By Sara Germano
BERLIN -- SAP SE has extended a cloud-services partnership with rival Microsoft Corp., crediting it with driving sales, as new management takes over the software giant's reboot.
Last week, longtime SAP boss Bill McDermott abruptly stepped down, handing the reins to Co-Chief Executive Officers Christian Klein and Jennifer Morgan. Mr. McDermott said he was leaving of his own accord after nearly 10 years at the helm. He was in the middle of an effort to pull SAP through a rocky transition, from a giant vendor of primarily on-premise enterprise software to a growing provider of cloud -- or remotely hosted -- applications.
In May, SAP launched a project called Embrace with Microsoft, Alphabet Inc.'s Google Cloud and Amazon.com Inc.'s Amazon Web Services, to help customers' move their software needs to the cloud. On Monday, SAP said it was extending that partnership with Microsoft, making it SAP's preferred partner to help customers upgrade to cloud applications. Ms. Morgan said customers will still be given the choice to run their software with Google and Amazon cloud services.
Early this year, Mr. McDermott unveiled a broad restructuring of the company to expedite the shift to the cloud. More recently, he has faced scrutiny by U.S.-based activist investor Elliott Management Corp. It disclosed a EUR1.2 billion ($1.3 billion) stake, worth about 1%, in SAP in the spring, pressing for higher profit margins.
It now falls to Mr. Klein and Ms. Morgan to convince Elliott and other shareholders of SAP's transition prospects. Ms. Morgan said Monday she was looking forward to speaking with all of SAP's shareholders at a special investors' session next month.
Many professional software developers are trying to turn themselves into cloud-services providers, moving from one-off sales of software licenses to rental or subscription models. That can both boost and smooth out once-lumpy revenues and profits. As part of SAP's shift, the Walldorf, Germany-based firm has signed several partnerships and collaborations with erstwhile competitors.
Nearly a year ago, SAP announced a deal to acquire market-analytics startup Qualtrics for $8 billion. That deal, together with the restructuring announced in January, has led to losses for SAP in recent quarters.
This year, SAP disclosed new, long-term financial targets aimed at increasing one measure of profit margin by 5 percentage points, on an annual basis, by 2023. That measure rose 1.7 percentage points in the quarter just ended, SAP said this month. The company reported net income rose 30% to EUR1.3 billion in the most recent quarter, from the year-ago period. Revenues rose 13% to EUR6.8 billion.
SAP said the Microsoft deal had already contributed 18 percentage points to SAP's 39% growth in new cloud contract bookings for the three-month period ending Sept. 30. Financial terms of the extended deal weren't disclosed. SAP and Microsoft have partnered on offering cloud-based services dating back to 2017.
SAP shares rose 2.5% to EUR116.76 on Monday.
Write to Sara Germano at email@example.com