SAP, the German software giant, is embarking on a significant restructuring effort that has sent its shares soaring to an all-time high. This strategic move involves reshaping the workforce to prioritize artificial intelligence (AI)-driven business areas and underscores SAP’s commitment to embracing the future of technology.
The cornerstone of this restructuring initiative is the planned overhaul of 8,000 jobs within the company. SAP aims to adapt to the rapidly evolving tech landscape by directing its resources towards AI-focused domains. To fund this massive undertaking, the company has allocated a substantial investment of 2 billion euros, equivalent to approximately $2.2 billion. These funds will be utilized for two primary purposes: retraining existing employees with AI skills and offering voluntary redundancy programs.
SAP’s journey into AI technology began as soon as generative AI technology gained traction. The company has been experimenting with OpenAI’s ChatGPT, positioning itself at the forefront of AI innovation. This move was officially announced last year as part of SAP’s plans to integrate AI technology into its products.
To support its vision of AI-driven growth, SAP has pledged to invest over $1 billion in AI-powered technology startups through its investment arm, Sapphire Ventures. This financial commitment underscores the company’s belief that AI will fundamentally transform its business and the broader tech industry.
Investment strategist Jürgen Molnar at brokerage RoboMarkets commented on SAP’s restructuring efforts, noting that it is about preparing the company for the age of artificial intelligence. While some employees may be affected by these changes, the primary focus is on strategic adjustments that are expected to bring forth new opportunities in the AI-driven landscape.
SAP’s move towards AI restructuring mirrors a broader trend in the tech industry. Several major players, including Google and Microsoft, have recently initiated layoffs as they pivot towards AI software and automation to streamline operations and enhance efficiency.
The financial implications of this restructuring are substantial. Most of the restructuring costs are expected to be incurred in the first half of the year. SAP anticipates that these changes will contribute 500 million euros to its operating profit by 2025, driven by efficiency improvements and reallocation of resources.
In addition to the restructuring efforts, SAP has also unveiled a strong financial outlook for the near future. The company forecasts double-digit percentage growth in revenue from its key cloud business, building upon a successful 2023 where cloud revenue saw a 23% growth, adjusted for currency effects, reaching 13.66 billion euros. SAP expects this growth to continue, projecting a 24%-27% increase in cloud revenue for 2024.
Operating profit has also seen significant growth, with a currency-adjusted increase of 13% in the previous year, reaching 8.7 billion euros. This surpassed analysts’ predictions, and for 2024, SAP anticipates further growth, estimating an increase in operating profit between 17% and 21%.
However, it’s important to note that SAP has adjusted its medium-term outlook to consider changes in accounting practices. As a result, the company has lowered its 2025 operating profit target from about 11.5 billion euros to 10 billion euros.
As the company aligns itself with the evolving technology landscape, investors and industry observers are keenly watching its progress and the potential impact on the software giant’s future performance.
