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SAP revenue slips in third quarter

The German business maker's share price has dropped, while it warns that software and software-service revenue for the year will be lower than expected
Written by David Binning, Contributor

German business-software maker SAP on Wednesday reported a third-quarter fall in revenue of nine percent, a bigger drop than expected.

Total revenue fell from €2.8bn (£2.5bn) to €2.5bn, the company said in its earnings announcement on Wednesday. The result was partly offset by lower tax rates and better profit margins, which led to a 12 percent rise in net income to €435m. Nevertheless, investors and analysts found little to cheer about with SAP reporting a 31 percent decline in software revenue, to €525m, and professional services revenue dropping 25 percent to €564m.

The software maker also adjusted its software and software-services sales forecast for 2009, saying it expects revenue to decline between six and eight percent.

Earlier in the year, SAP had flagged a revenue decline in the order of four to six percent. In September, competitor Oracle said its first-quarter results showed the company making gains in the business software market around the world, and that it was growing faster than SAP.

SAP chief executive Leo Apotheker said in a statement that despite the lower revenue and bleak market outlook, the company is making headway in its "volume business". He added that it was also driving more multiyear agreements where consumers buy and consume software over many periods.

The software company's shares plummeted more than seven percent on early trading in Frankfurt on Wednesday morning.

The financial results come towards the end of TechEd 2009, SAP's major user conference, which is being held in Vienna this week. During the event, the company outlined a number of new strategies and partnerships surrounding on-demand services such as cloud computing and web-based communications. Executives indicated that there will be an announcement soon about new pricing models for software and services to reflect these changes.

Thomas Otter, a research director with Gartner in Germany, said SAP faces some big challenges over the next few years, with revenues for its large enterprise business expected to fall further. The situation calls for the company to develop opportunities in the lower end of the market, along with a new product roadmap for the future, he said.

He added that while SAP's acquisition of Business Objects two years ago was a step in the right direction, there is still a major piece of the puzzle missing. "They [SAP] have done a pretty good job at getting the Business Objects story out there, but it's not a big enough product to drive growth for the next two years," he said.

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