SAP cuts its sales outlook based on weakness in emerging markets and in Japan, leaving investors wondering where the company will attract new buyers for its high-end software given a client base still keeping costs in check. FRANKFURT, Oct 28 (Reuters)SAP cut its sales
outlook on weakness in emerging markets and in Japan, leaving
investors wondering where the firm will attract new buyers for
its high-end software from a client base still keeping costs in
check.
Shares in the global business software specialist, whose
customers include consumer products group Procter & Gamble, engineer Siemens and PC maker Lenovo, fell to a three-month low after SAP said the spending
environment in which it operates remains challenging.
Recent strong results from tech bellwethers such as Intel and Microsoft had raised hopes that spending
was on the rise after many firms held back big-ticket software
projects during the economic slump and turned to outsourcing and
virtualisation to save costs.
But SAP Chief Executive Leo Apotheker told Reuters TV that,
while he was confident for the current quarter, the firm's
expectations remained modest.
"Q4 will be our largest quarter by far... but it is a very
hard year to predict and I want to be very prudent in giving a
realistic guidance," he said.
Thomas Otter, analyst at research firm Gartner, said he was
concerned about how SAP would manage to grow in the coming 18
months.
"SAP has got some nice solutions with the Business Objects
acquisition but that's a small engine to power the big beast,"
Otter said, referring to SAP's 2007 purchase of the U.S.
developer targeted at small and mid-sized firms.
The firm's Business by Design software "may become a
meaningful revenue generator by end-2010 but at the moment its
products aimed at cloud computing in the larger enterprise space
will not be emerging until next year," Otter added.
Virtualisation software allows multiple operating systems to
run simultaneously on a single computer while cloud computing is
a buzzword for software hosted via the Web, helping companies
save the expense of more servers and costly software licences.
SAP wants to tap into that market and has been developing
Business ByDesign for the past five years, hoping to attract
the smaller firms that do not need and cannot afford the large,
integrated software systems it has sold to many of the world's
biggest companies.
SMALL IS BEAUTIFUL
SAP's outlook, combined with negative results from Japan's
chipmaker NEC Electronics, dragged the European tech
sector down 2.5 percent.
Shares in SAP, the world leader in its sector, were down 7.4
percent at 31.86 euros by 1413 GMT, having earlier sunk to a
three-month low of 31.75. Germany's blue chip index .GDAXI
shed 1.5 percent.
The firm's fiercest rival Oracle's quarterly
software sales missed expectations last month, dampening hopes
that companies were starting to loosen the purse strings.
Gartner's Otter said SAP still needed time to adjust to the
challenge of securing 10 to 15 small deals annually instead of
selling one or two big expensive systems that were not in
demand in an era of cost-cutting.
According to a UBS study, overall software spending plans
dropped in the third quarter from the second, and IT budgets for
the coming 12 months are seen down slightly year-on-year.
The UBS report also showed that corporate IT buyers are
increasingly interested in Microsoft, which has just launched
Windows 7, and VMware's virtualization technology, where
SAP has no significant offering.
"VMware's ROI is so compelling customers are still
allocating a significant portion of their shrinking software IT
dollars to virtualization," the UBS survey found.
An SAP spokesman said "virtualisation is ... an opportunity
when we are moving application functionality in a cloud
computing environment" and that VMware was helping SAP too.
SAP, which was founded in 1972 in Walldorf near Heidelberg,
said it now expects its 2009 software and software-related sales
to decline by between 6 percent and 8 percent. Previously, it
said it saw a decline between 4 percent and 6 percent.
It still expects its full-year 2009 operating margin,
excluding one-offs, to be in the range of 25.5 to 27.0 percent
at constant currencies.
For a graphic comparing the price performance of SAP with
peers, click here.
($1=.6718 Euro)
(Editing by John Stonestreet)
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