SAP CEO on Earnings, Trade, AI Demand

Bloomberg

4 days ago

CC-Transcript
00:00I'm just reading through some analysts reaction and the word cautious and caution is coming through in terms of the analysts response to these earnings. What is behind that caution, the cautious commentary coming through from you and the team? Yeah, First of all, thanks for having me. Good morning, Tom. Look, I mean, when you take the macro uncertainty out and of course, currency headwinds, I mean, look at the underlying performance, which is growing by 28%. This is even an acceleration compared to Q1 by two percentage points. The backlog is now up to €18 billion, showing the resiliency of SAP. And even more important, when you look at innovation in AI, over half of the deals embedded AI showing the strong demand of our customers for business AI and yes, of course we see the macro uncertainty out there, we see the currency headwinds, but what we control is our own performance. And that was really, really good this quarter. Okay, so your own performance was strong. What is the extent, though, of that caution amongst your customers when it comes to the tariff uncertainty? What are you hearing from your clients and what extent to what extent they are slowing down maybe some of their orders? I mean, Tom, what we are seeing in a in a very few industries, I take the U.S. public sector take manufacturing. I mean, there are already customers who hit who got hit hard by tariffs. And obviously there we see some elongated sales cycles. I mean, they have tied our cost controls as they, you know, already feel the pressure out of the tariffs. And these are the moments where we have to, of course, convince even more with strong business cases. The good piece is, Tom, when you look at our half year pipeline that is actually very strong and the customers see actually our software AI as a solution to overcome those challenges. And we still just need to, of course, work more diligently with some of the customers who already got hit hard by tariffs. European stock futures up this morning on expectations that maybe Europe can emulate Japan and get a deal with the US. If Europe does not get a deal with the US, what will the impact be on SAP, do you think? I mean, the the good piece is when you look at SAP, we are doing business in over 100 countries in the world now. So we are having a resiliency just by, you know, the coverage of all of the geos. We are also growing 25 industries still. Of course, what is for us, very important, is predictable trade. And so we are, of course, also looking forward that also Europe can really cut a deal with the US because we need it. I mean, when the overall economy is going down, I mean, obviously no one is immune against that. That's why I'm still hoping that, you know, Europe can follow Japan and also, you know, agreeing to a deal with the United States. Yeah. And look, you obviously have have close contact with the German government. You are the most valuable company in Europe after all. What signals are you getting, Christian, from the German government around the likelihood of a deal between Europe and the US? I mean, from what I know, of course there are ongoing negotiations and they are negotiating also in good faith. I mean, they really want to come together and, you know, talking to each other is the first step. Now, the second step is that both sides are willing to compromise to find a deal. So I'm staying optimistic now that they gonna find a deal now in Q3, that would be important. I would say, you know, there could be the only winners on both sides of the ocean if they can find a deal and it gets with that spirit. Also, the German government is leaning in. 30%. Around 30% of your sales coming coming from the US, as that is the biggest single market for S & P. And you've talked about the currency pressures. The weaker dollar is a drag. Do you expect that and trying to be there and to show up in the results next year as well? Christian In 2026. I mean, it all depends how the currency, you know, will develop. I mean, of course, if it stays like that, of course we will gonna see a further currency impact. But we always guide at constant currency. I mean this is, you know, what we can control And Dow of course we expect an ongoing strong business. The currency is hard to influence. If it stays like that, obviously there will be, you know, further impact. But again, you know, currency, you know, fluctuates, you know, over the last five years a lot. And what really is for us, important that the underlying performance of ACP obviously stays too long. Yeah. Is there more you can do to mitigate the effects effects in terms of hedging? Yes. Yes, yes, yes. I mean, of course, we are doing we are hatching, obviously. And then, of course, second, what we also then, of course, are doing is, again, you know, across the geo, I mean, we are closing contracts in all parts of the world. We have huge multinationals. We can also close certain contracts in local countries. There is, of course, certain things what we can do. Again, Tom, for us, it's very important that pipeline is strong. We actually see strong execution so far in the year and that is of course, our main focus. And then that the currency of cost, our certain things, what we can mechanically do and we going to do that. Yeah. What is the high demand? How much of a catalyst as a driver will that demand for air services from IP B do you think, in 20, in 2026? I mean, Tom, given now that we already delivered 40 air agents, no matter if it's about financial close cash conversion, about better quotes, better pricing, understand better consumer trends or about supply chain resiliency to customers? Are we really leaning in? I mean, we are, as I said, 50% of the deals already, including I the adoption is going up, up, up and the customers. And that is for me very important. They see the productivity increases. You know, after applying as AP business they I and of course that now that we are delivering more and more on top of our I foundation and together with our new data offering business data cloud, I actually of course expect that we see a further surge in business. I also in 2026. Okay. A further surge in business in 2026. All that backlog. Before we let you go, Christine, the backlog of €18 billion, that's the support coming through. What does that backlog of orders look like by the end of 2025? Look, that really depends now on the second half of the year. I mean, of course, we said pipeline is strong and we have a really, really good pipeline coverage on the other side based as megawatt uncertainty. So it will now all depend on, you know, can we really execute on all of the pipeline? And so the backlog will further quo. To what extent really depends, Dan, on macro uncertainty. And of course, if execution stays strong, as in half year one, we confirmed our outlook, so we stay positive for the year.