
Greenbaum described the SAP results for 2019 as impressive, given the overall market problem. He said SAP, along with its investors like Elliot Management, shouldn't be too eager to chase revenue at the expense of customers' needs.
"The move, particularly for the installed base of all these companies up to cloud and digital transformation, is a lot more complicated than anyone would like it to be, including the customers themselves," he said. "So there needs to be some caution, despite Wall Street and Elliot Management's interest in closing these gaps. Everyone has to step back a bit. The reality on the ground for the customers is that this can't move as fast as the vendors and their investors would like, it has to go at a pace that makes sense to these customers."