NEWS IN BRIEF: SAP axes 3,000 jobs as economy takes its toll

SAP is slashing 3,000 jobs worldwide as a precaution against future problems after posting a 13% increase in net income in its latest financial results, which were solid but contained some worrying pointers to trouble ahead.

Net income rose 13% in the fourth quarter to $1.1 billion, as sales rose 8% to $4.6 billion. But sales of software licences fell 7% in the fourth quarter compared to a year earlier. However, for the full year, SAP reported €8.46 billion in revenues, a 19% increase over 2007. Operating income was up 24% on the year while software revenues increased by 10% over 2007.

"When you talk to managers, you hear over and over about the suddenness and intensity of the downturn," said SAP co-CEO Henning Kagermann. "2008 can be described as a year having two completely opposite halves, where a strong first half performance was greatly disrupted late in the third quarter by the beginning of the worst economic and financial crisis the world has witnessed in decades. Nevertheless, in total we had a good year amid a very tough economic climate."

But he added: "Unlike in past years, which were characterised by double-digit growth rates, the outlook for 2009 is completely different. For this reason, we will have to intensify our cost-saving efforts by implementing additional measures."

That means that for the first time since its founding in 1972, SAP will cut jobs companywide, reducing its workforce by about 3,000 positions to 48,500 by year-end. SAP says it hopes to achieve the cuts through normal attrition, but warned that it expects to spend as much as $400 million on the job cuts, which suggests some lay-offs are envisioned.

The company didn't say where the cuts would be made, but noted that "all countries... will contribute in some way". SAP expects to save between €300 million and €350 million annually from the cuts, but there could be more cuts to come as Kagermann warned: "Perhaps we will have to talk about even more decisive measures than we can today."

The company had already instituted a hiring freeze, cancelled travel and cut third-party expenses, but the economic climate has prompted further action. "We believe the cost containment measures will allow us to adapt to the tough market conditions and ensure the long term competitiveness of the company," said SAP co-chief executive Leo Apotheker. "Moreover, we expect 2009 to be a year of limited visibility, making it increasingly difficult to project sales in this environment."

Apotheker and Kagermann have written to SAP employees to explain that times are tough. They said: "Despite the dramatically deteriorating market conditions since September, we have achieved good results for the entire year. This has only been possible because of the remarkable efforts of all employees, and we would like to express our gratitude to all of you for this. Unlike in past years, which were characterised by double-digit growth rates, the outlook for 2009 is completely different. For this reason, we will have to intensify our cost-savings efforts by implementing additional measures.

"After an exhaustive and thorough evaluation of all options, we have concluded that a reduction in the number of persons employed is necessary. This is not an easy step for us to take, and we are fully conscious of the implications of this decision."

They added: "As SAP is a global company, we will consider each region and each line of business at all levels. We are looking for fair solutions according to accepted practice, and we will make this process as transparent as possible. We owe this to our employees.

"We plan to reduce the number of positions globally from 51,500 to 48,500, taking full advantage of attrition as a factor to reach this goal. In countries with employee representatives we have initiated contact with the relevant employee representative bodies. This should enable us to decrease the annual personnel costs by 300 - 350 million euros in subsequent years. As long as the specific regional legal conditions permit, there will not be a salary round in 2009."