SAP Announces Restructuring Plan for 2024
SAP SE, a global leader in enterprise application software, has announced a sweeping restructuring plan for 2024, with a budget of approximately €2 billion. This strategic move will impact around 8,000 roles within the company, as SAP pivots to concentrate more on artificial intelligence (AI)-driven business areas. This decision reflects the evolving landscape of the technology industry, where AI and cloud-based solutions are increasingly becoming pivotal.
Focusing on Business AI
SAP’s restructuring is part of its broader ambition to adapt to the changing demands of the digital economy. The company plans to enhance its focus on Business AI, which it identifies as a key strategic growth area. Through this process, SAP aims to transform its operational setup to capture organizational synergies and drive AI-based efficiencies. This transformation is expected to prepare the company for scalable future revenue growth.
Transitioning Workforce
The restructuring strategy involves a mix of voluntary leave programs and internal re-skilling measures to manage the transition of the workforce. Despite the significant number of roles affected, SAP anticipates maintaining a headcount similar to current levels by the end of 2024, reflecting re-investments in strategic growth areas.
Financial Outlook
Financially, SAP projects that the majority of the restructuring expenses, estimated at around €2 billion, will be recognized in the first half of 2024, impacting IFRS operating profit. However, excluding these restructuring expenses, the program is expected to yield only a minor cost benefit in 2024. SAP’s 2024 financial outlook and the updated 2025 non-IFRS operating profit and free cash flow ambition fully reflect these expected cost savings and re-investments.
Growth Projections
For 2024, SAP forecasts significant growth in its cloud revenue, projecting an increase of 24% to 27% at constant currencies, compared to €13.66 billion in 2023. The company also expects an increase in cloud and software revenue, estimating a rise of 8% to 10% at constant currencies, compared to €26.93 billion in 2023.
Embracing AI-driven Business Areas
SAP’s proactive move towards AI-driven business areas aligns with the trends observed across the technology sector. Major tech firms are increasingly focusing on AI and automation to enhance efficiency and innovation. SAP’s early experimentation with OpenAI’s ChatGPT and plans to embed generative AI technology in its products underscore its commitment to this strategic direction.
Hot Take: SAP’s Transformation for Future Success
SAP’s €2 billion restructuring plan marks a significant step in its evolution as a technology leader. By focusing on AI-driven business areas and enhancing operational scalability, SAP is positioning itself to effectively navigate the rapidly changing landscape of the tech industry. The company’s efforts to maintain workforce levels through re-skilling and voluntary programs demonstrate a commitment to its employees during this transformative phase. With these measures, SAP aims to bolster its position as a major player in the enterprise software market, adapting to meet the future needs of the digital economy.
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