SAP Boosts Forecasts as Cloud Sales Impress; Microsoft Earnings In Focus

Unleash the cloud.

SAP SE S (AP) boosted its full-year and near-term cloud computing sales forecasts as Europe's biggest tech company looks to ride a solid second quarter into a full-blown drive deeper into a $15 billion market dominated by Amazon Inc. (AMZN) and Microsoft  (MSFT)  .

SAP said its second quarter cloud-related sales rose to just over €1.22 billion ($1.42 billion) in the three months ending in June, a 40% increase from the same period last year that topped analysts' forecasts. Although software licensing and support revenue is still the largest portion of SAP's sales, at €3.73 billion, that portion of the business only grew 3% from last year, SAP said. 

Still, the solid cloud sales momentum allowed the Waldorf, Germany based group to lift its segment sales growth forecast for the full year to a range of 34% to 38%, ultimately leading to cloud subscription and services revenue of between €8.2 billion and €8.7 billion by 2020.

"SAP is presenting a clear strategy, customers are already validating it in Q2 and we are increasing guidance as a signal that a new wave of growth has been unleashed," CEO Bill McDermott said in a statement following the release that underscores the power of a generational shift in data storage focus as companies around the word cut costs by moving their information to remote "cloud-based" servers.
 
SAP shares, however, were pulled lower in early European trading, largely in-line with the broader market, and were marked 0.9% to the downside at €103.74 each, a move that trims the stock's year-to-date gain to 11%.
 
SAP's results, however, and the bullish cloud outlook suggest Microsoft could follow suit when it unveils its fourth quarter and full year results at the close of trading today.
 
Action Alerts Plus holding Microsoft posted a 93% increase in sales from its Azure cloud computing offering and a 42% increase in Office 365 Commercial sales as overall Intelligent Cloud revenues rose 17% to $7.9 billion. Personal computing revenue, by comparison, was up 13% to $9.9 billion.
 
Analysts are looking for fourth quarter earnings of $1.08 per share on overall sales of $29.2 billion from Microsoft later today, according to the consensus forecast. 

Microsoft shares traded 0.07% lower in pre-market dealing Thursday, indicating an opening bell price of $105.05, a move that would still leave the stock with a year-to-date advance of more than 22.8%.
 
Microsoft's 14% cloud computing market share, however, pales in comparison to the 32% position held by Amazon's 
Amazon Web Services, the industry titan. AWS, which contributes a bit more than 10% of Amazon's global bottom line, saw sales rise 49% from the same period last year to $5.44 billion in the three months ending in March, the company reported earlier this year.
 
International Business Machines ( IBM) said it was able to surpass sales growth estimates thanks to a shift towards higher-margin products and business segments it has dubbed "strategic imperatives" under the leadership of CEO Ginni Rometty and which now comprise around half of Big Blue's quarterly sales. Cloud computing sales, the company said, rose 20% from the same quarter last year.
 
Rometty said Cloud revenue has risen to $18.5 billion over the past four quarters, a figure that represents just under half of its "strategic imperatives" and a quarter of the group's overall top line, a drive that Rometty said reflects "our success in helping enterprise clients with their journey to the cloud and we're becoming the destination for mission-critical workloads in hybrid environments."
 

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