The enterprise resource planning software company has just published its first quarter 2024 results showing US$8 billion in profits. Revenue in Chile grew at double digits. Investment in cloud and AI in the region would be far from slowing down, the global firm predicts.
If you thought that layoffs by large technology firms were a thing of 2023, this year also brings bad news. About five days ago, US companies such as Tesla, Google, Microsoft, Nike and Amazon began laying off employees and freezing hiring. All due to recession fears and the power of the dreaded AI, according to Business Insider .
An example of how much the technological variable weighs on a company today is that it can do more with less and, in that sense, the firms that provide that technology are seeing their profits rise.
German enterprise resource planning (ERP) software giant SAP is one of those reporting happily. In the first three months of the year, revenue exceeded $8.5 billion, with the cloud business growing 24% to US$ 4.19 billion in the period.
In 2023, the firm began the implementation of an ambitious transformation program, strengthening its investments in the AI and cloud business.
While presenting the results of the first fiscal quarter of 2024 in Latin America, SAP indicated that for the thirty-sixth consecutive period, revenue from sales of cloud solutions grew at double digits, particularly highlighting the performance in Brazil. Cloud EPR continues to be the star of the quarter, a segment that reported double-digit growth, both in the private modality with RISE with SAP, and in the public modality with the GROW with SAP offering.
Those same lines of work are the focus of their current business in Chile.
“We are full B2B and, therefore, we have a very specific pulse on how companies are addressing the challenges of digital transformation, but with a clear goal of growing the business. It was not like that before, but today no company does a technological project that does not have a business case and that does not have a strategic objective to improve its processes, to increase productivity or to improve efficiency. In that sense, what we see are volumes of projects that confirm that Chile is very concerned about this,” Cristóbal Vergara, CEO of SAP for Chile, explains to AméricaEconomía .
This innovative impetus allows SAP in Chile and SAP's southern region - also made up of Argentina, Peru, Uruguay, Paraguay and Bolivia - to grow by double digits.
“Chile has been catching up for some time now with percentages of investment in technology at the OECD level and at the level of developed economies,” says Vergara. "We see increasing volumes of projects focused on digitizing flows such as Lead to Cash and Procure to Pay from an i-process perspective."
Although the specific investment data varies by industry, the executive mentioned they are at least 2.5% of revenue in certain industries where the digital component is not so strong, and a lot higher where technology is practically the basis of the business.
“A good example is the financial and banking industry, which today operates very digitally. And there [investment in technology] is higher, reaching percentages of 8% or 10% of their turnover, which can be considered very high,” details the CEO.
The German firm held an Open House event in the Chilean capital in April to show clients and associates current advances and transformations that will soon reach the ecosystem around the pillars of Artificial Intelligence, sustainability and business management.
One of the conclusions of the gathering included that challenges identified in AI continue to be talent training and retraining.
“Around 23% to 50% of the workforce will need to develop new skills and capabilities through retraining and continuous training programs (…) This transformation accelerated by generative AI will require a significant reinvention of workers so that they can continue to contribute value to their companies,” adds Vergara.
GROWTH MEETS EXPECTATIONS
In its quarterly earnings call this week, SAP reported that cloud revenue increased 24% and 25% in constant currency terms, supported by Cloud ERP Suite revenue growth of 32%.
SAP's current cloud backlog is $15.13 billion, up 27% and 28% at constant exchange rates
Cloud gross profit increased 27% (in the non-IFRS financial reporting parameter) and 28% in constant currencies. While the operating loss reached US$ 852.2 million due to a restructuring provision of 2.2 billion euros
All in all, the weaker results come despite an increase in cloud revenue as the company began implementing its transformation program, strengthening investments in AI business.
“We are off to a great start in 2024 and are confident that we will achieve our goals for the year. Looking ahead, we have powerful growth drivers: enterprise AI, cross-selling across our entire cloud portfolio and attracting new customers, especially in the mid-market,” Christian Klein, CEO of SAP.
“In the first quarter, we successfully began the implementation of our transformation program, allowing us to focus our investments on the Business AI opportunity while decoupling expenses from revenue growth. “We are also very pleased with the continued growth momentum of Cloud ERP Suite, which reflects the secular market shift towards integrated cloud solutions,” says Dominik Asam, CFO of SAP in the entity's press release.
From its headquarters, the company reiterated its outlook for 2024, forecasting cloud revenue of US$18.11 billion to US$18.43 billion and adjusted operations between US$8 billion and US$8.42 billion.
Last January, SAP had announced the restructuring of 8,000 global jobs to focus on growth in AI-driven business areas, investing some $2.2 billion to retrain employees with artificial intelligence skills or replace them through voluntary dismissal programs.
The German company reported that month to Reuters that it expected GenAI to fundamentally change its business and committed to invest more than $1 billion backing AI-powered technology startups, through its investment arm Sapphire Ventures.
Sector analysts, such as Citi Research said that the firm is on the right track despite its losses.
"SAP delivered a strong overall performance in the first quarter, characterized by continued underlying business momentum along with confident commentary on the drivers of future acceleration," Citi published today.
