Ladies and gentlemen, thank you for standing by. Welcome to SAP 2012 second quarter earnings conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. I would now like to turn the conference over to Mr. Stefan Gruber. Please go ahead, sir.
Yeah, thank you. Good morning or good afternoon. This is Stefan Gruber. Thank you for joining us to discuss SAP's results for the second quarter 2012. I'm joined by co-CEOs Bill McDermott and Jim Hagemann Snabe, our CFO, Werner Brandt, as well as Vishal Sikka. Bill and Jim will begin the call with remarks on this quarter's performance. Werner will review the financial highlights. We will then have time for Q&A. Before they get started, as usual, I want to say a few words about forward-looking statements. Any statements made during this call that are not historical fact are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intent, may, plan, project, predict, should, outlook, and will, and similar expressions as they relate to SAP, are intended to identify such forward-looking statements.
SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's annual report on Form 20-F for 2011, filed with the SEC on March 23rd, 2012. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Before I turn the call over to Bill, I would like to note that starting with the reporting for the second quarter 2012, SAP will report both software revenue by customer location and software revenue by location of negotiation because this better reflects the reality where our business is done.
The focus of our communications with the capital markets will be on the reporting by location of negotiation. For additional information, please refer to the appendix to our Q2 earnings release, as well as our second quarter 2012 interim report. Both documents are available on our website. Now I would like to turn the call over to Bill.
Thank you, Stefan, and thanks to everyone for joining the call today. We really appreciate it. As you can see from the numbers, SAP's momentum continues. Q2 was our best ever second quarter. We exceeded EUR 1 billion in software revenue for the first time in a second quarter. We beat market expectations, delivering results at the high end of our guidance with 26% year-over-year growth, 19% at constant currency in software license sales. Our software and software-related services revenue in Q2 grew by 21%, 15% at constant currency, and came in at the midpoint of our guidance. This is our 10th consecutive quarter of double-digit software and software-related services revenue growth, and it's been driven by stellar growth in mobile, HANA, and cloud, as well as our core business. Our operating margin was 30%, slightly impacted by the SuccessFactors acquisition and severance expenses.
We also invested significantly in future growth during the first half of this year by adding approximately 5,200 employees, of which about 2,000 were from acquisitions. With our 61,000 employees worldwide, we will drive innovation, further expand our global reach, and accelerate growth like never before. We delivered double-digit growth across all regions despite the volatile global economy. Companies are leveraging technology from SAP to innovate, reinvent business models, and to grow. We have the broadest portfolio of innovations in the industry. If you want to be more efficient and productive in any operating environment, you need SAP. It's clear that we've entered an era defined by a consumer-driven technology revolution. Consumers will fully own their value chain, and companies have to automate and personalize their business models to keep up.
The Internet of Things will lead to 50 billion connected devices by 2020, allowing businesses to completely change how they interact with their customers. We are already seeing intelligent vending machines, connected vehicles, connected healthcare devices, and smart meters driving this. To anticipate and meet the needs of this new consumer, companies are rethinking the way they manage their business. I believe that information technology is becoming business technology because companies are shifting technology spend towards strategic software that helps them reimagine their customer interactions, mobilize their workforce, gain instant intelligence from big data, and drive operational excellence through the cloud. Our customers are turning to SAP as their preferred platform for knowledge-driven innovation and the future of their business. As a result of this, we continue to gain market share from our competition.
On a trailing 12-month basis, we are growing 20% faster than our nearest competitor, and we have strengthened our number one position in the enterprise applications market. Let me move on to our outstanding regional performance. I'll talk about this in nominal currency. The Americas delivered a strong Q2 with a 32% year-on-year software growth. The U.S. delivered solid double-digit growth and has good momentum following the adjustments we made at the start of the quarter. We continued to win new customers, such as Crocs, a leading maker of footwear, to raise their game and accelerate their growth. Crocs chose to move to SAP from their existing software vendor. With over 300 styles of shoes sold around the world, they need to optimize global production and distribution. The NBA, the professional basketball league in the United States, selected SAP to run better.
By leveraging our world-class analytics, we will deliver the NBA deeper insights and better connectivity, not only to improve the action on the court, but the game behind the game. This is really exciting. Latin America delivered a record quarter with strong contributions from our breakthrough innovations. Mexico, Chile, and Colombia were instrumental in driving this growth. One of our big wins in Latin America in Q2 was Grupo Pão de Açúcar, the largest retailer in Brazil, who will use our retail solutions supported by HANA and mobile innovations. Additionally, one of our first HANA customers, a Mexican retailer who piloted our flagship in-memory technology a year ago, came back and made a significant investment in SAP HANA and will use it to power their entire inventory system. EMEA, everything we've been hearing about Europe. Here we go.
