SAP?s share price slumped by almost 25 per cent when it announced that its third quarter profits were down and it was unlikely to meet its target of 40 per cent earnings growth for this year.
This is the third profit warning SAP has issued this year and was enough to send share prices plummeting from DM271.5 to DM210.3 on Wednesday. However, analysts said the market had frequently been over-enthusiastic about SAP stocks, which were the best performers in Germany last year, and this fall ?brings things back to a more realistic level?. Third quarter pre-tax profits fell 11 per cent to DM135 million (#58.7 million), while sales growth was 22 per cent, compared to 40 per cent in the first two quarters.
SAP blamed the slide, which it claimed was unexpected, on stagnant business in just a few countries, namely the UK, Germany, Switzerland and Sweden. Other factors may have been a low-key marketing campaign and the delay of several key orders in the past few months. Sales growth across the whole year is now predicted to be about 30 per cent, with full year turnover at DM3.5 billion, according to chairman Dietmar Hopp.
Unsurprisingly, some of the sales drop-off was due to falling business from SAP?s mainframe product R/2, whose sales fell 14 per cent. This was balanced by a 39 per cent increase in sales of the client/server flagship, R/3, but analysts repeated the frequent fear that SAP is too dependent on one, highly priced product that offers companies a ?big bang? approach to accounting, manufacturing and logistics systems - in an age when they are being challenged by cheaper, more flexible and modular business software. For instance, SAP?s smaller rival Peoplesoft almost doubled its sales and profits, it announced on Tuesday.
Analysts were not too downcast, still expecting earnings to increase steadily at a rate of 30 per cent a year until 2000.
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