The bleeding in the tech industry continued last week as SAP announced that it would eliminate up to 3,000 jobs, which will comprise approximately 2.5% of its total workforce.
In its Jan. 26 statement, SAP positioned the cuts as part of a “targeted restructuring” as it focuses on the cloud market.
“This organizational reprioritization deepens our focus on delivering lifetime value to current and new customers in the cloud and on high-growth opportunities where SAP can lead,” SAP said in a statement from its Jan. 26 earnings provided to InformationWeek.
SAP also announced it will explore selling its stake in Qualtrics, a customer experience software company it acquired for $8 billion in November 2018.
“SAP believes that this potential transaction could unlock significant value for both companies and their shareholders: for SAP, to focus more on its core cloud growth and profitability; for Qualtrics, to extend its leadership in the XM category that it pioneered,” the company stated in its 2022 Q4 quarterly statement.
Jobs Cut Despite Revenue Gains
Despite the layoffs announcement, SAP’s cloud revenue for the fiscal year 2022 increased 33%.
SAP CEO Christian Klein told CNBC that its cloud momentum increased in the fourth quarter of 2022 with S4/HANA, the company’s enterprise resource planning software.
“Cloud revenue is also accelerating once again and growing at 90%,” Klein said. He noted that SAP had returned to positive operating profit growth of 2%.
“The strategic transformation we started two years ago is well underway,” SAP said in its emailed statement. “Ongoing strong demand for our solutions demonstrates SAP’s leadership in the global enterprise application market and the unique value of our cloud portfolio to help customers solve their most pressing problems, from enabling business agility to strengthening supply chains and operating sustainably.”
SAP’s planned cuts are similar in scope to recent reductions by other tech companies, according to Charles King, principal analyst for research firm Pund-It.
“Layoffs are always painful and discouraging for the employees involved, but the 3,000 workers affected by SAP’s plans constitute less than 3% of the company’s staff,” King told InformationWeek. SAP had about 111,015 employees in 2022, per The Wall Street Journal.
“That portion is in line with other enterprise tech vendors, and represents a pulling back from the aggressive hiring that most have performed over the past decade or so,” King said.
Tech Layoffs Adding Up
The SAP cuts follow other tech industry layoffs that are part of the COVID tech bubble bursting. Companies grew at an aggressive pace during the pandemic. But then in November Meta revealed it would lay off more than 11,000 employees, on Jan. 18 Microsoft said it would cut 10,000 jobs or less than 5% of its workforce, and on Jan. 20 Google announced it would trim 12,000 jobs.
“While we know these changes are necessary, it is never easy to make decisions that affect our colleagues in this way,” SAP CEO Christian Klein said during the Jan. 26 Q4 2022 earnings conference call.
King said that he didn’t see the cuts significantly affecting SAP’s financial performance.
“I expect that SAP will approach its headcount reductions with extreme care so I don’t expect they’ll impact the company significantly,” King said. In addition, SAP positioning the layoffs in terms of its product realignment provides clear transparency, according to King.
“The company deserves credit for being transparent about the process,” King said. “Positioning the layoffs and other realignments in terms of its products/services strategy should allay any concerns among IT leaders and managers.”
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