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SAP's 3Q profit slides
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October 20, 1999: 7:37 a.m. ET
Software maker's stock lower as results confirm bleak outlook
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LONDON (CNNfn) - SAP, Europe's largest software publisher, posted a 64 percent slump in third-quarter earnings Wednesday, sending the German company's stock down 6 percent amid uncertainty over the prospects for near-term growth.
The business software publisher reported net profit of 45 million euros ($49 million), down sharply from 125 million in the same period a year earlier, confirming the bleak profit warning announced by the company last week.
Analysts had been bracing for the poor results since SAP last week trimmed its sales growth outlook for 1999 to 15 to 20 percent from a previously forecast 20 to 25 percent. The warning triggered a 10 percent fall in the company's stock price. Large buyers of software are thought to be holding back on major purchases until the effects of the Y2K bug become clearer in 2000.
SAP's official reaction Wednesday was blunt: an attempt to make the company's own dismay over the figures as clear to investors as its hopes for a short-term recovery.
"Even though we are in a difficult market environment, we are still disappointed by these results," Hasso Plattner, SAP's co-chairman and chief executive officer, said Wednesday.
Trying to accentuate the positive, Plattner expressed confidence that the company's new Internet portal -- mySAP.com -- which made its debut at an industry conference in Philadelphia in mid-September, will enable SAP "to seize the leadership position in business-to-business e-commerce."
SAP's revenue in the three months rose 7 percent to 1.12 billion euros. The company blamed slower license sales in the Americas and Japan, along with weaker revenue in the United Kingdom.
Nine-month sales climbed 14 percent to 3.46 billion euros, while net income dropped 24 percent to 285 million euros over the period.
SAP warned that its pretax profit margin for the whole of 1999 will be below the level for 1998. It had previously predicted a rise in its profitability margin.
At the same time, the company projected a 15 to 20 percent rise in software revenue in the fourth quarter as compared with the same 1998 period.
SAP [FSE:FSAP3] shares were down 6.2 percent at 382.75 euros in Frankfurt Wednesday afternoon trading.
Shares of its Dutch rival, Baan, gained 1.6 percent to 13.30 euros in Amsterdam as investors shrugged off SAP's poor quarterly performance. Baan is set to release its results Thursday. Analysts say the company's more minimal exposure to depressed German and Japanese software markets may help insulate it from a similar disappointment.
SAP provides so-called "enterprise resource planning" software, which allows companies to integrate their various business functions.
Its "R/3" software is used by about 11,000 countries worldwide, including Chevron, General motors, Microsoft and Nestlé. SAP has been expanding its product base to include e-commerce and Internet capabilities for its resource-planning software.
SAP expects its pretax return on sales to fall by several percentage points this year, due primarily to the company's heavy investment in its mySAP.com Internet strategy.
The third-quarter earnings stand in sharp contrast to Tuesday's announcement of strong results by Microsoft (MSFT), the world's largest software maker.
--from staff and wire reports
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