SAP issues profit warning

Turmoil in the world's stock markets and concern among customers caused "a very sudden and unexpected drop in business activity" at the end of SAP's third fiscal quarter, the company said on 6 October.

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Turmoil in the world's stock markets and concern among customers caused "a very sudden and unexpected drop in business activity" at the end of SAP's third fiscal quarter, the company said on 6 October.

SAP now anticipates that third-quarter revenue will be between €1.97 billion (£1.54 billion) and €1.98 billion (£1.55 billion), a 13 percent to 14 percent increase over the same quarter in 2007 but less than it expected.

SAP is still finalising its third-quarter numbers and plans to provide more details on 28 October.

The company felt it would meet earnings expectations through most of the third quarter but the "dramatic acceleration of the financial and economic crisis" that befell the financial markets during the second half of September undid those predictions, co-CEO Henning Kagermann said.

"We executed well during most of the third quarter," he added. "That predictability disappeared once the financial crisis accelerated dramatically. ... It has had a strong impact on our ability to sign contracts. Many customers expressed the need to focus on shorter-term concerns and put planned IT investments on hold for now."

Kagermann stressed that SAP's business overall remains strong.

But he also revealed that the company is taking cost-cutting measures, including a hiring freeze that includes not replacing workers who leave SAP, as well as a reduction in the number of temporary workers.

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

Anthony Miller, managing partner of Tech Market View said, "The problems are broad-based i.e. not just restricted to the financial services sector, and seem to be more prevalent in the SME market, where, by the way, SAP has effectively bet the business, pouring hundreds of millions of euros into its hosted service, BusinessBy Design, already late to market."

SAP's share price fell roughly 15 percent yesterday (6 October). It rival Oracle took a tumble as well, with shares down 10 percent.

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