Business software giant SAP SE announced its preliminary first-quarter financial results today, and in the process it raised its revenue outlook for fiscal 2021 thanks to strong cloud sales and an assumption that the COVID-19 pandemic will subside.

The company also reported strong early interest in its new business transformation program RISE with SAP.

The early report came on the same day that SAP said it will create an entirely new business unit for the financial services industry that’s backed by a nearly $600 million investment from the German entrepreneurial investor Dediq GmbH.

SAP said today that it’s now targeting cloud revenue of between €9.2 billion ($10.99 billion) and €9.5 billion ($11.35 billion) for its full fiscal 2021 year, which would represent sales growth of 14% to 18%. Previously, the company said it was expecting cloud revenue of €9.1 billion and €9.5 billion.

The company also forecast cloud and software revenue for the full year of between €23.4 billion and €23.8 billion, up slightly from its earlier range of €23.3 billion to €23.7 billion.

Its more traditional revenue stream from software license will decline this year as more customers embrace the new RISE with SAP subscription offering that was launched in January. At the time, SAP said RISE with SAP is designed to help transform its customers into “intelligent enterprises.”

The program involves three steps that cover business process redesign, technical migration and building an intelligent enterprise, the end result being that customers will use the SAP Business Technology Platform as the foundation of their new digital enterprises. The agreement entails SAP taking responsibility of all contracts, service-level agreements, operations and support, bundling it all into a single contract.

SAP Chief Executive Christian Klein (pictured) said in a statement that RISE with SAP has enjoyed a strong start and is “rapidly becoming a massive accelerator to our customers’ business transformations.”

“Together with our unique ecosystem of more than 22,000 partners and with a strong innovation pipeline for the year, we are well on track with our strategy to deliver robust cloud growth,” Klein added.

Constellation Research Inc analyst Holger Mueller said it was not surprising that SAP was attributing a part of its strong first quarter performance to the new RISE with SAP offering. “It is certainly very possible RISE with SAP played a part, but we will need to see a few more quarters of accelerated growth to really see its impact on SAP’s financials,” the analyst said.

SAP’s expansion into the financial services industry will see it create a joint venture with Dediq that’s focused on providing digital services for the commercial lending, retail and transactional banking markets. Luka Mucic, the company’s chief financial officer, told Reuters that the goal of the business is to create a “financial services industry speedboat” that creates agile information technology solutions that “live and breathe” exclusively for the sector.

“We want to build up a stronger portfolio that covers FSI-specific needs, and we want to build an encompassing portfolio of FSI solutions that are integrated with a strong backbone, including S/4HANA and reside on our business technology platform,” Mucic said.

SAP said it’s planning to bundle all of its talent that deals with financial services into a single organization, with all related products bundled into one cohesive unit. The company said it already has a strong installed base in the commercial lending and real estate financing segments, adding that digitization of end-to-end processes is already a big topic there. As for its retail and transactional banking products, SAP said these will be driven by the standardization of processes and help enable the move to the cloud.

Although SAP is framing the new business as a better way to serve financial enterprises, its creation also shows that the company cannot handle these kinds of workloads all by itself, Mueller said.

“The spin and merger of SAP’s financial business services with Dediq is a completely new chapter for the company, the first time the ERP giant has admitted that it cannot do it all by itself and in-house,” Mueller said. “All eyes will be on the success of the new venture, and questions will come up sooner rather than later if SAP decides to spin off more of its products and services.”

SAP said the joint venture still needs to secure regulatory approval and that, for legal reasons, it can’t name the business or its executive management team yet. However, it expects it to be up and running by the second half of the year.

“The management team will have full autonomy to set direction for the unit, but it will be a strong member of the SAP family,” Mucic added.

Photo: World Economic Forum/Flickr