SAP executives see margin gains beyond 2020 as cloud costs subside

FRANKFURT/BERLIN (Reuters) - German software giant SAP on Tuesday said operating margins hit bottom last year and will begin to arc up this year and rise further through 2020 and beyond, as profitability improves in its internet-based cloud business.

Speaking to investors in New York, SAP executives also detailed moves to make it easier for customers to run SAP business planning tools via low-cost Amazon, Google or Microsoft cloud servers or in SAP's own datacenters, allowing it to pare back its capital spending.

Chief Financial Officer Luka Mucic told the company's annual capital markets day event that easing up on heavy investments to switch customers to cloud-based software would help margins rise to 29.8 percent in 2018 and reach around 30.7 percent by 2020, with further improvements into the next decade.

SAP had reported margins troughing at 28.9 percent in 2017.

Board member and products chief Bernd Leukert said the company would let customers interchangeably run their software on SAP datacenters or on public cloud services. The executives' comments were monitored by Reuters via webcast.

SAP plans to shut down 18 of its 45 datacenters by the end of 2019, as more customers switch to public cloud services, a faster pace than the 10 datacenters it closed in the last two to three years.

Leukert also said that consolidating a string of cloud software acquisitions running on separate platforms, each separately maintained, onto a single, common platform would be completed by the end of 2018, further shaving costs.

He said SAP had elected to harmonise its own company-run datacenters by standardising Google as its preferred "go-to" infrastructure. "There is no difference any more running in Google or on SAP infrastructure," he said.

Nonetheless, Leukert said SAP was working with all major public cloud providers and had no plans to compete with them.

"Our cloud solutions run on the major public cloud providers," he said. "We want to be friends with the best: the Googles, the Amazons, the (Microsoft) Azures".

(Reporting By Eric Auchard and Douglas Busvine in Frankfurt and Nadine Schrimroszik in Berlin, Editing by Rosalba O'Brien)