SAP to Launch Restructuring Program Affecting 8,000 Jobs in AI Push -- Update
24 Gennaio 2024 - 8:26AM
Dow Jones News
By Mauro Orru and Dean Seal
SAP plans to undertake a restructuring program this year that
will affect some 8,000 jobs, ratcheting up its focus on artificial
intelligence.
The German business-software company said late Tuesday that most
of the roughly 8,000 positions affected should be covered by
voluntary leave programs and internal re-skilling, when workers are
trained to fill other roles within the group. SAP expects to end
2024 with a headcount similar to current levels. The company had a
workforce of 107,602 at the end of 2023.
Most of the costs related to the restructuring, currently
estimated at about 2 billion euros ($2.17 billion), should be
recognized in the first half of the year. Excluding restructuring
expenses, the overhaul is expected to convey only a minor cost
benefit this year.
The announcement comes a year after SAP said it was shedding
about 3,000 jobs as part of a separate restructuring as the group
leans on AI to streamline some processes and make work more
efficient.
"With the planned transformation program, we are intensifying
the shift of investments to strategic growth areas, above all
business AI," Chief Executive Christian Klein said.
Klein last year told The Wall Street Journal that SAP was open
to more investments in AI and acquisitions to streamline its
operations.
Recent advancements in generative AI--illustrated by the
popularity of OpenAI's ChatGPT, Microsoft's Bing and Google's Bard
chatbots--sparked a wave of investments from tech companies
jockeying for position in a rapidly evolving market that looks set
to revolutionize the future of business and human labor.
Last year, SAP made investments in three generative AI
companies--Aleph Alpha, Anthropic and Cohere--and appointed
Microsoft's Walter Sun as its global head of artificial
intelligence, underscoring its commitment to the technology.
On Tuesday, SAP posted revenue and operating profit ahead of
analysts' expectations for the fourth quarter, led by growth at its
core cloud business.
Reporting on a non-IFRS basis, the Walldorf, Germany-based
company said total revenue climbed to EUR8.47 billion from EUR8.06
billion in the fourth quarter of 2022. Revenue from SAP's cloud
business jumped to EUR3.70 billion from EUR3.08 billion, while
software-licenses revenue slipped to EUR841 million from EUR907
million.
SAP has been moving away from software-licenses sales to
subscription-based cloud services, banking on a more profitable and
predictable model based on recurring revenue. The company said
Brazil, Germany, France, India, and South Korea had enjoyed
outstanding cloud revenue growth in the quarter.
"We met or exceeded our outlook for 2023 in all key metrics.
Based on a stellar order entry, our current cloud backlog expanded
by 27%--an all-time high," Klein said.
Operating profit for the fourth quarter fell to EUR2.51 billion
from EUR2.56 billion, with SAP's operating margin falling to 29.6%
from 31.7%.
Analysts had forecast total revenue of EUR8.32 billion and cloud
revenue of EUR3.72 billion on operating profit of EUR2.47 billion
and a 29.9% operating margin, according to a company-provided
consensus on a non-IFRS basis.
SAP, like other European software companies, presents its
figures as two sets of numbers. One set is based on the
International Financial Reporting Standards--an international
accounting method that seeks to provide a global reporting
standard--though analysts and investors tend to follow SAP's
non-IFRS numbers.
Those figures had so far excluded share-based compensation,
restructuring expenses and acquisition-related charges. However,
SAP began including share-based compensation expenses in its
non-IFRS results from Jan. 1 of this year. While its 2023 figures
don't reflect the change, guidance for the new year and 2025
does.
For 2024, SAP expects non-IFRS operating profit at constant
currencies between EUR7.6 billion and EUR7.9 billion, cloud revenue
at constant currencies between EUR17 billion and EUR17.3 billion
and free cash flow of roughly EUR3.5 billion.
By 2025, SAP expects non-IFRS operating profit of approximately
EUR10 billion, including share-based compensation expenses of
roughly EUR2 billion, and free cash flow of about EUR8 billion.
Write to Mauro Orru at mauro.orru@wsj.com and Dean Seal at
dean.seal@wsj.com
(END) Dow Jones Newswires
January 24, 2024 02:11 ET (07:11 GMT)
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