SAP share price down, to reduce worker numbers by 2 250

SAP SE plans to reduce its workforce by around 3% as Europe’s largest software developer continue to shift its focus on providing services over the Internet.

Around 2 250 of the companys total of 74 000 employees will part ways with SAP, according to Stefan Ries, head of human resources at the company.

Mr. Rise outlined that the job cuts are not a part of any cost reduction plan but rather a strategic repositioning as the company slowly moves away from selling software licenses to providing services online, or the the so called “cloud” services.

Although the new practice is not as lucrative as outright selling software it is proving to be very popular, prompting software and hardware makers to make their move into cloud computing.

For buyers, the new technologies could lower the costs on their IT operations while also providing more flexibility as the services can be accessed from any device connected to the Internet.

However, for provides of services over the internet the business model is not as profitable as they receive series of small payments, like subscription fees or similar, versus one big payment when a customer purchases a license for a certain software product.

Additionally, the shift towards the cloud requires a different set of expertise, which SAP will get by filling up the empty employee spots, Mr. Ries said. Although he said that the company will also offer voluntary severance and early retirement packages, Mr. Ries did not specify how much the move will cost the company.

This is the second time SAP reduces its workforce under the leadership of Chief Executive Bill McDermott, who was appointed as CEO in May 2014. Last year the company trimmed the number of its employees by a similar number.

Other technology giants who have undertaken job cuts are IBM, Siemens, Cisco, Hewlett-Packard and Microsoft as they all reposition themselves to better compete with old and new rivals, like entirely cloud-oriented Workday and Salesforce.com.

SAP gained 0.82% on Thursday and closed at €63.59 in Frankfurt. On Friday the stock slipped 0.93% to €63.00 at 10:26 GMT, marking a one-year increase of 9.97%. The company is valued at €77.48 billion.

According to the Financial Times, the 33 analysts offering 12-month price targets for SAP have a median target of €62.00, with a high estimate of €75.00 and a low estimate of €45.00. The median estimate represents a 2.50% decrease from the last closing price.