We delivered excellent results in EMEA, 22% year-over-year growth in software revenue and outstanding performance considering the very strong second quarter of 2011. It's even more convincing given the ongoing macroeconomic uncertainty in Europe. We added over 2,000 net new customers in EMEA, including many in the small, medium-sized enterprise sector. We saw a strong contribution from the U.K., France, Austria, and Switzerland in particular. The investments made in Russia and the Middle East and North Africa, they're paying off as well. I'd like to call out Germany's excellent performance, which grew once again by double digits this quarter. In EMEA, we grew twice as fast as our nearest competitor in Q2 and four times faster than them on a trailing 12-month basis. We continue to win customers from the competition.
TUI Travel, for example, chose to replace its Oracle financial system in the U.K. and Central European subsidiaries with SAP. Asia Pacific and Japan. APJ reported their best Q2 ever with stellar 25% year-over-year software growth. We are significantly outperforming competition in APJ and growing eight times faster than our nearest competitor on a trailing 12-month basis. In this region, Japan and Australia stood out in particular. A customer I'd like to call out is Japan Post Holdings, who replaced their Oracle system with SAP BusinessObjects software to better analyze and manage their costs in real time. China grew by more than 30%, our best Q2 ever in China. We continue to invest in China and have increased our sales headcount there by 50% this year alone. These investments are starting to deliver tangible results. We also had strong success in Australia with our cloud solutions.
For example, in the Australian public sector, we recently closed the largest SAP Business ByDesign win ever for financials and payroll as a service, beating Workday and Oracle in the process. Industries. Another growth driver is our unmatched industry expertise. We go to market in 24 industries, and we're good at them all. This quarter, we saw stellar performance in financial services and retail in particular, which both grew by more than 60% year-over-year. Banking was an industry where we had limited presence just two years ago. Now it is our fastest-growing industry. We also grew more than 20% in more traditional verticals such as manufacturing. Ecosystem update. A key element of our growth story is our open and ever-expanding ecosystem. Our indirect channel business now represents one-third of total software sales.
We are on track to reach our goal of 40% of revenue through indirect channels by 2015. Partners continue to play a critical role in delivering our innovations, especially for our small and midsize enterprise customers. For example, our SAP Business One partners now deliver in-memory analytics through our SAP HANA, Edge edition to many small customers around the world. Our services partners see our momentum and are embracing SAP innovations as well. They are significantly increasing investments in their SAP practices. They are now adding more than 50,000 trained consultants to their SAP practices in the last six months alone. They are building on our culture with our customers of co-innovation. How about the outlook? In summary, our Q2 performance was excellent. Our pipeline is strong across all regions and industries.
Our growth strategy is working. We continue to be the better choice to help companies run like never before. We are confident that we will achieve our full year 2012 revenue and profit outlook. I'd now like to turn it over to my partner and Co-Chief Executive Officer, Jim Hagemann Snabe. Jim?
Thank you very much, Bill. You said it nicely, 10 consecutive quarters of double-digit growth. This proves that, first of all, our innovation strategy is the right strategy. Secondly, that we are executing well. You may recall that two and a half years ago, we decided to drive our growth through innovating the future instead of consolidating the past. We decided to focus all of our attention on customer-driven innovation of business software delivered without disruption, instead of going into hardware or disrupting customer IT landscapes. When we analyze the results now, 10 quarters later, two things are clear. First of all, our strategy delivers strong growth opportunities for SAP. With our innovations in mobile, database, cloud, we have doubled our addressable market. In addition, the business software market is the fastest-growing segment in the IT industry.
While the total IT spend is likely to grow with maximum 5% per year the coming years, innovative business software, our segment, is growing by more than 11%. This shows the transformation of IT spending, which SAP's strategy capitalizes on. Secondly, customers appreciate our strategy. IT landscapes are transforming radically. Data moves from disk to main memory, IT infrastructures move to private or public clouds. The user experience moves from PCs to mobile devices. By delivering innovation across our five categories based on a consistent architecture and roadmap, we offer customers a smooth transition to future landscapes without major disruptions or costly upgrades. We deliver business value at every step of the way.
