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Layoffs hit 2.5% of SAP workforce; Qualtrics up for sale

SAP is reducing its workforce in a 'targeted restructuring' and selling Qualtrics. The layoffs mimic other vendors, and the sale could benefit both companies, analysts said.

SAP is reducing its workforce and looking to sell its interest in customer experience vendor Qualtrics to focus more on its core technologies and products.

In an earnings call to analysts on Thursday, the German enterprise software giant said that it will lay off 3,000 employees -- about 2.5% of its workforce -- in what it called "a targeted restructuring." It will also put its remaining interest in Qualtrics up for sale.

SAP did not disclose what business units or geographic regions would be affected by the layoffs.

SAP earnings look healthy, as revenues rose 33% in fiscal year 2022, which ended Dec. 31. SAP's current cloud backlog, which represents expected cloud revenue for the upcoming year, was up 27% in FY 2022.

But the earnings news was not all rosy as the company reported that net profit fell 47% in fiscal year 2022's fourth quarter. This was attributed in part to SAP pulling business out of Russia following the invasion of Ukraine a year ago as well as the poor performance of Sapphire Ventures, the company's investment business for emerging technology companies.

The underlying health of the company remains strong, said CEO Christian Klein during the earnings call, and the company remains committed to focusing on its transformation to a cloud business.

"We are further focusing our portfolio in areas where we are strongest to continue our accelerated growth," he said.

Qualtrics, the experience management software vendor that SAP acquired in 2018, is not considered part of its core portfolio. Klein said that the SAP is going to explore selling its stake.

SAP paid $8 billion for Qualtrics, based in Provo, Utah, and spun off the company in an IPO in 2020. SAP remains a majority stakeholder, owning about 71% of Qualtrics. SAP said it will remain a partner, which Klein said will benefit both companies and do what's right for SAP shareholders.

Layoffs comparatively light

Neither the layoffs nor the Qualtrics sale are surprising, according to analysts.

The layoffs are in keeping with the current economic conditions in the tech sector, said Liz Herbert, an analyst at Forrester Research.

"It's a normal course of business, especially for these companies who scaled up and had very good business during the pandemic," Herbert said. "There's nothing out of the ordinary for that. And it's consistent with everything else that we've seen in the technology sector."

The layoffs at SAP are relatively small, said Joshua Greenbaum, principal at Enterprise Applications Consulting, and are likely intended to send a message to investors.

"The layoffs are performance art for the benefit of Wall Street and not in the least bit strategic," Greenbaum said. "They grew the company 4% in terms of employee count last year, so saying they're to lay off 2.5% is probably close to what normal attrition would be."

Qualtrics sale could work for both companies

The expected divestiture of Qualtrics is also not surprising and is likely better for both companies, according to Herbert.

The acquisition was controversial at the time, particularly given the $8 billion price paid. SAP has had somewhat of an arms-length relationship with Qualtrics, she said, as evidenced by the move to take the company public.

"They retained a share in it but did not really have an operating stake as part of the SAP business any longer," Herbert said. "[This is] just more sort of more of the same the continuation of the Qualtrics saga that already started quite a long time ago."

SAP can likely get as much value by partnering with Qualtrics rather than owning it. Both companies should benefit from more independence, she said.

"One of the great values for tools like Qualtrics is that they are independent, because they're used in such a way that can be agnostic to different software systems," Herbert said. "And similarly there are other experience management tools that companies might want to incorporate into SAP. So there are reasons why both sides would want to stay an arm's length away but have a partnership that lets them partner with each other's competitors as well."

It's not a bad thing for the companies to go their own ways, Greenbaum said.

"SAP doesn't need to own shares in Qualtrics to be a strategic partner with Qualtrics," he said. "To a certain extent, it might even be better that they're not."

The Qualtrics investment was an interesting strategic idea for SAP, but it's a distraction from its core enterprise software portfolio, Greenbaum said. But financially, Qualtrics has been a successful investment for the company.

"SAP should be able to make a profit," he said. "It would probably be better to take the money like [they had invested in acquiring] Qualtrics and put it in the product development team to build some great new products rather than having it sitting in the stock market."

Jim O'Donnell is a TechTarget senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.

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