I believe we will look back at 2022 as one of the most important years in our history.
A bold claim perhaps from SAP CEO Christian Klein on the day the firm announced that it is laying off 3,000 employees, confirming plans to divest its share in Qualtrics and a 47% year-on-year drop in profits for Q4.
Q4 profit was €1.2 billion on revenue of €8.44 billion, up from €7.98 billion a year ago. Cloud revenue increased to €3.39 billion from €2.61 billion, while software-licenses revenue fell to €907 million from €1.46 billion.
According to Klein:
It is now over two years since we launched our strategy for transformation. We kept our promise and delivered despite the combined impact of three factors; our exit from Russia; our divestiture of Litmos; and the macro-economic volatility facing the world.
Why is our position so much stronger and SAP more relevant than ever? Because our RISE with SAP offering is much more than only a shift of our technology to the cloud. It is a true business transformation offering and we are focused on helping our customers solve their biggest challenges.
First, we enable companies to transform their existing business models and drive simplification and automation of their core business processes to offset inflation pressure.
Second, SAP enables supply chain resilience. Supply chains are disrupted and need to be diversified as a result of the pandemic, geopolitic tensions and shifting business dynamics. We are helping our customers to build more resilient supply chains by connecting the suppliers and providers from the raw material provider to the manufacturer. SAP's business network facilitated over $4.9 trillion of global commerce and €730 million of B2B transactions in Q4 alone.
Third, we are delivering the green letter [ph] for every industry and every customer to measure ESG based on actual instead of average data, data that is fully orderable and based on industry specific standards. With Scope 3 emission tracking across value chains via our network, and we will give our customers the ability to act by embedding sustainability into every business process and every company decision.
Layoffs
As for the driver behind the layoffs, he added:
This is never an easy decision to do a restructuring, but for us it's very important to also set our CRM and industry business up for success. And in order to allow Sap to be gaining further market share in the area where it matters to this company, this led to this decision. While we are, of course, doing restructuring, we are still continue to invest, which is the right thing to do because you cannot just, you know, fleece the company, or you cannot just, you know, swindle your investments . That would be absolutely the wrong thing to do. And that's what led to this.
Explaining the decision to explore a divestiture of SAP’s remaining stake in Qualtrics, Klein said:
SAP believes that this potential transaction could unlock significant value for both companies. For SAP, to focus more on its core business and profitability; and for Qualtrics, to extend its leadership in the XM category that it pioneered. Since the acquisition, Qualtrics has increased revenue by 3.5x to US$1.5 billion, while delivering profitability, and has significantly expanded its offerings and enterprise customer adoption.
He added:
We invested heavily in the last years into the integration and embedding XM into our solutions and we have seen great sales success and go-to-market success, tripled sales. But then also, I would say, around Q3, Q4, we were sitting together with the Qualtrics management team and said, ‘Hey, actually, what we are doing? We can continue to do also in the future by embedding Qualtrics and our products go-to-market together, while we can also consider a sale which allows SAP, on the one hand side, to free up investments and efforts to double down on our growth in the core, which is super strong. You have seen the S/4HANA cloud numbers. The platform is booming. While Qualtrics can also, of course, go even more out and close another great partnerships with other partners in the market.
And last but not least, we were jointly also of the opinion that we can significantly enhance also the value for the Qualtrics and the SAP shareholders. That actually what made us came to this decision to consider the potential sale. It's a great asset. It's by far the best product in the XM category. So we're actually also seeing a lot of interest and, yes, we are very positive about the ongoing process.
Outgoing SAP CFO Luka Mucic struck perhaps a more cautious note:
We're not sure whether the market is at the moment, in this set up, giving the right recognition both for SAP as well as for Qualtrics for this success. I think crystallising this value of for sale might help on both ends, while at the same time giving us the ability to invest in further assets that are close to the core in general our m&a philosophy in the future, if we decide to, you know, invest parts or the whole of any proceeds that we get into an acquisitions has evolved over time.
As with Qualtrics yesterday, Klein played up an expanded deal with BMW:
We have been partners for more than 30 years and their cloud strategy is based on SAP across all dimensions on all key end-to-end business processes. The SAP business technology platform is the foundation behind Rise and our portfolio momentum. Already today, more than 80% of Wise with SAP deals include the business technology platform as the foundation for integration and extensibility. This is powered by thousands of APIs, integration flows and low-code, no-code content packages.
Lockheed Martin of the US is an example of this. Lockheed's collaboration with SAP began in 1998. They will be now leveraging Rise with SAP to move their core business processes to a secure, managed fab ramp compliant cloud. They will be using the SAP business technology platform for emerging technology and the SAP Analytics Cloud to enhance their strategic data management.
My take
Klein’s words:
As these results have shown, the power of SAP solutions in an increasingly uncertain world is clear. We are providing strong guidance for 2023 despite the continued macroeconomic pressures. The strategic transformation we announced over two years ago is in full swing and has reached a significant inflection point.
The strength of our recurring revenue base is the foundation, which will power our next 50 years at the forefront of business and technology. We will already see a positive impact in 2023, including the promise we made to return to double-digit operating profit growth as well as accelerated cloud and total revenue growth. For our 2025 ambitions, we are ahead of plan.
January 26, 2023