For example, a large manufacturing company in Nordics choosing SAP to consolidate the majority of its applications from various different vendors into one consistent core application, SAP Business Suite 7, and leveraging mobile devices for their mobile workforce to improve. They also selected to run the business suite on the ASE database from Sybase to allow them to transition to HANA as the future technology platform later without disruption. We have great momentum across all innovation categories, and we are definitely increasing the gap to competition. Let's look at each of the five categories and the strengths of our innovations. First of all, our core, the applications and analytics. In applications and analytics, our experience in core business processes, coupled with our deep industry knowledge, is a key advantage and differentiator for SAP. We gained market share and applications for the seventh quarter in a row.
We have the most modern install base, with more than 80% of our customers now on our latest on-premise product, SAP Business Suite 7. This is an important indicator for customer loyalty and future growth opportunities. In SME space, SAP Business One is the most successful solution in the market, with well over 35,000 customers. The latest version of Business One will be running completely on HANA in main memory. The reason for our success in our core is very simple. We offer innovation without disruption that help companies navigate and optimize in unpredictable times. During the second quarter, SAP received a number of industry recognitions in these categories. For example, IDC ranked SAP number 1 in business analytics, and Gartner ranked us first in business process management. This is a clear sign on how we have extended our leadership in our core. Mobile.
We had an outstanding quarter in mobility with EUR 54 million in revenue. We are on track to double our mobile revenue this year. We closed the largest mobile device management deal in our history, perhaps in the entire mobile industry, with a major hardware company that will standardize on SAP solution for mobile security. We are also seeing good traction for mobile business applications. For example, banks are leveraging our Sybase 365 product for mobile banking, and Syclo, our latest acquisition in the mobile area, has already made a significant contribution to our mobile apps business. Let's look at database and technology. SAP was recently named by IDC the fastest-growing enterprise database vendor in the market. SAP HANA, our next-generation database platform, is accelerating our growth in this category and transforming the market.
HANA wins the gold medal this quarter with an EUR 85 million in license revenue in Q2 alone, we are on track to achieve our plan of doubling our HANA revenue for the full fiscal year. This product is proving to be truly transformational for the 100 companies that are already live and the nearly 500 companies who have purchased HANA so far. One of the largest growth drivers in the HANA business is BW on HANA. With a rapid deployment timeline for BW on HANA, which installs often in less than two or three weeks, our customers are quickly realizing the value of HANA and understanding its transformational nature. Customers who have tried HANA are coming back to invest in it as their platform for the future. Our high-performance database solutions from Sybase also continue to gain traction.
We are seeing more and more customers adopting Sybase ASE as the database to run SAP applications. Finally, cloud. The acquisition of SuccessFactors, combined with SAP's own cloud assets, now make us a major player in the cloud business. With more than 16 million users, we have the largest installed base in the business cloud. SuccessFactors business continue to accelerate under Lars Dalgaard's leadership and the SAP family, with billings up more than 100% in Q2, compared to SuccessFactors standalone. A large German pharmaceutical company, also an SAP customer, chose to replace software from our competition to run many of its HR functions in the cloud with SuccessFactors. This is one of the deals that would not have been possible without the strong synergies between SAP and SuccessFactors.
Notably, SuccessFactors is now running SAP Business ByDesign to run its business and successfully closed its books this quarter with the system for the first time. We continue to see increased demand for SAP Business ByDesign from upper mid-market companies and subsidiaries of large ones, as mentioned by Bill. When you look at the solutions in the categories, the true value is in the combination. We have strong momentum, as you've seen in each one of the five categories. Our unique ability to combine the innovations from these five categories, together with our unmatched industry experience across 24 industries, allows us to offer solutions to fundamental business challenges in ways no one else can. Through our best practices experiences by industry, we make it easy for our customers to deploy these solutions at high speed.
The key is our rapid deployment solutions, which combine best practices, software, and services for rapid time deployment and value. This approach allows customers to implement proven best practices at a fraction of cost and time of traditional implementation processes. Over 1,000 customers purchased more than 1,800 RDS's since their introduction in September 2010, and almost half of those were sold in the first two quarters of this year. Finally, let's talk about operational excellence at SAP. Besides driving innovation for growth, we've also focused on improving our operational excellence inside of SAP. We have increased SAP's R&D effectiveness, which is our core process, for 10 consecutive quarters. For example, we have accelerated our innovation cycles for SAP Business Suite by 29% since last year. Overall, we increased the number of products delivered by 34%.
