SAP will cut staff as full-year net income dips 2 per cent

3,000 layoffs will be made by the end of this year.

SAP intends to reduce its global workforce to 48,500 staff by the end of this year, from 51,500 now, it said Wednesday.

The staff cuts will result in annual cost savings of EUR300 million to EUR350 million beginning in 2010, Co-CEOs Henning Kagermann and Léo Apotheker wrote in an e-mail message to all SAP staff. There will also be no pay increases in 2009, unless local laws require them, they wrote.

SAP's net income for the full year 2008 dropped 2 per cent year on year, to EUR1.89 billion, even as total revenue for the year grew 13 per cent to EUR11.6 billion ($US16.3 billion as of Dec. 31, the last day of the period reported).

Despite the dip in full-year net income, SAP posted strong figures for the fourth quarter: Revenue from software and software-related services rose 8 per cent year on year to EUR2.67 billion, while total revenue for the quarter was EUR3.5 billion, also up 8 per cent. Net income for the quarter rose 13 per cent to EUR850 million.

For the full year, software revenue totalled EUR3.61 billion according to US generally accepted accounting principles (GAAP), representing an increase of 6 per cent over the previous year, SAP said.

"It could have been the best year in SAP's history... but since September we have been talking about a new reality in the world's economy," Apotheker said in conference call with the press.

The results include gains from January 21 last year from SAP's acquisition of French business intelligence software vendor Business Objects. The majority of the growth in revenue from software and software-related services came from Business Objects products, CFO Werner Brandt said during the conference call.

One product from which SAP is still struggling to extract the margin it wants is Business ByDesign, its on-demand offering, for which the cost of hosting and delivering the service was higher than expected.

"Our main focus is reducing operating costs," said Apotheker. "It's not just a product but also a process of supplying that product through the network, so we are adapting the value chain so that we can be profitable everywhere. Adapting takes some time."

Apotheker glossed over complaints from some user groups about the company's recent increase in maintenance fees, saying that the new price is "customary" for the industry, for a level of service that is "unusual." The company's new products and services will help it gain market share, he said.

The economic crisis means SAP is having trouble getting some customers to pay their bills: The company's "days sales outstanding," a measure of the average time it takes a customer to pay an invoice, has increased to 71 days, from 66 in 2007. SAP will try to reduce the figure in 2009, said Brandt.

SAP said it expects the operating environment to continue to be challenging during the current year. It warned that a comparison between 2009 and 2008 may be difficult as the company posted strong results in the first half of 2008, before the economic crisis disrupted global markets.

The company said it would not provide a specific outlook for revenue from software and software-related services for 2009 because of the continued uncertainty surrounding the economic and business environment.

The results presented Wednesday are preliminary figures, and will be confirmed when SAP files its annual report next month. One figure that might change is the provision for settlement of a lawsuit with Oracle over the activities of SAP's TomorrowNow subsidiary, as the next litigation conference comes before the company closes its books, said Brandt.

(Peter Sayer, in Paris, contributed to this report.)

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