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SAP To Cut Workforce Despite Strong Earnings

Although SAP has had a good year, fear of the increasingly harsh economic climate has led it to announce it will lay off 3,000 employees worldwide.

"We must not assume that in 2009 product revenue will be increased," co-CEO Henning Kagermann said during a press conference Wednesday at SAP's (NYSE: SAP) Walldorf, Germany headquarters on its fourth quarter earnings.

"Our personnel costs have to be reduced, which means, now that the head count has been increased by 7,500 last year because of the acquisition of Business Objects, we'll have to reduce to roughly 48,500 by the end of 2009," Kagermann said during the conference, which was also broadcast over the Web. "Hopefully we can do this by a restrictive recruiting policy and constant use of attrition." The company currently employees 51,500 worldwide.

SAP paid $6.7 billion for Business Objects in October to bolster its presence in two growing areas, business intelligence and software as a service.

Kagermann, who will step down in March, when co-CEO Leo Apotheker will take the helm, said this is his last press conference for the company.

In constant currencies for its U.S. operations, SAP's non-GAAP revenues grow 15 percent year over year (YoY); non-GAAP income went up 15 percent YoY; non-GAAP operating margin grew 1.1 percentage points YoY to hit 28.2 percent; and non-GAAP earnings per share increased 16 percent YoY.

Like other vendors, SAP was hit hard when the economy collapsed in September. But, unlike other vendors, many of whom had to trim head counts because of weak financial results, it has also been grappling with Oracle (NASDAQ: ORCL) in a lawsuit it complains is draining it financially, and customer anger over its hike in maintenance fees.

Oracle had filed suit against SAP in March over the latter's TomorrowNow subsidiary, which offered third-party support for various Oracle applications. TomorrowNow has since been shut down, and Kagermann admitted the unit had engaged in inappropriate downloads of Oracle support materials.

In July SAP announced that it would move all its customers to a more comprehensive support offering, SAP Enterprise Support, that would raise their maintenance fees from 17 percent of their license fees to 22 percent by 2012. This would bring its maintenance fees on par with those of arch-rival Oracle. Although SAP gave existing customers a rate hike holiday until January 1, that did not soothe their ruffled feathers, according to reports.

Will job cuts help?

Whether the move to reduce head count will help remains to be seen. SAP began focusing on attrition and a hiring freeze in the third quarter of last year and a cutback on variable costs, announced during a hastily called conference call to pre-brief analysts and the media on third-quarter earnings. During the briefing, Kagermann said revenues had fallen, sending SAP's shares sliding after the call.

With Wednesday's announcement, SAP is taking the head count restrictions to the next level, setting a definite goal for staffing reductions. In a letter to employees, Kagermann said that SAP had decided that a reduction in head count from the current level of 51,500 worldwide is necessary.

"This should enable us to decrease annual personnel costs by 300-350 million euros in subsequent years," Kagermann said in the letter. That's between $395 million and more than $460 million.

Kagermann also said there will be no salary increases this year, subject to local laws in the various countries where it operates.

"Our goal is to secure as many jobs as possible over the long term because you, our employees, are the basis for our sustainable success as a strong and reliable partner for our clients," his letter concluded.

Other vendors have also been forced to lay off staff because of the recession. Microsoft (NASDAQ: MSFT), for example, will be trimming its head count by 5,000 over the next 18 months, with 1,400 people being laid off immediately.

Sprint (NYSE: S) will be cutting 8,000 jobs, Intel (NASDAQ: INTC) will be laying off up to 6,000 employees, Seagate (NASDAQ: STX) will lay off nearly 3,000 people, and Motorola (NYSE: MOT), Symantec (NASDAQ: SYMC) and Hewlett-Packard (NYSE: HPQ) will also trim head count.

"The economic crisis will be here to stay for some time," Kagermann said during the fourth quarter earnings call today.