SAP to restructure 8,000 jobs in push towards AI, shares hit record

By Hakan Ersen and Supantha Mukherjee

(Reuters) -Shares of SAP SE (ETR:) jumped 7% to an all-time high after the German software firm forecast growth in cloud revenue and said it will restructure roles for 8,000 jobs to focus on growth in artificial intelligence (AI)-driven business areas.

The company said it will spend 2 billion euros ($2.2 billion) on the programme to either retrain employees with AI skills or to replace them through voluntary redundancy programs.

SAP, which expects to end 2024 with a headcount similar to current levels, started experimenting with OpenAI’s ChatGPT as soon as the generative AI technology started gaining traction and announced plans to embed it in its products early last year.

The German company now expects GenAI to fundamentally change its business and has pledged to invest more than $1 billion by backing AI-powered technology startups through its investment arm Sapphire Ventures.

“The right adjustments are being made and the company is being reorganised to prepare it for the age of artificial intelligence,” said investment strategist Jürgen Molnar at brokerage RoboMarkets.

“Even if some employees are likely to fall by the wayside, HR policy is less of a cost issue and more of a strategic one, in which many new opportunities are also likely to arise,” he said. Tech companies including global giants such as Google (NASDAQ:) and Microsoft (NASDAQ:) have embarked on a wave of layoffs in recent months as they look to shift their focus to artificial intelligence software and automation to lighten workloads.

Most of the restructuring costs would be in the first half of the year, and contribute 500 million euros to operating profit in 2025 due to efficiency improvements.

STRONG OUTLOOK

The business software maker, separately on Tuesday, forecast double-digit percentage growth in revenue from its key cloud business and overall operating profit for the current year after those 2023 figures met or exceeded analyst consensus.

Cloud revenue is expected to increase 24%-27% in 2024, SAP said, after reporting 23% growth, adjusted for currency effects, to 13.66 billion euros in 2023, in line with consensus.

Operating profit rose a currency-adjusted 13% last year, to 8.7 billion euros, beating predictions by analysts commissioned by the company of an increase of 9%. For 2024, SAP expects that figure to grow between 17% and 21%.

“We kept our promise and achieved double-digit non-IFRS operating profit growth despite an adverse macro environment,” said SAP Chief Financial Officer Dominik Asam, who said he intends to further increase profitability in the current year.

The company separately adjusted its medium-term outlook on Tuesday to take into account a change in accounting practices, lowering its 2025 operating profit target to 10 billion euros from about 11.5 billion euros previously.

($1 = 0.9211 euros)