German software giant SAP SE (ETR: SAPG) has announced a major move that underscores the growing influence of artificial intelligence (AI) in the business world, a major restructuring program worth €2 billion ($2.2 billion) for 2024. The initiative, which also affects 8,000 jobs, is a strategic move to focus on AI-driven areas of the business, putting SAP at the forefront of this technological innovation.
Aligning with technology leaders
This move comes at a time when other leading companies such as Google (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) are also adjusting their strategies towards AI and automation. SAP's commitment is further highlighted by its pledge to invest more than $1 billion in AI-powered tech startups through Sapphire Ventures, its venture capital firm.
Strong financial outlook for 2024
The strategic turnaround is not just about internal restructuring but is also reflected in a strong financial outlook. The company is forecasting double-digit percentage growth in its cloud business revenue and overall operating profit for this year. [1] In 2023, its cloud revenue grew 23%, matching consensus estimates, while its operating profit saw a 13% increase, beating analysts' forecasts.
For 2024, expectations are set to be even higher, with cloud revenue growth of 24% to 27% and operating profit growth of 17% to 21%. [2] This optimism is shared by the market, reflected in a 7% increase in SAP's share value since the beginning of this year. [*]
SAP's stock performance over the past five years
Efficiency gains and long-term goals
Restructuring costs are expected to be significant in the first half of 2024, but the company estimates that the program will contribute €500 million to operating profit in 2025 due to the efficiency gains it brings with it.
Confidence in strategy and adjusted outlook
SAP CFO Dominik Assam expressed confidence in the firm's strategy, saying, "We have delivered on our promise and achieved double-digit growth in operating profit excluding IFRS despite the unfavourable macro environment." The announcement also includes an adjustment to the medium-term outlook to reflect changes in accounting practices and sets a 2025 operating profit target of €10bn, down from the previous estimate of around €11.5bn.
Conclusion
SAP's bold restructuring plan reflects its determination to stay ahead in a rapidly evolving technology environment, with artificial intelligence at the core of its future growth strategy. As one of the leading players in the software industry with more than 105,000 employees, the move is a clear signal of the significant role AI will play in shaping the future of the business.
[1,2] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.
[*] Past performance is not a guarantee of future results
