SAP Cutting Workforce By 3,000
"I don't think it's prudent to assume the macroeconomic environment will improve in 2009," co-CEO Leo Apotheker said in a press and analyst briefing Wednesday. While putting the best face on its 2008 results, SAP executives made it clear they are not counting on any quick turnaround in the global economy this year and the company is forecasting that software and software-related revenue in 2009 will be flat or down by 1 percent. Later in the press conference Apotheker said the optimistic view is that there will be "an uptick" in the global economy in early 2010.
SAP, the giant ERP and CRM application developer based in Walldorf, Germany, will reduce its global workforce by 5.8 percent from 51,500 to 48,500 during 2009 through attrition and possible layoffs. That will provide an annual savings of 300 million to 350 million euros (approximately $398 million to $465 million). Apotheker said the employee cuts would occur globally across all SAP departments and operations. "You should assume it will be happening everywhere," he said. The company also extended its current salary freeze through 2009.
Apotheker and co-CEO Henning Kagermann disclosed the planned job cuts in an e-mail sent to SAP employees. "After an exhaustive and thorough evaluation of all options, we have concluded that a reduction in the number of persons employed is necessary," they said. "This is not an easy step for us to take, and we are fully conscious of the implications of this decision." The company is holding employee meetings in its facilities around the world through the day.
The changes at SAP could mean the company relies more on its channel partners to maintain sales momentum, according to a report from analyst Stuart Williams at Technology Business Research. More of SAP's business in 2009 will come from incremental upgrades and services rather than large implementation projects, the report said, and SAP must work with its channel partners and systems integrators to speed up application upgrade deployments.
SAP also will likely rely more on channel partners to generate new business in the SMB market. "As SAP reduces head count, the company will increasingly turn opportunities over to its partner and channel network," the Technology Business Research report said. "As large enterprises hesitate to make new investments, SAP will continue to look to partners to help it drive growth in the [SMB] segment." The report also said SAP will likely bring together resellers and financing partners to spur deals by overcoming tight credit markets.
For the fourth quarter ended Dec. 31 SAP reported total revenue of 3.49 billion euros ($4.64 billion), up 8 percent from the same period in 2007. But the gains came from software-related services and other sources: Revenue from software license sales declined 7 percent to 1.32 billion euros ($1.76 billion) in the quarter.
Net income was up 13 percent to 850 million euros ($1.13 billion) in the fourth quarter. The company attributed the improved profitability to cuts in operating expenses, including the wage freeze, implemented in October. Apotheker said business seemed to stabilize in the fourth quarter after many deals that had been in the works ground to a halt late in the third quarter after the banking crisis hit in September.
For all of fiscal 2008 SAP reported total revenue of 11.57 billion euros ($15.37 billion), a 13 percent gain from 2007, while earnings were down 2 percent to 1.89 euros ($2.51 billion).