SAP Restructuring Now Expected To Impact Up To 10,000 Jobs

Despite 10 percent revenue growth in its second quarter, the application giant now says the corporate-wide restructuring of the company’s workforce, launched earlier this year, will affect as many as 10,000 employees, up from earlier estimates of 8,000 jobs.

Software developer SAP says the number of jobs impacted by a restructuring plan launched in January has increased to between 9,000 and 10,000 workers, up from the 8,000 positions the company originally said would be affected by job buyouts and position changes.

News of the larger employee impact of the restructuring came during SAP’s earnings call with industry analysts for its fiscal 2024 second quarter results, which included 10 percent total revenue growth to €8.29 billion (just under U.S. $9 billion).

“Despite the volatile environment in the software industry, our growth momentum remained strong in Q2,” SAP CEO Christian Klein said during the earnings call on Monday, according to a call transcript on the Seeking Alpha website. “In Q2 we also significantly increased our profitability. We continued to execute on our transformation program with great discipline with rehiring only for the skill sets we need.”

SAP announced the Ambition 2025 restructuring plan in January to increase its focus on strategic growth areas – including business AI – and transform its operations to better “capture organizational synergies and AI-driven efficiencies and to prepare the company for highly scalable future revenue growth,” the company said at the time.

The plan initially included job buyouts and job changes for about 8,000 positions – about 7 percent of the company’s total workforce. But this week SAP executives said the total number of impacted jobs has increased to between 9,000 and 10,000.

The majority are covered by voluntary leave and internal re-training programs and the company expects to finish 2024 with about the same number of employees, more than 105,000, as it began the year with. As of June 30, the company had 105,380 employees.

“The company-wide transformation program we initiated in January continues to progress well, further enhancing our operational efficiencies and laying the groundwork for sustained long-term growth,” Dominik Asam, SAP’s chief financial officer, said on the earnings call.

Asam said SAP intended to “make some adjustments” to the transformation program and its impact on the company’s finances. He said the company now estimates “that between 9,000 and 10,000 positions will be affected with the corresponding impact on restructuring provisions, cash out and run-rate savings after completion of the program.”

The CFO said that the additional cuts add about €800 million to the restructuring expenses and cash out of the program, bringing its total cost to about €3 billion. But it will provide an additional run rate savings of €200 million.

“It's important to note that the increase in the number of affected positions does not imply complete elimination of these roles but allows us to refine our setup in terms of skills and locations,” Asam said.

For the second quarter ended June 30 SAP reported total revenue of €8.29 billion (just under U.S. $9 billion), up 10 percent from €7.55 billion ($8.20 billion) in the second quarter of 2023. Cloud revenue increased 25 percent year-over-year to €4.15 billion ($4.51 billion) while software license revenue declined 28 percent to €229 million ($248.5 million).

“More and more customers are moving to the cloud, and our portfolio is becoming ever more attractive, thanks to SAP's business AI capabilities,” CEO Klein said on the earnings call.

“Business AI was, of course, at the center. And there is no doubt that everyone perceives SAP as a major AI player, given how well we are positioned to embed AI in the operating systems of our customers,” Klein said. “This perception manifested itself now also in our Q2 numbers. In every ERP and LOB deal we closed our AI strategy played a key role. And AI had a direct impact on our bookings. In the second quarter, almost 20 percent of all deals included premium AI use cases.”

SAP reported an operating profit of €1.22 billion ($1.33 billion) for the quarter, down 11 percent year-over-year. After-tax profit was €918 million ($996.2 million), down 69 percent from one year before.