German software giant SAP has announced a €2 billion ($2.17 billion) restructuring plan aimed at reshaping the company and optimizing its focus on growth in artificial intelligence (AI)-driven business domains.
This strategic move comes as SAP anticipates the transformative impact of generative AI on its business, committing to invest more than $1 billion and support AI-powered technology startups through its enterprise capital firm, Sapphire Ventures.
The restructuring initiative, disclosed on Tuesday, targets the realignment of 8,000 roles within the organization to enhance its emphasis on key growth areas, particularly in business AI. SAP envisions generative AI as a fundamental force shaping its future, and the restructuring is a crucial step towards aligning its workforce with this strategic vision.
The company plans to execute the restructuring predominantly through voluntary leave programs and internal re-skilling measures, with the goal of reaching the end of 2024 with a headcount comparable to current levels. SAP, which currently boasts a workforce of more than 105,000 employees, as per the company’s website, aims to streamline its operations to better meet the demands of an evolving technological landscape.
The restructuring expenses are anticipated to have a notable impact on the company’s operating profit, with the majority of the costs expected to be incurred in the first half of 2024.
In addition to the restructuring announcement, SAP shared its cloud revenue forecast for 2024, projecting a range between €17 billion to €17.3 billion. The company also provided an update to its 2025 outlook, anticipating an adjusted cloud gross profit of approximately €16.2 billion.
SAP Reports Impressive 2023 Financial Results with Strong Cloud Performance
In a recent financial report, SAP revealed robust fiscal performance for the year 2023, boasting a total revenue of €31.207 billion, marking a notable 6 percent increase. The company’s Cloud & Software revenue also experienced a commendable uptick, reaching €26.928 billion, up 6 percent from the previous year.
Cloud revenue, a key focus for SAP, soared to €13.664 billion, witnessing an impressive 20 percent growth. Particularly noteworthy was the substantial increase in S/4HANA Cloud revenue, surging by 67 percent to €3.495 billion.
Despite the overall positive results, SAP faced a slight setback in its operating profit, which fell by 5 percent, amounting to €5.785 billion.
The fourth quarter of 2023 saw SAP’s cloud momentum accelerating further, showcasing sequential growth rate increases in both current cloud backlog and cloud revenue. The current cloud backlog witnessed a remarkable 25 percent increase to €13.75 billion, marking its fastest pace on record. Additionally, SAP S/4HANA current cloud backlog surged by 58 percent to €5.05 billion.
Cloud revenue in the fourth quarter spiked by 20 percent to €3.70 billion, driven mainly by the growth of SAP’s combined Software as a Service (SaaS) and Platform as a Service (PaaS) portfolio, which saw a remarkable 22 percent increase. SAP S/4HANA Cloud revenue also experienced a substantial uptick, rising by 55 percent to €1.03 billion.
Despite a slight dip of 7 percent in software licenses revenue to €841 million, cloud and software revenue increased by 6 percent to €7.39 billion, with services revenue holding steady at €1.08 billion. The total revenue for the quarter saw a 5 percent increase, reaching €8.47 billion.
As of December 31, the total cloud backlog, representing the contractually committed cloud revenue expected to be recognized in future periods, showed an impressive 37 percent increase to €44 billion, SAP said in its earnings report.
For the full year, cloud revenue exhibited a strong 20 percent growth to €13.66 billion, primarily driven by robust double-digit growth across the SaaS and PaaS portfolio, which increased by 23 percent. SAP S/4HANA Cloud revenue experienced a remarkable 67 percent surge to €3.49 billion.
While software licenses revenue saw a decline of 14 percent to €1.77 billion, cloud and software revenue for the year increased by 6 percent to €26.93 billion. Services revenue increased by 4 percent to €4.28 billion, resulting in a total revenue growth of 6 percent to €31.21 billion.
In the fourth quarter, global customers continued to adopt “RISE with SAP” for their end-to-end business transformations. Notable names joining this transformative journey included Amer Sports, AusNet, Boots, Christchurch City Council, Coles Group, Covestro, Daikin Industries, Daimler Truck, Deutsche Telekom, EMS, Harrods, Hilti, IBM, KONE, Kyndryl, Landis+Gyr, Marathon Petroleum, Marks and Spencer, Messe Frankfurt, Munich Airport, NEC Corporation, NVIDIA, Nestlé, OXG Glasfaser, SLB, Smyths Toys Superstores, Vodafone Group, and Wärtsilä Corporation.
Several entities, including AES Indiana, Allianz, ARAG, DAK-Gesundheit, Tropicana Brands Group, and Zurich Insurance Company, went live on SAP S/4HANA Cloud in the fourth quarter. Notable customer wins across SAP’s solution portfolio included Ahold Delhaize, Airservices Australia, Beiersdorf, Bosideng, Delivery Hero, Douglas, DZ BANK, Ericsson, MATSUMOTO PRECISION, Mercedes-Benz Group, NEOM, Robert Bosch, TechnipFMC, TE Connectivity, Volkswagen, and Wipro.
SAP’s cloud revenue performance in the fourth quarter particularly stood out in the APJ and EMEA regions, with strong showings in the Americas region as well. Countries like Brazil, Germany, France, India, and South Korea reported outstanding cloud revenue growth, while Japan and Saudi Arabia demonstrated exceptional strength. Over the full year, Germany, Brazil, and India showcased outstanding performances in cloud revenue, with France, Japan, South Korea, the Netherlands, Mexico, Chile, and Switzerland reporting particularly strong results.
