SAP Shares Surge on 8,000-Job Restructuring to Build Out AI
(Bloomberg) -- SAP SE shares jumped the most in more than three years after the German software company said it’s planning a restructuring that will affect about 8,000 jobs and increase its focus on artificial intelligence. The company projected that operating profit would rise to roughly €10 billion ($10.9 billion) next year as result.
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The shares jumped 6.2% at 10:35 a.m. in Frankfurt after earlier jumping as much as 8.2% to €161.54, the biggest intraday gain since July 2020 and a record high.
As part of the restructuring this year, SAP will increase its focus on growth areas, particularly artificial intelligence for business, and identify “AI-driven efficiencies” in its operations, it said in a statement late Tuesday. It plans to end 2024 with a headcount similar to current levels because it will add employees to its newer businesses, and SAP said most impacted workers will be covered by voluntary leave programs and retraining.
“The next phase is all about an ongoing transformation,” Chief Executive Officer Christian Klein said in an interview on Bloomberg TV. “We are investing in AI, over a billion for the next two years, while of course we’re also applying AI internally. So we will try for higher automation, automation of activities. It’s all about re-skilling and making sure that SAP on its own becomes more productive.”
The company declined to give specifics on how many people would lose their jobs or which businesses would be most impacted. Chief Financial Officer Dominik Asam said on a media call on Wednesday that the restructuring would affect SAP’s operations globally. The company had 107,602 full-time workers as of Dec. 31.
Europe’s biggest software company is working to stay competitive with rivals for its base of corporate customers. After spending the past few years transitioning its enterprise business to cloud subscriptions, SAP is focusing on ramping up AI integration into its software, using the technology to help retailers predict orders and pushing out a generative AI assistant, named Joule.
The German software giant also invested in Aleph Alpha GmbH, Anthropic PBC and Cohere last year, with plans to add more AI services.
In May, SAP also announced a partnership with Google’s cloud computing unit that it said would allow clients to more easily unite data from disparate sources and use AI to improve their operations. The company, along with its software rivals, is working to incorporate AI tools into virtually all of its products.
The restructuring will ensure that the company’s “resources continue to meet future business needs,” and is expected to cost about €2 billion, the “vast majority” of which will be recognized in the first half of 2024, SAP said. By 2025, the changes will result in €500 million in savings.
Fourth Quarter
Separately, SAP reported fourth-quarter revenue of €8.47 billion, surpassing analysts’ estimates of €8.35 billion. Adjusted operating profit was €2.51 billion in the period ended Dec. 31, compared to an average estimate of €2.53 billion.
SAP forecast cloud revenue would be above analyst expectations this year on the top end, as the software company transitions more legacy customers to the faster-growing market. The company’s largest and fastest growing business is expected to generate sales of €17 billion to €17.3 billion this year in constant currencies, SAP said. That compares with an average estimate of €17 billion by analysts surveyed by Bloomberg.
Cloud infrastructure services are important for companies seeking to tap technologies like AI, with a Bloomberg Intelligence survey this month finding 72% of businesses plan to increase their IT infrastructure budgets in 2024.
SAP also projected 2024 operating profit of as much as €7.9 billion, an increase of 21% at constant currencies.
--With assistance from Vlad Savov and Anna Edwards.
(Updates with comments from media call in fifth paragraph.)
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