In addition, we implemented our cloud and in-memory technology to increase efficiency in our internal processes in general. Let me conclude. With our current momentum on the top line, driven by innovation, and our efforts to improve operational excellence, we are confident that we will reach our guidance for this year, and we are on track to reach our 2015 ambitions to achieve more than EUR 20 billion of revenue, a 35% operating margin, and reach one billion people with our software. I will now turn over the call to Werner for additional financial highlights from the quarter. Werner?
Thank you, Jim. Both Bill and Jim gave you an overview of a great second quarter coming off a very tough comparison from last year. We grew double digits in all regions, and our new innovations are performing extremely well. Having said that, I want to give more insight on the top line and the overall result in the second quarter. Before I do so, let me provide more details about our non-IFRS results, which are the figures that we use internally to look at our operating performance. They are the basis for our guidance. I also want to make a few comments concerning non-IFRS adjustments and our future cloud segment. In the second quarter, we recorded non-IFRS adjustments of EUR 134 million for acquisition-related and restructuring charges, EUR 98 million for share-based compensation expenses, and EUR 2 million related to discontinued activities.
In addition, there were deferred revenue write-down from acquisitions of EUR 18 million. We have also updated our expectations for the 2012 non-IFRS measures. The details can be found in the press release issued earlier today. We plan to establish a separate cloud unit combining the SuccessFactors and SAP cloud business. The cloud unit is expected to qualify as a separate reportable segment. However, due to the short time since the acquisition, we have not yet finished defining the cloud unit, and we will not have finished adopting our management reporting to the new structure until the beginning of the third quarter. This will provide even more transparency into our cloud business. Bill already gave some color on the tremendous top-line performance across all regions in the second quarter.
In addition to his comments on the strong software and SaaS performance, I want to go into more detail into our recurring revenue stream. Non-IFRS support revenue increased by 10% at constant currency. I'm very pleased with the adoption rate of the enterprise support offering, which stood at an all-time high at 96%. This consistent high percentage adoption rate shows the trust that our customers have in us. Non-IFRS cloud subscription and support revenue increased to EUR 69 million in the second quarter, up from EUR 35 million in the first quarter. The increase was mainly due to the inclusion of SuccessFactors for the entire quarter, as well as the accelerated momentum that SuccessFactors is seen as part of the SAP family. Also, we have noticed that our largest competitor reports its cloud subscription revenues together with its on-premise license revenue in one line item.
We take a different approach in order to provide more transparency into our cloud business and report cloud revenues in a separate line item called cloud subscription and support. Our license revenue growth rate would be substantially larger if we follow our largest competitor's way of reporting. Please consider this difference in reporting when comparing growth rates. Now some comments on our gross margin for the quarter. Our SaaS gross margin increased by 90 basis points to 84.4%. The professional service gross margin decreased by 2.9 percentage points year-over-year to 21.2% due to specific developments at a small number of consulting projects. The overall gross margin increased by 1.3 percentage points to 71.9% year-over-year. This is not surprising since our product business grew at a faster rate than our professional service business, which results in a more favorable business mix.
Looking at the expense side of the P&L, you can see that total non-IFRS operating expenses in the second quarter increased by 20% year-over-year. From this increase, six percentage points were due to currency. In addition, our workforce grew by 6,929 FTEs year-over-year, thereof 2,356 FTEs from acquisition. Sales and marketing cost, which increased by 30%, also impacted operating expenses, leading to sales and marketing ratio of 23.4%, an increase of 2.1 percentage points compared to prior year. This increase is primarily driven by adding almost 2,900 FTEs year-over-year, primarily in the cloud and traditional sales organization to capture future growth opportunities Bill talked about. These additional FTEs will contribute to our top line in the second half of the year.
Our non-IFRS operating margin at constant currencies for the second quarter decreased by 120 basis points at constant currencies to 29.6% year-over-year. There were two main effects which impacted our operating margin performance in the second quarter. Number one, the acquisition of SuccessFactors, and you all know that SuccessFactors operates at a different margin profile compared to SAP. This effect accounted for approximately 100 basis points. Secondly, severance expenses occurred in the quarter in the amount of EUR 31 million. The non-IFRS tax rate in the first half of 2012 was 26.7%, which is a decrease of 2.2 percentage points year-over-year. This is below of our guidance of 27%-28%. The year-over-year decrease in the effective tax rate mainly arises from the regional allocation of income.
