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Internet of Things is the Future for SAP

Posted on Friday, Oct 28th 2016

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SAP (NYSE: SAP) is one ERP player that has successfully adapted itself to the changing market landscape. After proving its mettle within the Cloud/Big Data market with HANA, the company is now gearing up to target the Internet of Things (IoT) segment.

SAP’s Financials
SAP’s third quarter revenues grew 8% over the year to €5.4 billion (~$5.9 billion) compared with the market’s forecast of €5.3 billion (~$5.8 billion). Operating profits came in at €1.64 billion (~$1.79 billion), falling short of the market consensus of €1.65 billion (~$1.8 billion). Adjusted EPS of $1.02 was also short of the Street’s forecast of $1.05 for the quarter.

By segment, revenues from Services revenues were up 6.6% to €920 million (~$1 billion). Cloud and Software business, which includes Cloud Subscriptions & Support and Software licenses & support, grew 8% over the year to €4.5 billion (~$4.9 billion). Within the segment, Cloud Subscriptions & Support revenues grew 28% to €769 million (~$857.9 million), while Software licenses and support reported revenues grew 4.6% to €3.7 billion (~$4.1 billion). By region, revenues from the Cloud and software segment grew 8% in Europe, the Middle East and Africa, 9% in the Americas, and 8% in Asia Pacific.

For the current year, SAP increased the outlook for earnings to €6.5 billion-€6.7 billion (~$7.1-$7.3 billion).

SAP’s IoT Growth

According to a recent report by Machina Research, the total number of IoT connections are estimated to grow 16% annually over the next ten year period from 6 billion in 2015 to 27 billion in 2025. The total IoT revenue opportunity is projected to grow to $3 trillion in 2025 from $750 billion in 2015. Given the market opportunity, SAP is increasing its focus on the segment. Last month, it announced plans to invest $2.25 billion in the development of its IoT offerings.

As part of this focus, SAP recently announced the acquisition of Plat.One, a developer of a platform used for creating, deploying, and managing IoT applications. The Plat.One platform has been developed for large-scale implementations, and offers IoT and machine-to-machine application development tools, along with data and device management capabilities. Terms of the deal were not disclosed. Post the acquisition, SAP will integrate its IoT capabilities including device lifecycle management and connectivity, and IoT edge capabilities into SAP HANA Cloud Platform.

Last month, SAP also announced the acquisition of Palo Alto, California-based Altiscale. Altiscale offers cloud-based versions of the Hadoop and Spark open source software for storing, processing, and analyzing different kinds of data. Terms of the deal were not disclosed, but analysts estimate the deal to be worth $125 million. While the acquisition will help SAP strengthen its enterprise related Big Data offerings, it also plans to leverage the new capabilities in its other initiatives including IoT, the cloud, and business networks.

Ultimately, SAP hopes to be able to integrate the Big Data collected from the connected devices with machine learning and SAP’s real-time database S/4 HANA and then subsequently transform this data into intelligent, actionable services, and insights for its customers. It recently released a few new products geared toward this objective.

Earlier this month, it released SAP Connected Goods, a cloud-based solution delivered on SAP HANA Cloud Platform that has been developed to maximize the value of mass-market devices, such as coolers, vending machines or power tools, through remote monitoring, management, and central control. The solution optimizes device availability, utilization, and performance by managing stock levels and storage details. It identifies relevant trends and usage patterns and relies on rule-based alerts for replenishment of goods along with supplying customized dashboards. It also released SAP Dynamic Edge Processing a platform that supports real-time IoT decision making with business context, and optimizes operations by making edge assets and workers operate more efficiently. The platform combines algorithms, syncing architecture, and optimized database technology with features for device connectivity and onboarding, offline operation, data reduction, local application platforms, immediate response, and local storage.

SAP’s stock is trading at $88.31 with a market capitalization of $107 billion. It had reached a record high of $92.76 in September this year soon after the result announcement. It has recovered from the 52-week low of $71.39 it had fallen to in June this year.

Photo Credit: Paul Downey/Flickr.com

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