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SAP sales drop as credit crunch looms large
Tech giants pessimistic in light of spending slowdown

By Reuters

Published: Tuesday 07 October 2008

German software maker SAP warned its sales had abruptly dropped off in the last two weeks of September as companies cut back on computer-related spending due to the widening financial crisis.

The announcement on Monday drove SAP shares down 16 per cent, their biggest drop in nearly 12 years, and pulled down the whole technology sector as investors feared that other computer industry companies also faced a drop in business. Shares of SAP rival Oracle fell 7.6 per cent, while the Nasdaq fell five per cent.

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Michael McCarty, chief equity and options strategist with broker dealer Meridian Equity Partners, said he expected results for the third quarter to be rough for many tech companies and forecasts for the fourth quarter would miss Wall Street estimates.

McCarty said: "You are going to hear more and more companies pulling back on expectations."

SAP, the world's biggest maker of software large and mid-sized companies use to manage their businesses, blamed the crisis in the financial industry and economic uncertainty for causing its customers to put orders on hold.

Referring to the third quarter, SAP co-chief executive, Henning Kagermann, said: "The market developments of the past several weeks have been dramatic and worrying to many businesses. These concerns triggered a very sudden and unexpected drop in business activity at the end of the quarter."

That slowdown in sales affected other tech companies, including makers of software, computers and networking equipment, SAP said.

SAP co-CEO Leo Apotheker said in a press conference: "The information we have received from customers is that the decisions that have been made at the later stage of this quarter have been broadly IT based. These things are correlated with hardware, with networking and with other types of software."

Among the large technology shares that fell on Monday were Microsoft, which dropped 5.9 per cent, IBM, which fell 4.4 per cent, and Cisco Systems, which dropped 4.9 per cent. EMC fell 7.5 per cent.

The downbeat comments from SAP marked a dramatic reversal for a company that said in late July that it was well placed to withstand an economic downturn.

Trip Chowdhry, an analyst with Global Equities Research, said: "They underestimated the problems their customers are facing. Sometimes companies are totally clueless as to how their customers are suffering."

Chowdhry said he expected Oracle to miss forecasts that it issued last month for the quarter ended in November.

He said: "They put up a bold face just to keep the morale of their customers. I won't be surprised to see if they come back and say 'Oops, things are worse. We have underestimated how bad things are.'"

Oracle could not be reached for comment.

SAP said preliminary data for the third-quarter ended 30 Sept show non-GAAP software and software-related service revenues of €2.01-2.02bn euros, a gain of 20 to 21 per cent at constant currency.

Apotheker said he was hopeful that sales would get back on track during the current quarter.

"This is still a short-term hold. Let's see how things evolve in the next couple of weeks," he said.

Following a strong second quarter, SAP said in late July it expected to reach the upper end of its full-year 2008 software and software-related service revenue growth range of 24-27 percent at constant currencies.

Co-CEO Kagermann said on Monday results for the first nine months of the year showed SAP was in the middle of that range. He said SAP had frozen hiring but was not cutting staff.

Kagermann added: "The overall fundamentals of our business remain in place. SAP did report double-digit growth in software and software-related service revenues for the quarter and we expect to have gained further market share, even during unfavourable market conditions."

The company plans to present full quarterly results and update its 2008 forecast on October 28.