Results SAP Image credit Pixabay/GeraltDespite strong results in its Q4 earnings figures, SAP is battening down the hatches in contrast to ServiceNow, which is looking to expand moving forward. SAP revealed that it would cut 2.5% off its global workforce, in the analyst call.

In addition, SAP is looking to sell its 70% stake in publicly listed Qualtrics and focus on its core markets. That core market is performing well, with S/4HANA cloud revenue up 91% to €2.082 billion. However, this is a small proportion of total revenue, which rose 11% to €30.871 billion for the full year.

In the fourth quarter, total revenue rose by 6% to €8.436 billion, with cloud revenue rising 30% to €3.392 billion. It has also grown its employee count to 111,961, so the staff cuts will surprise some in the firm. The big question is where the cuts will fall. It seems unlikely that they will be in the cloud software areas.

Christian Klein, CEO SAP
Christian Klein, CEO SAP

Christian Klein, CEO of SAP commented, “SAP is more resilient than ever. We end 2022 with continued strong cloud momentum and a return to operating profit growth in the fourth quarter, marking an important inflection point. Heading into 2023, this gives us great confidence in delivering on our promise of accelerating topline and double-digit non-IFRS operating profit growth. As we enter the next chapter of SAP, I want to thank Luka for his great partnership on this journey.”

Where will the job losses fall?

Suppose SAP decides to further cut staff supporting legacy applications. This may be good news for third-party support vendors such as Rimini Street and Spinnaker. It will give them access to experienced engineers, and the potential decrease in service levels may shift more maintenance revenues to them.

What would be interesting is whether we are getting closer to SAP selling off that section of the business as it looks to move customers to S/4HANA. The tipping point has not yet been reached, but it may only be a few years away with an increasing number of firms looking to digitally transform.

Considering that SAP has grown its employee count by 4% over the last year, 2.5% of job losses seem small, but one whether this could have been planned better. Could some of those roles have been internal transfers? Will SAP continue to invest in recruitment to ramp up its S/4HANA teams? It will be interesting to see if there is any net loss by the end of the year.

Qualtrics up for sale!

Ever since SAP listed Qualtrics, one wondered about the actual synergy between the two technology stacks. Qualtrics has continued to grow with net new customers for its experience platform, but have the promised synergies between the two tech stacks failed to materialise?

SAP completed the acquisition of Qualtrics in 2019 for $8 billion and then took it public in 2020. Its share price jumped on the news, rising 32.92% in just a day and bringing the market cap to $8.8 billion. The acquisition, despite the fanfare, has not given the multiplier that SAP might have hoped. Will it even break even on the deal? The good news is that it doesn’t seem to have lost much, and while it might divert some of its shares, it may not want to exit completely.

Enterprise Times: What does this mean?

There is little doubt that RISE with SAP has been the success it needed to be. However, SAP has a long way to go before announcing that all its customers are fully cloud-enabled. It is entering the tricky phases where on-premises revenues are falling, cloud revenues are accelerating, but costs are also rising. It is a balancing act that Klein has been successful with, helping to correct a seesaw that could have been heading in the wrong direction. The next few years will be critical, but Klein has shown he is not afraid of making the hard decisions.

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