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SAP to Cut 3,000 Jobs And Explore Sale of Qualtrics Stake

SAP, a German enterprise software company, announced on Thursday that it will be cutting up to 3,000 jobs, or about 2.5% of its workforce. This makes SAP the latest tech giant to announce significant layoffs.

January 26, 2023
5 minutes
minute read

SAP, a German enterprise software company, announced on Thursday that it will be cutting up to 3,000 jobs, or about 2.5% of its workforce. This makes SAP the latest tech giant to announce significant layoffs.

"We are focusing our portfolio in areas where we are strongest to continue our accelerated growth," said Christian Klein, CEO of SAP, during the company's fourth-quarter 2022 earnings call.

We are announcing a restructuring today that will impact up to 3,000 positions and result in a headcount reduction of about 2.5%. This restructuring is targeted at select areas of the company.

SAP shares fell more than 2% in early trading on London time following the announcement.

When asked about the estimated cost savings from the layoffs, Luka Mucic, CFO of SAP, said that the company expects to see savings of around 300 to 350 million euros.

Mucic told CNBC's "Squawk Box Europe" in an interview following the announcement that the company would double its profits by 2023, but that the restructuring program would only have a moderate impact on those results.

”This is about streamlining our portfolio and concentrating investments in areas where we can have the most positive impact,” he added.

After the company reported positive fourth-quarter results during the call, the stock price rose.

Klein said that SAP's cloud momentum accelerated in the fourth quarter with the company's S/4HANA enterprise resource planning software. He added that cloud revenue is also accelerating once again and growing at 90%. Lastly, Klein mentioned that SAP returned to positive operating profit growth of 2%.

"We're pleased to report that we met our guidance across the board for the full year," said CEO John Smith. "Our cloud revenue rose 24%, up five percentage points from 2021. This strong performance was driven by continued demand for our cloud-based solutions and services."

He said that the company was able to achieve this goal despite exiting the Russian market and dealing with ongoing global economic volatility.

In an interview with CNBC last week, Klein suggested that the firm would be able to avoid layoffs, as it is "in a very strong position."

He said that he is generally optimistic about the future of technology, even though there are challenges posed by higher interest rates and disruptions to supply chains.
Klein expressed confidence in the tech sector and SAP's prospects for the year ahead.

During the Thursday earnings call, Klein said that SAP was exploring the sale of its stake in Qualtrics as the company focuses on its core business. SAP currently holds 71% of Qualtrics on an undiluted basis.

In November 2018, SAP acquired American business software provider Qualtrics for $8 billion. Qualtrics subsequently went public two years later.

Mucic stated that the collaboration between SAP and Qualtrics has been very successful, and that they will continue to work together in the future.

SAP's move is designed to allow the company to focus on its core enterprise resource planning (ERP) offerings, while giving Qualtrics greater independence to pursue its own growth initiatives. According to SAP CEO Bill McDermott, this will enable each company to better invest in their respective areas of focus.

Qualtrics is "a pristine and Premier cloud asset" according to him, and SAP "should be able to command a very positive valuation for shareholders, but that remains to be seen."

This would significantly improve SAP's profitability, which is not currently reflected in its outlook, without revealing further details.

Qualtrics announced fourth-quarter results and revenue guidance that exceeded analysts’ forecasts on Wednesday. This is good news for the company, which has been working hard to improve its financial performance in recent quarters.

Editorial Board
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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