Despite the better tax rate performance in the first half of this year, we believe that our tax rate guidance for the full year is realistic. Now to cash flow. In the second quarter, operating cash flow was impacted by higher tax payments. Operating cash flow for the first six months increased by 6% to EUR 2.4 billion compared to prior year, resulting in the best ever half year of cash flow performance. As a result of free cash flow in the first six months of 2012 increased to EUR 2.1 billion. The improvement in free cash flow was due to better managed working capital, focusing on receivables, which were 13% higher than in the previous year. Days of sales also improved once again. We were able to take another two days of the results from the previous years, showing that our continued focus on working capital management is paying off.
To finish up, let me say that based on the strong Q2 results and our robust pipeline, we are reaffirming our outlook for 2012. We continue to expect full year 2012 non-IFRS software and software-related service revenue to increase in a range of 10%-12% at constant currencies, with full year 2012 non-IFRS operating profit to be in a range of EUR 5.05 billion-EUR 5.25 billion.
EUR 5.25 billion at constant currency. Thank you very much, and we are happy to take your questions.
Thank you, Werner. Back to the operator for the Q&A session, please.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session for the financial analyst community. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Your questions will be answered in the order they are received. If you are using speaker equipment today, please lift the handset before making your selections. I repeat, if you'd like to ask a question, please press the star, followed by the one on your telephone. One moment for the first question, please. The first question comes from Adam Wood from Morgan Stanley. Please go ahead, sir.
Thanks very much for taking the question, and congratulations on such strong execution in the quarter. A couple if I could, just on the pipeline, first of all, I think that's the one concern people have. You've obviously flagged it was strong. Could you maybe just give us a little bit more information on that? The build of the pipeline through the quarter, did you see it getting better or worse? Maybe the linearity of the second quarter versus a normal Q2, is there any reason we shouldn't expect normal seasonality in the licenses for the rest of this year? Maybe secondly, you've alluded to ASE a few times on the call. Could you maybe give us a little bit of an idea about how important that's becoming for you?
Is the conversion you're seeing more at the SMB level, sort of greenfield adoption, or are you also seeing use cases for larger enterprises moving away from the traditional relational databases there? Thank you.
Okay. Well, Adam, this is Bill McDermott. Let me first of all say that the pipeline in the company is very robust. We measure ourselves on a 3 times operating plan for the pipeline. It is achieving our objective, and we have the strongest pipeline we've seen in a long time. If you look at new innovations like HANA, talking about a EUR 1.5 billion-plus pipeline. Mobile, $800 million-plus pipeline. The cloud is also a triple-digit growth pipeline. That's why those three businesses are anticipated to grow in triple digits on a year-over-year basis. If you look at the core business, the core business is poised for double digit, as Werner, Jim, and I have reiterated today in the guidance. On the seasonality side of things, let me be clear, we did not pull Q3 forward to achieve Q2. We did not pull Q3 forward to achieve Q2.
Q2 stood on its own merits. The linearity was very consistent and predictable throughout the quarter, and it wasn't swayed by any one big transaction. It was consistent, double digit all over the world. We expect the seasonality that's consistent with our historical trends to play out in Q3. Therefore, the business remains ever strong. Finally, on ASE, I'm sure Jim would like to make a comment on this as well, or Vishal. I want to let you know that the ASE business is becoming more and more a part of the story in combination with HANA.
If you look at big companies like Canadian Rail, for example, adopting ASE, I think it's a strong testament to the fact that it's not just for the small and mid-sized ones, although we're happy to take that business, but it's also the big ones, especially in combination with HANA, that value it. ASE grew 60% on a year-over-year basis in Q2. It's up 30% on a year-to-date basis, and I do believe that that makes it the fastest-growing database business in the world. If you couple that with HANA at triple digits, you got a real runaway growth story on your hands here. Jim, any comments, or Vishal?
Yeah, maybe I can just put some light on that. With those growth rates with ASE, this is becoming a very important part of our business. I think what you're seeing there is a very successful integration of Sybase into SAP, giving us now a huge momentum. I want to thank the team for making that happen at such a professional way. The key here is that we're beginning to see the first customers who go for the combination of the SAP apps with the ASE as the database. I mentioned one example in Nordics where that was the case, very large transaction. The reason is very simple.
Vishal and his team, and the Sybase teams, have found a roadmap, have declared a roadmap for ASE, which allows customers to start leveraging the benefits of ASE today, and move in a smooth transition to a HANA-based world
Yes
when that's relevant. Maybe you can shed some light on that.
Sure. Jim and Bill, like you said, the key is to, that we have outlined to our customers, we already saw the first results in Q2, of a strong compromise-free roadmap that enables a non-disruptive evolution from ASE and IQ to a reality of HANA. We are absolutely convinced that HANA represents the architecture of the future for the database. To get there, we can get there non-disruptively. We already started to see the first results of that, and you see that reflected in the numbers as well.
