SAP CEO Bill McDermott stepping down after over nine years leading software giant

Key Points
  • Bill McDermott is stepping down as CEO effective immediately.
  • Jennifer Morgan and Christian Klein have been appointed co-CEOs.
  • SAP also pre-announced third-quarter results. 
Bill McDermott
Anjali Sundaram | CNBC

SAP said on Thursday that Bill McDermott is stepping down as CEO after more than nine years running the German software company.

Board members Jennifer Morgan and Christian Klein have been appointed co-CEOs effective immediately, SAP said in a statement. McDermott, 58, will stay on as an adviser until the end of the year.

"For the past decade, McDermott has served as CEO and has overseen a period of dramatic growth for SAP, including expanding its portfolio and initiating a major shift to cloud computing," the statement said. "Under McDermott's leadership, key metrics including market value, revenue, profits, employee engagement and environmental sustainability have all strengthened substantially since 2010."

The company's stock has climbed 21% this year. It's up 75% in the past five years, topping rival Oracle, which is up 46%, and the S&P 500's 54% gain.

SAP, which develops database software and tools that companies use to manage their spending and day-to-day activities, also pre-announced third-quarter results, and beat expectations in part because of a cloud customer. The shares rose 5% in extended trading after the earnings release.

SAP said that a "cloud deal with a major partner" accounted for 17 percentage points of new cloud bookings growth in the quarter. Overall, new cloud bookings jumped 38% in the quarter. SAP said it will start recognizing revenue from the three-year cloud deal in the fourth quarter.

McDermott is being succeeded by two company veterans. Klein, a German, started at SAP in 1999, when he was still a student. He worked his way up to chief controlling officer in 2014 and operating chief two years later. Morgan joined in 2004, and in 2017, she became the first American woman on the company's executive board. She ran SAP's Cloud Business Group, which includes acquired assets like Concur and Qualtrics.

The company was established in Germany, but Morgan and her colleagues see it as global entity, Morgan said on a conference call with journalists after the announcement.

Following Hurd out the door

McDermott came to SAP in 2002 and was elevated to CEO in 2010. He previously worked at Xerox and Gartner, and he's also on the boards of Ansys, Secureworks and Under Armour.

"I am excited, and I will do something at some point, and that will be discussed at a future date and on a future occasion," McDermott said on the call. "Today is SAP's day."

His departure comes almost exactly a month after Oracle announced that one of its two CEOs, Mark Hurd, is taking a leave of absence for health reasons. Oracle and SAP have both faced the challenge in recent years of moving from desktop software to the cloud to meet customer demand.

"Historically, SAP's software was not known for being user friendly but instead for its somewhat clunky user interfaces," McDermott wrote in his 2014 memoir, Winners Dream: A Journey from Corner Store to Corner Office. "Going forward, we had to make our software easier for the consumer to use. I loved that this was how technology was evolving."

Revenue growth has been stuck in mid-single digits the past three years, increasing just over 5% in 2018 to 24.7 billion euros.

SAP CEO Bill McDermott discusses quarterly earnings results
SAP CEO Bill McDermott discusses quarterly earnings results

McDermott is recognizable for the dark-tinted glasses he wears in public, the result of an eye accident in 2015 and more than 10 operations that followed. SAP implemented a co-CEO structure, not for the first time, in 2010, tapping McDermott and then head of product development, Jim Hagemann Snabe, to replace Léo Apotheker, who went on to become CEO of Hewlett Packard. In 2014, Snabe stepped down, leaving McDermott to be the company's sole chief.

Under McDermott, SAP made significant acquisitions to push the company into new markets, mostly focused on the cloud. Perhaps his biggest move was to acquire software developer Qualtrics for $8 billion a year ago. Qualtrics which competes with SurveyMonkey in helping companies measure sentiment through surveys, was in the process of going public when SAP announced the deal.

During his tenure, SAP bought expense management software provider Concur for $8.3 billion, HR software company SuccessFactors for $3.4 billion and Callidus, a developer of sales performance management tools, for $2.4 billion.

SAP has brought its software to public clouds operated by Alibaba, Amazon, Microsoft and Google, while also running applications from its own data centers. SAP does not plan to change that strategy at all, Klein said on the conference call, adding that, "We give customers choice."

Among the many personal topics McDermott covered in his memoir was his experience with cancer, which took his mother's life in 2010, the year he became CEO of SAP. Years earlier, his wife, Julie, had been diagnosed with breast cancer.

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