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SAP: Business drop was 'sudden and unexpected'; Credit crunch hurt IT financing

SAP said Monday its business fell off in September as the company warned that its third quarter wouldn't meet its previous targets as a broad swath of customers delayed information technology projects.In contrast to SAP's upbeat outlook in July, the company in a statement said it expects software and software related revenue to be between 1.
Written by Larry Dignan, Contributor on

SAP said Monday its business fell off in September as the company warned that its third quarter wouldn't meet its previous targets as a broad swath of customers delayed information technology projects.

In contrast to SAP's upbeat outlook in July, the company in a statement said it expects software and software related revenue to be between 1.97 billion euro and 1.98 billion euro, up 13 to 14 percent from a year ago. Excluding a writedown related to the purchase of Business Objects, revenue will be 2.01 billion and 2.02 billion euro, up 16 percent to 17
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percent from a year ago. Wall Street's target called for roughly 2.11 billion euro.

Henning Kagermann (right), co-CEO of SAP, summed it up:

"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. Throughout the third quarter we felt quite positive about our ability to meet our expectations. Unfortunately, SAP was not immune from the economic and financial crisis that has enveloped the markets in the second half of September, causing us to report numbers below our expectations."

On a conference call with analysts Kagermann said customers put planned IT investments on hold to focus on more near-term issues. Financing was also an issue for some customers--especially small to mid-sized companies.  "We could not overcome the dramatic financial crisis," said Kagermann, who added that SAP's fundamentals remained strong. "We can weather the storm better than most."
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That refrain about IT spending is likely to be repeated among other technology vendors as customers delay projects.  For its part, SAP said it has implemented a hiring freeze and is cutting expenses without downsizing. Oracle executives, speaking at OpenWorld, were upbeat about prospects. Microsoft, which also has exposure to small and mid-sized companies, will also be closely watched.

Co-CEO Leo Apotheker (right) said that the pullback occurred among a broad swath of customers. SAP (all posts, resources) isn't exposed to the financial services industry as much as other software vendors so the slowdown indicates that other verticals such as manufacturing are spooked amid the economic uncertainty.

Apotheker said that SAP will continue its maintenance price increase because it adds value. An analyst asked Apotheker if SAP would back down since customers were hurting.

Among other data points released by SAP:

  • Third quarter software revenue will be between 740 million and 750 million euro, up 4 percent to 5 percent from a year ago.
  • Under generally accepted accounting principles software and software related service revenue in the Americas region should show growth of about 12 percent compared to a year ago. Europe Middle East and Africa should be up about 14 percent with Asia Pacific and Japan up 18 percent from a year ago.
  • Shares were down more than 14 percent on the news. Here's the year-to-date performance:

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