Thank you. Let's take the next question, please.
The next question comes from Rick Sherlund from Nomura. Please go ahead, sir.
Thanks, great quarter. The SuccessFactors transition, I wanted to touch on at SAPPHIRE. Lars had mentioned that he wanted to more loosely couple the HR and the financial models from ByDesign. I'm wondering if you could give us an update on that in terms of when you think we'll be able to see traction from the leverage associated with those products being put into the hands of the sales organization for the cloud.
Jim here. Thanks, Rick, for the question. We're pursuing two markets in the cloud. The one market is the suite for the SMEs, where we now have two products, ByDesign, really going after now an upper mid-market. We saw the first big transaction, in Australia, as Bill mentioned. Business One is being delivered in the market as a suite in the cloud to our partners, a very solid solution for smaller companies. In parallel, as you said, Lars outlined the strategy for line-of-business solutions in the cloud, which are really targeting the large companies who want to have certain parts of their business under their control, on-premise or in a private cloud, and then consume edge solutions from the public cloud.
Lars outlined a strategy for 4 pillars in that edge solutions, a focus on the talent management, the HR topic, the money, the financials as the second one, and then the 2 relationships, the relationship to customers and the relationship to suppliers. We are already active in 3 of these in a very strong way, and we will deliver the fourth one, the financials, later this year. That means we're now playing in 4 categories, line of business as extensions pre-integrated with our on-premise software and becoming a very serious player.
Thank you. Let's take the next question, please.
The next question comes from Mark Gil from Deutsche Bank. Please go ahead, sir.
Thank you, everyone. A couple of questions, if I may. Firstly, I just want to sort of think a little bit or understand how you measure success, I don't mean this from a license standpoint, but if we think about success in technology and infrastructure, which you're clearly sort of achieving as we think about your mobile ambitions, then we probably need to start thinking about the number of employees that are using or interacting with SAP data within the business. I'm just thinking how we should think about measuring that, and sort of following on from that, share of wallet probably becomes an increasingly important metric. Is there anything you can help us with, maybe looking forward to show success against that plan?
As a follow-up, as you think about the ramp-up towards the Business Suite on HANA, and in particular ERP on HANA, I'm assuming that part of that ramp-up process will be an internal deployment of the suite or at least financials on HANA. I just want to understand where we are against that goal and also how you sort of manage the risk around that, because until that is complete, customers will be obviously very reluctant to take that to the next level. Thank you.
Yeah. Thanks, Mark. The first question about how we measure success. Obviously, the only true measure is the business volume and the market share we're gaining in the market. However, we are adding measures of adoption and active usage of our solutions. We have this very ambitious target to reach a billion people with our software, which is basically only possible through a very active mobile strategy. I still believe that net-net, the true measure of success is the revenue we can make with our portfolio of solutions and not breaking it down to individual pieces at the end of the day. It is clear that with our growth now, where many other companies are showing no growth in IT, we have very strong growth, 26% in software, that the share of wallet strategy that was a cornerstone in our strategy is working.
We see the shift happening from hardware to innovative software. With the five categories we now play in, that all are showing very strong momentum, we are significantly increasing our share of wallet at the customers. Finally, on the Business Suite on HANA, we have not announced this product yet, but we are certain that over time you will see transactional systems running on HANA. Business One will be the first productive system. We already have customers with that. Obviously, we will be making sure that these complex large company systems runs not only faster but as robust in a HANA world before we go to market with that. We're very confident about the future of this, but right now we don't have a product announced. Vishal, you want to comment further?
Yeah. Mark, I just want to say that we are making great progress on running ERP on HANA, as well as CRM on HANA internally. We are working with a bunch of customers on this, and we are extremely excited about this. Like Jim said, we haven't announced a date on this yet, but we expect to see tremendous performance improvements, but also drastic simplification in the amount of code that is necessary to run the same processes non-disruptively. We are extremely excited about this and on track with it.
Okay. Thank you very much. Let's take the next question, please.
The next question comes from Phil Winslow from Credit Suisse. Please go ahead, sir.
Great. Thanks, guys, on a great first half. Bill, just got a question for you. Obviously, we've seen application software really outperforming the other areas of tech, and within apps, we've seen SAP outperform the rest of your competitors. What's really changed for this segment versus other areas of tech in this sort of obviously kind of strange macro climate? Similarly, what's changed for SAP versus the competitors? Just for Jim, you mentioned BW on HANA. Wondering if you could give us a sense of how that's contributed to the pipeline for the second half and just sort of what your expectations are for that product. Thanks.
