SAP profit falls for Q3, drops sales forecast

SAP co-CEO says he's never witnessed such a sharp decline in customer spending in so short a time.

SAP profits fell 5 percent in the third quarter, with the company canceling its sales forecast for the rest of the year, it reported late Monday.

Net income for the quarter dropped to euro 388 million (US$486 million) compared to euro 408 million for the same period ending Sept. 30 last year.

Software and software-related services revenue for the quarter was euro 1.99 billion, for a 15 percent increase year-over-year, and total revenue was euro 2.76 billion, a 14 percent jump.

"In light of the uncertainties surrounding the current economic and business environment, the Company decided to no longer provide a specific outlook for non-GAAP software and software-related service revenues for the full-year 2008," SAP said in a statement. However, SAP did say it expected its non-GAAP operating margin for the year, excluding a write-down of euro 180 million from its purchase of Business Objects, to be around 28 percent.

Earlier in October, SAP had warned its third-quarter software and software-related services revenue would come in lower than expected because of a significant drop in business during the second half of September.

"We entered a very difficult operating environment at end of the third quarter," co-CEO Henning Kagermann said during a conference call Tuesday. "In my 26 years at SAP, I've never witnessed such a sharp decline in customer spending in such a short period of time."

The Wall Street Journal recently reported that some tech companies are expanding customer financing programs in an effort to sign more deals.

SAP is largely relying on partners to provide customers with credit, rather than lending its own money, said co-CEO Leo Apotheker. "What we're trying to do is help them find easier financing."

SAP has already begun cutting costs, and plans to take more measures to reduce expenses during the fourth quarter, but Apotheker declined to discuss whether the company is also considering layoffs -- at least for now. "We first of all want to finish [fiscal] 2008. Let's see what that brings and then we can talk about other issues," he said.

One particularly hot topic this year for SAP has been its decision to transition all customers to a fuller-featured but more expensive Enterprise Support service.

The controversial move has had no impact on sales, said Apotheker, who added that sales in Germany, where user group outcry was particularly strident, were "very strong" in the quarter.

"I'm happy to report that we have received a lot of feedback from customers and user groups, and Enterprise Support has been slightly enhanced based on the feedback," Apotheker said. "I am very confident the discussion is more or less behind us, or we're about to put it behind us."

"Several thousand" customers are now signed up for Enterprise Support, according to Apotheker.

But Apotheker's comments about customer acceptance stand in contrast to a recent Forrester Research survey of more than 200 large SAP users, which uncovered widespread discontent with the support switch.

Apotheker was less forthcoming about another high-profile initiative at SAP -- its on-demand ERP (enterprise resource planning) software for the midmarket, Business ByDesign.

The company previously scaled back rollout plans for the service, choosing instead to initially focus on six markets -- China, France, Germany, India, the U.K. and the US.

Business ByDesign "had no impact because it was not supposed to have any impact" on SAP's results this quarter, Apotheker said. "We have made a very clear decision to drive Business ByDesign carefully, and drive it for profitability."

While Apotheker discussed healthy customer growth rates for SAP's other SMB offerings, Business All-in-One and Business One, he did not name any specific figures for Business ByDesign.

Join the newsletter!

Error: Please check your email address.

Tags SAP

More about BillionBusiness ObjectsForrester ResearchSAP AustraliaSharpWall Street

Show Comments

Market Place

[]