SAP Announces Major Restructuring to Accelerate Cloud and AI Focus

The German enterprise software giant SAP unveiled plans for a significant restructuring involving around 8,000 positions. The revamp aims to reshape SAP's workforce to align with strategic growth priorities like cloud offerings and artificial intelligence capabilities.

Specifically, SAP will spend 2 billion ($2.2 billion) on retraining employees in AI skills or offering voluntary redundancy packages.

While the total headcount is expected to remain around 108,000 by the end of 2024, the reshuffling will concentrate roles on high-growth cloud and AI areas.

Strong 2023 Results, Upbeat 2024 Outlook

The restructuring comes amid a wave of job cuts in the tech sector as firms like Google, Microsoft, and Amazon look to prioritize investments in AI.SAP has been an early mover in experimenting with the AI chatbot ChatGPT for enterprise applications.

The company pledged over $1 billion to back AI startups through its VC arm, Sapphire Ventures. Alongside the restructuring news, SAP reported financial results that beat expectations and provided an optimistic forecast for 2024.

In 2023, cloud revenue grew 23% adjusted for currency to 13.66 billion, meeting consensus estimates.

Total revenue rose 11% to 31.7 billion. Operating profit increased 13% to 8.7 billion in 2023, surpassing analyst predictions.For 2024, SAP expects operating profit to jump 17-21% and cloud revenue to grow 24-27%.

We kept our promise and achieved double-digit non-IFRS operating profit growth despite an adverse macro environment,

said CFO Dominik Asam.

SAP adjusted its medium-term financial targets for 2025 to account for a change in accounting practices.The company now expects 10 billion in operating profit by 2025, lowered from approximately 11.5 billion previously.

The cloud revenue goal of doubling between 2020 and 2025 remains unchanged.

Despite the forecast revision, SAP noted its 2025 goals still represent robust growth given the uncertain macroeconomic climate.The company aims to drive higher margins through efficiency improvements from the restructuring program. Cloud offerings and AI adoption are the main drivers of top-line expansion.

Market Enthusiasm for AI Focus

Investors welcomed the restructuring and strong near-term guidance, sending SAP shares up 7% to a record high of 109.48. Analysts viewed the revamp as strategically crucial for accelerating SAP's transition towards cloud and AI.

While restructuring costs are expected to dampen profitability in 2023 temporarily, benefits from workforce reshaping could boost margins starting in 2025.The program is positioning SAP at the forefront of enterprise artificial intelligence transformation.

The right adjustments are being made, and the company is being reorganized to prepare it for the age of artificial intelligence,

Said RoboMarkets investment strategist Jurgen Molnar. He added that even as some roles are cut, new AI opportunities will also emerge for SAP's workforce.

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