Well, thank you very much, Phil. First of all, we see a world where customers respond well to innovation that is non-disruptive. If you look at what we've done on the application platform side of the equation, we've given tremendous innovation to the customer, and we haven't disrupted their enterprise. If you look further, we've captured the big trends in our strategy. We have a good strategy, and it's working. That includes what we've done on mobility. It includes what we've done on the cloud, and obviously HANA, in combination with what we did on the Sybase deal, I think really puts together a powerhouse set of solutions for our customer.
You then couple them with 24 industries and our strong domain expertise in industry, then our ambition to grow, not just in the core mature markets, but to spread our wings in the BRIC, you saw what we did in China and the Middle East. You're just dealing with a company that's acting on behalf of the customer, but also an aggressive management team. I believe that customers are in a world of business technology, not just information technology. We appeal to the C-level executive that wants to invest in technology that drives business outcomes. What CEO doesn't want to mobilize their workforce, automate their supply chain, get their value chain right for growth in expanding marketplaces so they can be more competitive? That's what we do.
We're not pushing hardware, we're not trying to push services, and we're not trying to make our customer behave the way we want them to based on our business model. We build the company around the customer and what they want.
Well said, Bill. The question on BW and HANA, I am convinced, and I'm sure Vishal will support that, maybe even with stronger language, that HANA is one of the biggest transformations that are happening to this industry since the last 10 to 15 years. With HANA, we are solving problems that were unsolvable before. We're analyzing DNA to individualize cancer treatment in healthcare. We are helping large consumer products to manage successful trade promotions in real time and understand change of customer behaviors. We are helping insurance companies get to real-time fraud detection, and we are helping banks to become much more real time in their risk management. These are big problems that have high value, but also require high touch. BW on HANA is the volume play for HANA.
It gives the opportunity for us to show the power of HANA in a risk-free environment, where customers have a great business case. They get a BW that is simplified at a tremendous performance and at a reduced cost of infrastructure. Once they've gone through that experience, they come with the big problems that we need to solve for them. Therefore, this is strategically very important. My estimation is that half of our current pipeline and number of customer interactions is BW on HANA related, and they typically come back later with the value conversations. Vishal, you want to add something?
No. Great.
Okay.
Thank you very much. The next question, please.
The next question comes from Gerardus Vos from Barclays. Please go ahead, sir.
Hi, thanks for taking my questions. A couple, if I may. First of all, on the headcount, we've seen significant increase in sales and marketing headcount in the first half of the year. What should we expect for the second half or kind of fully build out? Secondly, on the HANA and mobility pipeline, what was the equivalent number at the beginning of the year? Finally, perhaps on HANA, are you seeing anything like a lengthening of the sales cycle now you're moving from more the kind of bespoke HANA solution to kind of volume ready? Thanks.
Gerardus, thank you very much. Just a couple of things. First of all, on HANA and mobility, the pipeline I've itemized here is EUR 1.5 billion and EUR 800 million respectively, is probably increased by more than a third, and that's after we've dropped the results to the bottom line. The HANA sales cycle, if anything, is going to get shorter. One of the things that we've done in the company to really reinvent the company and make SAP a knowledge company, is we've really focused on design thinking in our company. This idea of desirability, feasibility, and viability is in the hearts and minds of our HANA team and all of our employees.
We can show that in volume business on BW and HANA, but we can also show that in transformational examples such as the one Jim outlined, where we're going in this industry and we're changing the game. That's pretty much the strong story there. In terms of headcount and sales, smart sales organizations invest in the early part of the year so they can get the leverage and the tailwind in the back end of the year. That's what we anticipate to do. You shouldn't expect a whole bunch of hiring. You should expect a whole bunch of execution.
Perfect. I like that. Thanks.
Thank you very much. Next question, please.
The next question comes from Laura Lederman from William Blair. Please go ahead, ma'am.
Yes. Thank you. Can you talk a little bit about Ariba and sort of the goals of integrating that and any update thoughts on Ariba? Similar, just the whole concept of acquisitions. If you look at your portfolio, you've obviously gotten a lot of new products and are very successful with them. If you look broadly at acquisitions, would we expect to see additional acquisitions to add other large components to the suite, either vertically or horizontally in terms of applications? Given the recentness of Ariba, are we not likely to see anything for the near future? Thank you.
