Enterprise software company, SAP SE (ADR) (NYSE:SAP), plans to reduce its workforce as it transitions to cloud offerings. However, the company said it would end the year with more workers than it started with because of new hires. The company had a global workforce of 74,400 employees at the end of 2014, out of which there are 16,000 in the U.S.
SAP SE (ADR) (NYSE:SAP) hopes to eliminate 3% of its global workforce, which means about 2,200 positions will be cut. The move will allow the company to re-balance its employment as it moves to the cloud and focus more on growth markets.
CEO explains the job cut
The company’s CEO, Bill McDermott, tried to explain the latest job cuts by saying that, if he has excess capacity in a market like the U.S., and great opportunities in the Middle East, he would move the employees to the growth area. As such, according to McDermott, they are not eliminating positions but shifting them.
SAP also cut jobs last year, eliminating about 2,000 positions. The company said most of those affected workers found new positions in the company. SAP is expected to repeat the same thing in the latest headcount adjustment. While some employees will be moved to growth areas, others will be trained to take up new responsibilities, while others may be asked to leave.
As SAP SE (ADR) (NYSE:SAP) shifts from the legacy on-premise software business to the cloud, the need for support staff has been declining. The reason is that installation and updates on the client’s system are not required for cloud software. That explains why the company is adjusting its headcount.
The shift in model impacts earnings
Remodeling the business at SAP SE (ADR) (NYSE:SAP) has had its toll on the company’s profits. The company disclosed a 1% decline in its fourth quarter profits. That happened because cloud software vending attracts less revenue for the first time compared to installed software that carries higher purchase prices. SAP generated nearly $19.04 billion in revenue in 2014.