FRANKFURT/BOSTON(Reuters) – German software maker SAP AG warned that its sales hadabruptly dropped off in the last two weeks of September as companiescut back on computer-related spending due to the widening financialcrisis.
The announcement on Monday drove SAP shares down 16 percent, theirbiggest drop in nearly 12 years, and pulled down the whole technologysector as investors feared that other computer industry companies alsofaced a drop in business. Shares of SAP rival Oracle Corp fell 7.6percent, while the Nasdaq fell 5 percent.
Michael McCarty, chief equity and options strategist with brokerdealer Meridian Equity Partners, said he expected results for the thirdquarter to be rough for many tech companies and that forecasts for thefourth quarter would miss Wall Street estimates.
"You are going to hear more and more companies pulling back on expectations," McCarty said.
SAP, the world’s biggest maker of software that large and mid-sizedcompanies use to manage their businesses, blamed the crisis in thefinancial industry and economic uncertainty for causing its customersto put orders on hold.
"The market developments of the past several weeks have beendramatic and worrying to many businesses," said SAP Co-Chief ExecutiveHenning Kagermann. "These concerns triggered a very sudden andunexpected drop in business activity at the end of the quarter," hesaid, referring to the third quarter.
That slowdown in sales affected other tech companies, includingmakers of software, computers and networking equipment, SAP said.
"The information we have received from customers is that thedecisions that have been made at the later stage of this quarter havebeen broadly IT based," Co-CEO Leo Apotheker said in a pressconference. "These things are correlated with hardware, with networkingand with other types of software."
Among the large technology shares that fell on Monday were MicrosoftCorp, which dropped 5.9 percent, IBM, which fell 4.4 percent, and CiscoSystems Inc, which declined 4.9 percent. EMC Corp fell 7.5 percent.
The downbeat comments from SAP marked a dramatic reversal for acompany that said in late July that it was well placed to withstand aneconomic downturn.
"They underestimated the problems their customers are facing," saidTrip Chowdhry, an analyst with Global Equities Research. "Sometimescompanies 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.
"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 areworse. We have underestimated how bad things are,’" he said.
Oracle could not be reached for comment.
SAP, based in Walldorf, Germany, said preliminary data for thethird-quarter ended Sept 30 show non-GAAP software and software-relatedservice revenues of 2.01-2.02 billion euros ($2.73-2.75 billion), again of 20-21 percent 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 expectedto reach the upper end of its full-year 2008 software andsoftware-related service revenue growth range of 24-27 percent atconstant currencies.
Kagermann said on Monday results for the first nine months of theyear showed SAP was in the middle of that range. He said SAP had frozenhiring but was not cutting staff.
"The overall fundamentals of our business remain in place. SAP didreport double-digit growth in software and software-related servicerevenues for the quarter and we expect to have gained further marketshare, even during unfavorable market conditions," Kagermann added.
The company plans to present full quarterly results and update its 2008 forecast on October 28.
SAP’s Frankfurt shares fell 16.4 percent to 28.84 euros. Its U.S. shares fell 12.3 percent to $40.04.
(Additional reporting by Eva Kuehnen, editing by Brad Dorfman)
? Thomson Reuters 2008 All rights reserved