Thanks, Laura. Jim here. First of all, the Ariba transaction is not finalized yet, we can't share too much more details on other than what we already said. Let me repeat that We feel that Ariba fits extremely well into our portfolio, as we see the cloud move to its next phase, where it's not just about consuming software through the cloud, but it's about connecting companies with companies. We have arguably the largest install base with the most relevant companies in this world running SAP. We connect them through the network of Ariba. The synergies that we can create with Ariba are significant. That's the reason we did this, but we can't say much more than that. On the acquisitions in the future, I want to reiterate as well that our strategy is based on primarily organic innovation to drive growth.
When we acquire, it's not to consolidate past technology, but it's really to accelerate our pace into future areas. We added 3 categories in our portfolio. In mobile, we did an acquisition of Sybase to jumpstart, and we are now the market leader in business mobility. We went for SuccessFactors and Ariba to accelerate our momentum in the cloud. The in-memory computing is an organic invention by SAP. It's really the power of the combination where roughly two-thirds of our growth comes from organic innovation, and one-third comes from growth. We feel comfortable with the transactions we've done and our ability to create value both for customers and shareholders in this strategy.
I'll ask one follow-up, if I could. Any signs at all of European issues? Obviously, your numbers were fine, but did you notice any even subtle changes at the end? Your tone is obviously very positive, and your results were positive, but the macro headlines are a little scary. If you just give us any sense of, did you see any issues anywhere?
When we came into the quarter, there was a lot of these similar questions, and we mentioned at that time that we would manage our European portfolio, and even if Southern Europe was down, we'd be strong in Germany, as an example, which we were in Germany, and U.K., and Austria, and other places.
I don't know who's talking.
What we see right now is a strong momentum, a very good pipeline. We are obviously cognizant of the headlines as you are. We are confident that what's unique about SAP is our market share position in Europe, the brand, and how it's truly respected in Europe. As Jim took you through the innovation strategy of the company, we just have a lot of solutions for people to manage risk, manage compliance, optimize supply chains where they have to cut costs and be more efficient and do more with less, but also the ones that have to compete and have to expand in Europe or beyond Europe to grow. We cover that base as well.
We got them if they're hurting, we got them if they need to grow, and bottom line, we got them because we got the brand and the company and the know-how in Europe to win.
Thank you very much. Let's take the next question, please.
The next question comes from Knut Woller from Baader Bank. Please go ahead, sir.
Yeah, thank you very much. Just a brief question regarding the topic social. We have seen a lot of M&A activity by your competitors in this area. I'm interested in your view on this topic. Thanks.
It's a very important topic. We're seeing how the internet is moving away from just interacting on information to actually connecting people and companies. Social is key. At SAP, we don't think it's a separated category. It needs to be integrated within the applications so that you have transactional, analytical, and social capabilities to improve people's productivity. That's our strategy. We have one of the fastest-growing social tools in our pipeline or in our portfolio with SAP Jam.
Yes
Which was acquired through SuccessFactors. We bring this technology not only to all employees at SAP and the millions of people who are using this already now, but within our applications, we are building it in so it becomes an integral part of how you do business in the future.
Thank you.
Yeah.
Thank you very much. Let's take the next question, please.
The next question comes from Michael Briest from UBS. Please go ahead, sir.
Great, thank you. Bill, you said it was a normal quarter. In terms of the deal volumes, it seems to have been pretty much flat, but obviously, the ASP was very strong. Can you talk a bit about the mix of large deals and small deals? Then in terms of BW on HANA, looking at the ASP, I think last year, we were looking at about EUR 800,000, EUR 750,000 per appliance. It seems to have come down somewhat. Can you maybe talk about what sort of levels you're seeing with HANA on BW ASPs?
Well, first of all, Michael, thanks for the question. What we are seeing is strong same account revenue growth. When you have a very loyal customer and you can bring them innovation without disruption, they will invest further with SAP. We did have a very nice increase in terms of our share of deals greater than EUR 5 million on a year-over-year basis. That was one of the nice outcomes of the quarter. If you're looking for a specific piece of information, it was 30 versus 15 on a year-over-year basis. As it relates to HANA, I wouldn't read anything into the ASP going down. I would simply read into the adoption going up. There's many more customers now that are adopting HANA, and some of them will start small, and we'll take that small start and make it big over time.
As you spread HANA's wings, you might see that little inflection, but don't read anything into it. The ASP on HANA is actually as strong as ever, if not stronger than ever.
Thank you very much. This concludes the earnings call for today, and thank you for joining, and goodbye.