Salesforce banks savings by sweating tech infrastructure for an extra year
Revenue rocks, but boosting margins means five year old servers and four year old PCs
CRM giant Salesforce has decided to sweat its infrastructure for an extra year, and make employees wait the same period before giving them new PCs.
News of the company's decision to live with old tech came in the SaaS supremo's Q4 2023 earnings call, during which CFO Amy Weaver told investors "Our guidance includes slightly under one-half points of benefit due to a depreciation change to the useful life of certain equipment by one year effective February 1st. For our infrastructure-related equipment, this changed the useful life from approximately four to five years. And for IT employee equipment, this changed from approximately three to four years."
Salesforce is not the only tech giant to have decided its hardware can last longer: Microsoft last year extended the life of some servers to six years, while Google has stretched the life of servers to four years and is happy running some five year old networking kit.
By the way... It was reported the other week Salesforce is paying Hollywood star Matthew McConaughey $10 million a year to be a brand ambassador amid layoffs at the IT giant. About 8,000 people are being let go.
Salesforce's operations aren't as extensive as the hyperscalers, but this is still bad news for the hardware industry. It shows a major player is entirely happy running mission-critical workloads on older kit for longer without the usual upgrade cycle.
Investors won't mind a jot, because the extra depreciation benefits mean Salesforce has issued FY 2024 guidance of $34.5 billion to $34.7 billion in revenue – up around ten percent year over year.
And those investors have of late been restive, fretting about growth rates at the SaaS supermonster.
On the earnings call, CEO Marc Benioff went out of his way to point out he's listening to shareholders.
"For the past several months … all of our board members, including our lead independent director, Robin Washington, and our senior management team have spent a lot of time listening to and working with all of our investors," he said.
The result of those consultations, he claimed, is an ability to change more quickly. "We've hit that hyperspace button," Benioff enthused, "and I'm thrilled with the progress we've made. Changes that used to take months happened in weeks. Changes that used to take weeks are happening in days."
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Salesforce's Q4 results saw revenue of $8.4 billion – a 14 percent year on year jump. Full year revenue for FY 2023 was $31.4 billion – up 18 percent year on year. Those percentages would have been even higher had exchange rate fluctuations not devalued some revenue by $860 million.
Tableau and MuleSoft were praised for making the numbers sparkle with strong sales and for "extremely impressive execution" that means more Salesforce customers use more of its portfolio.
Execs emphasized improving profits and margins, even though the biz's non-GAAP margin reached 29.2 percent in Q4. It's the 22.5 percent annual number execs want to lift.
"Profitability is truly our number one strategy," said Benioff. "That's what I've been focused on with the management team."
Weaver added that Salesforce is not currently interested in acquisitions. "On M&A, we are confident in our current portfolio and are focused on continued integration of current assets," she explained.
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President and COO Brian Millham acknowledged that economic conditions are tough, and that Salesforce has therefore seen "elongated sales cycles and multiple layers of approvals … and maybe even some shrinking deal sizes."
The SMB market was plagued by "headwinds," but the public sector, manufacturing, engineering, energy, and travel & hospitality sectors were "a strength for us in the quarter." Tech industry buyers remain tight and financial services buyers also kept their wallets in their pockets.
Overall, however, execs said training, cost cutting that led to thousands of layoffs, review of sales practices, and strategy development under way with the help of consultancy Bain, should set Salesforce up for a record FY 2024. ®