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SAP: first to hit the buffers

SAP pre-announced its Q3 results at what could not have come at a worse time for the beleaguered stock market. Although executives were bragging about 4% growth in software sales as though BusinessObjects doesn't exist the reality is that year over year growth was off 9%.
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Written by Dennis Howlett, Contributor on

SAP pre-announced its Q3 results at what could not have come at a worse time for the beleaguered stock market. Although executives were bragging about 4% growth in software sales as though BusinessObjects doesn't exist the reality is that year over year growth was off 9%.

Management blamed the result on a 'sudden,' 'unusal' and 'unexpected' drop in deal closure rates.  SAP also announced a hiring freeze including cutting back on temporary staff and on all variable expenses.

Henning Kagermann, SAP's co-CEO claimed the company executed well up to the last two weeks of September. "Many customers felt the need to focus on shorter term concerns and put planned IT investments on hold for now. There was some hesitation on software purchases where financing was an issue. No company including SAP is immune from a sudden and serious economic downturn...We are not cutting out or downsizing, that would be too extreme at this time but we are in preparedeness mode...We remain in the middle of the range of our guidance for software and software related revenues."

Sarah Friar of Goldman Sachs asked about the impact of the downturn on the planned maintenance fee increase and subsequent margin expansion. "I think together with some user groups we have a very good package and they understand more and more the value behind this offering," said Kagermann.

By the numbers:

  • U.S. GAAP software and software-related service revenues are in the range €1.970 bn ($2.657bn) and €1.980 bn ($2.671bn) (2007: €1.74 bn - $2.35bn), representing an increase of 13% - 14% compared to the third quarter of 2007.
  • Non-GAAP software and software-related service revenues, is expected to be between €2.010 ($2.71bn) and €2.020 bn ($2.724bn) (2007: €1.74 billion - $2.35bn). This represents an increase of 16% - 17% compared to the third quarter of 2007.
  • U.S. GAAP software revenues are expected to be between €740 ($998mill) and €750 mill, ($1.o1 bn) (2007: €715 mill - $964 mill), representing an increase of 4% - 5%

By any measure, the result is a shock and in after hours trading, SAP was down 16%

SAP expects to firm up its numbers and present a full report on October 28th at which stage we'll likely know the full extent of the current loss of confidence among buyers.

Endnotes/update: earlier in the day, Mary-Jo Foley reported on rumors that Microsoft is initiating a hiring freeze, something it denies. Last week, Lawson was bullish on its position but didn't put hard numbers on its future outlook.

Next week sees the second leg of SAP's TechEd conference season in Berlin. The company is looking to the SAP Mentor community to provide broad guidance about aspects of development that could help it shave cost in its co-innovation strategy.

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