Do Layoffs Make SAP More American?

I received a few analyst research notes yesterday following SAP's announcement of quarterly earnings, and its plan to reduce its 51,536-strong global workforce by 3,000 heads. I thought I'd share with you the most interesting tidbits, including one analyst's observation about the cultural barriers SAP faces with upcoming layoffs.Stuart Williams of Technology Business Research suggests that SAP employees should say "farewell to lifetime employment," as economic pressures make it possible for SAP to justify layoffs. SAP, he says, faces an "enormous cultural barrier" in Europe, where employment for life is an expected right.

Williams suggests that as a company, SAP is becoming more ruthless in its employment practices and, well, more American. Layoffs are going be a bigger deal for SAP than it will be for U.S. firms doing layoffs, including Oracle, Sun, and Microsoft, he says.

Williams also anticipates that SAP will have a hard time winning new customers in the first half of this year, and will have the most success "promoting updates and incremental upgrades" of its software to existing customers. Yes, I agree that those software maintenance fees are going to be very valuable to all software vendors in the coming months.

The strength of the dollar against the euro, however, is good news for SAP, Williams says. That could make SAP products less expensive for U.S. companies, and help it compete better on price against Oracle, Lawson, and Epicor.

Peter Goldmacher, an analyst with Cowen Co., says the biggest challenge SAP faces in coming months is that its products require a "large upfront cost with a slow time to value, a value prop that is not likely to be well received by customers in the current climate." Ouch.

Bill McDermott, SAP's president of global field operations, was upbeat in an interview yesterday with my colleague Paul McDougall. Although SAP reported yesterday that its software sales fell 7% in the fourth quarter, it saw an 8% jump in services revenue. "The services pipeline doesn't look too bad," McDermott said.

McDermott, by the way, said SAP plans to rely "heavily" on attrition to bring down its employee head count, so maybe it will be able to preserve some of that European culture after all.

Following earnings reports for both the third and fourth quarters, SAP executives have been very honest in admitting that they're not sure what to expect in the coming year. McDermott reiterated that in yesterday's interview. "There's not a lot of visibility out there right now," he said.