AI plays into latest SAP restructuring, impacting 8,000 jobs

Estimated to cost €2 billion

German software giant SAP has unveiled a restructuring plan that is set to affect 8,000 jobs worldwide - about 7% of its workforce.

The ERP company, founded 50 years ago, said the restructuring is part of its "ambition for 2025" plan, emphasising a strategic focus on key growth areas, particularly in the realm of business AI.

As of December 2023, SAP had a total of 107,602 full-time employees, meaning the announced restructuring will affects just over 7% of employees.

The majority of impacted positions will be addressed through voluntary leave programmes and internal re-skilling, ensuring that headcount will "remain unchanged" by the end of the year.

The cost associated with the programme is estimated at €2 billion.

SAP CEO Christian Klein expressed confidence in the company's prospects for 2024, citing success in meeting or exceeding 2023 outlook metrics.

Klein highlighted the importance of the planned transformation, which is intended to help SAP invest in strategic growth areas.

SAP anticipates that most of the restructuring costs will be incurred in the first half of the year, contributing €500 million to operating profit by 2025 due to efficiency improvements.

Industry analysts anticipate that the company's focus on strategic growth areas will give it a competitive position in the business AI space.

Jürgen Molnar, an investment strategist at brokerage RoboMarkets, said, "The right adjustments are being made, and the company is being reorganised to prepare it for the age of artificial intelligence."

Molnar added that, despite potential employee displacement, the restructuring is seen as more of a strategic move offering new opportunities than a mere cost-cutting measure.

SAP's restructuring initiative follows a trend set in January last year, when the company announced a "targeted restructure" impacting CRM and industry portfolio teams, leading to about 3,000 job losses.

Revenue up, profits down

SAP also announced financial results for Q4 and full-year 2023 this week.

Annual revenue rose 6% year-on-year to €31.2 billion, but operating profit fell 5% to €5.78 billion.

For the quarter, revenue grew 5% to €8.5 billion. However, operating profit was down 5%, to €1.9 billion.

Cloud revenue grew significantly in Q4, up 20%, to €3.7 billion. Software license and support revenue, though, fell 5% compared to the previous year, to €3.7 billion.

SAP has been aggressively shifting its focus to the cloud in recent years, introducing offerings like the S/4HANA cloud application suite and the SAP Service Cloud.

The company projects cloud revenue will reach between €17 billion and €17.3 billion in 2024, reflecting a 24-27% YoY increase.

SAP's reorganisation aligns with a broader industry trend, with several tech giants - including Google, Meta, IBM, Salesforce and Amazon - announcing layoffs as part of their realignment strategies for the AI era.

Google CEO Sundar Pichai recently warned of more job losses this year.