spending on year 2000 computer problems will cut into companies' enterprise software budgets
SAP Stock Slides On Earnings Disappointment
(01/05/99, 12:40 p.m. ET)
By Sergio G. Non, TechWeb
Shares of SAP tumbled 10 percent on U.S. markets Tuesday after the German software company warned of worse-than-expected fourth quarter results and slower growth in 1999.
American depositary receipts of SAP, the world's largest maker of enterprise-planning software, were down 3 1/8 to 31 1/16 on the Nasdaq shortly after midday ET. In Frankfurt, SAP shares fell 16 percent.
SAP said 1998 earnings would rise just 15 percent year-over-year, much lower than the growth rate of 33 percent predicted by First Call's survey of 14 analysts. And the company's new growth expectations of 20 percent to 25 percent for 1999 is also lower than observers had predicted.
Deutsche Bank Securities downgraded SAP to under-perform from neutral. Salomon Smith Barney lowered the stock to outperform from buy.
Enterprise stocks had already been battered in recent months on prospects of slower growth. Tuesday's news, which was even worse than expected, pulled down the entire sector. BMC Software slid 2 9/16 to 42 5/16, Compuware fell 3 1/8 to 72, and Baan's American receipts retreated 1/4 to 11 5/16.
SAP blamed the disappointment mainly on a decline of its business in Japan. That slump worsened in the fourth quarter, when Japanese revenue fell short by $120.4 million. SAP also absorbed $24.1 million because of a change in how it accounts for sales in Russia, in light of that country's precarious economy.
Still, SAP's expected full-year revenue of almost $5.1 billion means growth of about 40 percent, roughly what analysts predicted.
"What I still don't understand is why profits were hit so sharply, even though revenue growth was in line with expectations," said Devika Malik, software analyst at J.P. Morgan Securities' office in London. "To some extent, SAP isn't being very open, and they're not giving much guidance."
Continuing financial turmoil in Japan and Asia makes it hard to predict revenue there, so it might be unfair to expect SAP to be on target with its estimates for that region, Malik said. But she added U.S. and European markets are now a concern, though SAP said its business in those regions increased 50 percent and 40 percent, respectively.
J.P. Morgan's 1998 revenue estimate for SAP will be cut by $500 million, of which roughly $200 million can be blamed on Japan, Malik said -- meaning more than half of the problem was in North America and Europe.
This year won't be any better. SAP now predicts growth of just 20 percent to 25 percent, largely because spending on year 2000 computer problems will cut into companies' enterprise software budgets.
Despite Tuesday's announcement, Malik said, she will keep her buy rating on SAP stock. The company tends to be cautious in its predictions, and Malik already expected 28 percent sales growth in 1999, though she cut her earnings growth estimate to 16 percent from 30 percent.
"There's not much SAP can do over the next six to eight months," she said. "But I firmly believe the long-term fundamentals are so strong, it's just a matter of time before growth comes back." |
