SAP to take €130m hit on withdrawing tech support from Russia

SAP has reaffirmed its 2022 outlook for revenue, despite seeing a €130 million ($141 million) reduction resulting from its decision to withdraw cloud services and on-prem software support from Russian customers.

The German application software giant saw revenue hit €7.1 billion ($7.7 billion) in the first quarter, up 11 percent on €6.3 billion ($6.8 billion) a year earlier. Meanwhile, operating profit climbed 10 percent to €1.1 billion ($1.2 billion).

However, SAP's performance has been hit by its decision to withdraw business in Russia following the invasion of Ukraine.

Earlier this week, SAP said it would wind down in Russia after 30 years of operations in the country, leaving on-premises customers with no software support.

SAP had paused all Russian sales in early March in accordance with international sanctions. However, the ERP vendor faced criticism for still supporting its products in Russia. Ukrainian president Volodymyr Zelenskyy called SAP out in a viral tweet, alongside Microsoft and Oracle, for supporting technology in Russia.

In its first-quarter statement [PDF] SAP said it had started to shut down its cloud operations and intends to stop the support and maintenance of its on-premises products in Russia.

"Current cloud backlog was lowered by approximately €60 million ($65m) due to the termination of existing cloud engagements, and operating profit by approximately €70 million ($76 million) due to reduced on-premises revenues, accelerated depreciation of data center assets and capitalized sales commissions," the company said in a statement.

Other European software vendors are seeing the effects of the Russian aggression in Ukraine. Romania-founded UiPath, a specialist in automation software, said recurring revenue for 2023 would be down by $15m after pausing Russia operations.

The war was having "a profound impact on the sense of physical and economic security across the continent and in the UK," UiPath's Romanian billionaire founder Daniel Dines said.

Elsewhere, SAP was upbeat in its quarterly results. Cloud revenue growth was up 31 percent while revenue for SAP S/4HANA cloud, the business application platform onto which it hopes to move thousands of on-premises customers, saw revenue increase 78 percent compared with the year-before quarter.

In a pre-canned statement, CEO Christian Klein said: "Our signature ERP offering SAP S/4HANA grew at record levels demonstrating the confidence customers place in us to support their business transformations. We are off to a solid start to the year and our outlook remains strong. Despite the current macroeconomic environment, cloud revenue growth accelerated further, fueling total revenue growth."

According to analyst firm Megabuyte, SAP's cloud-driven performance had offset any negative revenue impacts from the decision to discontinue operations in Russia and Belarus. "Other international software vendors to note material financial impacts from the Russia-Ukraine war," it said.

Separately, SAP has announced that long-standing CFO Luka Mucic will depart the company on March 31, 2023. He has spent 23 years with the 50-year-old company and is only its third CFO. ®