SAP warns on Q3 earnings, cites economy

SAP warned Monday that its Q3 sales would fall short of expectations due to the weak economy.

Turmoil in the world's stock markets over the past several weeks and resulting 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 Monday.

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

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

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 during a conference call.

"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 emphasize that these are sensible steps in an uncertain time. We are not cutting out or downsizing," Kagermann said.

SAP's share price fell roughly 15 percent on the news Monday, to about US$39 in afternoon trading. Rival Oracle's took a tumble as well, falling about 10 percent to $17.75.

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