SAP’s Transformation Program Leads to Growth but also 8,000 Layoffs in 2024

SAP Office Building

SAP, the renowned German software company, has recently made headlines with its stock prices soaring by 7% to record levels. This surge is attributed to the company’s optimistic forecast for cloud revenue growth and a significant restructuring announcement, involving a workforce shift towards artificial intelligence (AI).

Cloud Revenue and Restructuring

SAP has earmarked a substantial €2 billion (approximately $2.2 billion) for its restructuring program. This program primarily focuses on either retraining existing employees with AI skills or replacing them through voluntary severance schemes. The restructuring is expected to lead to around 8,000 job changes, highlighting SAP’s commitment to AI and cloud-based technologies. Despite these changes, SAP anticipates maintaining a similar employee count by the end of 2024.

AI and Generative Technology

SAP has been an early adopter of generative AI technology, specifically OpenAI’s ChatGPT. The company announced plans to integrate this technology into its products early last year. SAP foresees that generative AI (GenAI) will fundamentally transform its business. In line with this vision, SAP has committed over $1 billion through Sapphire Ventures to support AI-driven tech startups.

Investment Strategy and Market Perspective

Jürgen Molnar, an investment strategist at RoboMarkets, has commented on SAP’s adjustments and reorganization. He notes that while some employees might be left behind in this transition, the company’s human resource policy is more strategic than cost-driven, opening up new opportunities. This approach is echoed by other tech giants like Google and Microsoft, which have also shifted towards AI and automation software, leading to a series of layoffs in recent months.

A significant portion of the restructuring costs will occur in the first half of the year but will contribute €500 million to operational profits in 2025, thanks to increased efficiency. Furthermore, SAP has announced double-digit percentage increases in both its cloud business revenue and total operational profit for the current year, surpassing analysts’ expectations for 2023.

Revenue and Operational Profit Forecast

SAP’s cloud revenue, adjusted for currency effects, grew by 23% to €13.66 billion in 2023. For 2024, the company forecasts a growth of 24% to 27% in this sector. The operational profit increased by 13% last year to €8.7 billion, also adjusted for currency effects, exceeding the company’s analysts’ growth prediction of 9%. SAP expects this figure to rise between 17% and 21% in 2024.

More info here: https://news.sap.com/2024/01/sap-updates-its-ambition-2025-and-announces-transformation-program-for-2024/

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