SAP Cutting Staff, May Consider Layoffs

Last Updated Nov 19, 2008 7:41 PM EST

Since the world's economic crisis began in September, SAP AG has adopted a "we do not hire, we do not replace" employment policy.

The early results are in. And when you exclude acquisitions (see Business Objects, January 2008), there is one area of the world where the overall headcount has already been trimmed: the Americas.

Europe and the Middle East: 848 new heads this year, net of acquisitions. The Asia-Pacific region: Up 828. The Americas: Down 165.

More could be in store. SAP, whose stock has tumbled from roughly $55 to $35 in the general market slaughter, has pledged roughly 200 million Euros of cost-cutting in the fourth quarter.

The company indicated layoffs could be on the table, if conditions deteriorate. "We can't rule out anything," Dr. Werner Brandt, its chief financial officer, said Tuesday on that question at the UBS Global Technology and Services Conference in New York.

So far, he's hoping attrition will do the trick. SAP loses about 9 percent of its work force each year, through turnover. Going into the year, the company had planned to add about 3,500 heads, he said. As of the end of September: 1,500. The difference (2,000) gets him started on the 200 million Euros of cost-cutting. The rest will come, he hopes, from the company's two other big pots of expenses: Travel and professional services.

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Through the first nine months, software and related services revenues are up 26%. Operating margin is up slightly and cash flow is strong.

But the company "couldn't close a significant number of deals," at the end of the third quarter. Small- and medium-sized businesses are holding back the most.

Brandt said the "pipeline is strong." But he can't tell when the deals will come through it. Deals meant to close in 2008 may not close until 2009 -- or even 2010, he said.

"The closure rate is hard to predict," he said.

In the meantime, SAP will try to double the size of the markets it goes after, to give it more room to grow. It's what the company did in the last downturn (2000-2001). And how it plans to keep top line and bottom line growth coming, this time.


Tom Steinert-Threlkeld is a journalist who has constantly looked at what media could become, rather than what they currently constitute. See his full profile and disclosure of his industry affiliations.

Credit: ZDNet