SAP Warns of Revenue Shortfall

The German software giant blames a revenue decline on last-minute order cancellations and a projected net loss on its stake in Commerce One.

Just seven days shy of its official earnings release, enterprise software maker SAP AG announced yesterday that it expects to post a second quarter net loss and will not meet its previous forecast of a 15 percent rise in sales for the full year.

Rather, SAP expects to report a net loss of about $232 million as it writes down its investment in Commerce One Inc., and now predicts a rise in sales of between 5 percent and 10 percent for the year, officials said.

Second quarter revenues are expected to fall by about 4 percent below what SAP posted for the same quarter last year to about $1.76 million. The company expects software license revenues for the quarter to be around $491 million, or roughly 23 percent lower than last years second quarter.

Operating income is anticipated to be down by about 23 percent to $323 million.

SAP, of Walldorf, Germany, last year bought a 20 percent stake in business-to-business software developer Commerce One, but that company reported a $220 million loss in the first quarter and is trying to reestablish itself as an application integration software provider. SAP has previously recorded a portion of Commerce Ones losses on its own balance sheet, but after recording a special charge this quarter Commerce One losses will not weigh as heavily on SAP books.

SAP officials said their companys relationship with Commerce One, of Pleasanton, Calif., remains unchanged.

As a result of its preliminary numbers, SAP said it stopped hiring and would cast off jobs through attrition. Last year, the companys attrition rate was roughly 4.2 percent, or 600 employees in the second half. SAP had approximately 29,350 employees at the end of June.

Hasso Plattner, co-chairman and co-CEO of SAP, blamed the companys shortfalls on last minute order cancellations and a lack of corporate confidence in the U.S. and Europe after the Enron and Worldcom accounting scandals.

"We lost a significant, double-digit number (of deals) in the last minute," said Plattner during, a conference call with financial analysts.

In the second quarter, revenues in the Americas declined by 12 percent to $587 million, while revenues in the Europe, Middle East and Africa grew by 1 percent to $966 million. Revenues in the Asia Pacific region decreased by 5 percent to $207 million, officials said.

Henning Kagermann, co-chairman and co-CEO of SAP AG, said that the market continues to be challenging and despite strong sales efforts, the company was not able to close some key deals, particularly in Europe and Japan.

"Customers and prospects continue to spend cautiously and in increments – we think this is now a permanent feature of the market and we are aggressively positioning the organization for a more steady stream of compact deals," said Kagermann in a press release.

SAP rivals PeopleSoft Inc. and Siebel Systems Inc. have already stepped back from earlier forecasts. Oracle Corp., which did meet its numbers last quarter, does not expect software sales to pick up for another six months.