SAP culls 3,000 jobs – and its results weren't even that bad
CRM and industry solutions among biz units targeted, analyst says cuts could be worse
SAP is targeting business units including its CRM and industry portfolio with 3,000 job cuts – despite full year 2022 revenue of €30.9 billion, up 11 percent.
Operating profit was more or less unchanged at €4.672 billion for the twelve months while calendar Q4 revenue reached €8.436 billion, up 6 percent from the same quarter a year earlier.
The German enterprise software giant likes to put an emphasis on its cloud revenue – the subject of strategic focus since late 2020 – which increased 30 percent in the last quarter of 2022, compared with a year earlier, to reach €3.39 billion.
Meanwhile, SAP is also trying to get customers onto its latest S/4HANA ERP software in the cloud. Here revenue was up 101 percent in Q4 to €660 million, although readers should note the low base compared to total revenue.
The financial performance is unlikely to save the 2.5 percent of the workforce earmarked for the chop.
The "targeted restructure", which includes CRM and "industry portoflio" teams – and comes with associated costs of €250-300 million – was "not performance based," CEO Christian Klein told a conference call.
"It's a targeted restructuring where we are optimizing our portfolio," he said. "We are winning in CRM in certain places every time when we connect our CRM capabilities to the supply chain to inventory, where we are coming with our industry expertise. But we have other places where we can still optimize our portfolio in the CRM… this is what we are doing."
Although it will be of little consolation to those losing their jobs, it could have been much worse, said Ilona Hansen, Gartner vice president.
"We can, unfortunately, see that giants such as Salesforce have let 10,000 workers go, while Google and Amazon and some other big tech companies have laid people off," she said. "From what I've seen in the market, [SAP's job losses] could have been a much higher number. We are into a recession, we are into economically uncertain times. Everybody hopes that after the first half of 2023, the economy will pick up again."
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SAP successes in moving customers to the cloud and/or S/4HANA belie the extent of the challenge of a large user base entrenched on its legacy systems, namely ERP Central Component (ECC) and earlier. Last year, Gartner found S/4HANA has not been licensed by two-thirds (69 percent) of ECC customers, according to data from calendar Q3, suggesting they had not even started their migation despite S/4HANA being seven years in the market.
Nonetheless, Klein was adamant SAP would not again extend the 2027 support deadline for ECC.
"No, we will not extend [the deadline]," he said. "Customers are asking us to put a lot of R&D dollars into new innovations and there's a long list of what we have in mind to deliver on AI, user experience and new capabilities around the supply chain and sustainability.
"It's very important that we convince our customers to move with us with value and good business cases. And SAP is the only software vendor in the ERP space that still gives a commitment for on-prem until 2040. There is no other one who gives such a commitment and that also costs us money.
"We are investing over €1 billion in localization, €1 billion, and because there are geopolitical tensions, legal requirements coming up here, they're everywhere. There's so much change, and we gave the commitment that we are not leaving one customer behind, but at a certain point in time, we also have to make sure that we are moving together."
In its investor news, SAP said it was exploring selling its remaining stake in survey metrics company Qualtrics, which it bought for $8 billion in 2018 but floated on the stock exchange in 2020. ®
Editor's note: This article was revised after publication to clarify the job cuts will be felt at SAP's industry portfolio business as well as its CRM unit. We are happy to make this clear to readers.