SAP warns on Q3 earnings, cites turmoil in financial markets

Software vendor says economic concerns led to a 'very sudden' drop in sales last month

SAP AG reported today that its third-quarter financial results will be below expectations due to a drop-off in sales late in the quarter — a surprise occurrence that the software vendor blamed on the turmoil in the world's financial markets over the past few weeks.

In a preliminary announcement of its Q3 software revenue, SAP said that concern among corporate users over the ongoing financial meltdown "triggered a very sudden and unexpected drop in business activity at the end of the quarter."

SAP now anticipates that its third-quarter software and related services revenue will be between €1.97 billion and €1.98 billion, or about $2.7 billion in U.S. currency. That would be up by as much as 14% over last year's third quarter but less than had been expected, the company said.

The Walldorf, Germany-based vendor, which plans to report its final third-quarter numbers on Oct. 28, thought that it would meet its earnings forecast throughout most of the quarter. But "the dramatic acceleration of the financial and economic crisis" that befell the global financial markets during the second half of September countered those predictions, co-CEO Henning Kagermann said during a conference call with reporters and analysts today.

"We executed well during most of the third quarter," Kagermann said. But, he added, "that predictability disappeared once the financial crisis accelerated." The ongoing financial woes are having "a strong impact on our ability to sign contracts," he said. "Many customers expressed the need to focus on shorter-term concerns and put planned IT investments on hold for now."

SAP's business remains strong overall, according to Kagermann. But he disclosed that the company is implementing cost-cutting measures, including a hiring freeze in which employees who leave won't be replaced and the number of temporary workers will be reduced.

"I want to just emphasize that these are sensible steps in an uncertain time," Kagermann said. "We are not cutting out [jobs] or downsizing."

Copyright © 2008 IDG Communications, Inc.

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