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Why SAP’s Fiscal 1Q16 Results Failed to Meet Analysts’ Expectations

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Falling dollar impacted SAP’s fiscal 1Q16 revenue

US dollar appreciation against major currencies, the euro (EWG) in particular, helped SAP (SAP) to report robust growth in 2015. On the other hand, IBM (IBM), Oracle (ORCL), Microsoft (MSFT), and other technology players who derive a significant amount of revenues from outside the US continued to suffer. This is because SAP reports its revenue and profits in euros (EWG). Thus, when the US dollar appreciated against major currencies, especially the euro, it made exports cheaper, thus benefiting the company. In 2015, the euro fell to a 12-year low against the US dollar. A stronger dollar-to-euro exchange in 2015 ensured cheaper exports for SAP.

However, the situation seems to have reversed. The Fed’s cautious approach and global growth concerns are weighing heavily on the US dollar, whose decline has impacted SAP’s fiscal 1Q16 performance.

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Delay in signing deals slowed down SAP’s revenue growth in fiscal 1Q16

Commenting on SAP’s lower-than-expected revenue growth in fiscal 1Q16, Bill McDermott, SAP’s CEO, stated that some deals in the Americas that should have been signed in fiscal 1Q16 got pushed into April 2016. Though deal slippage led to lower revenue in fiscal 1Q16, it will likely improve the company’s fiscal 2Q16 growth. SAP stated that the company has “high visibility into a strong second quarter.”

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