SAP feels the credit crunch

SAP says its lower than expected revenue forecast for the third quarter of 2008 is an indication of the wider effects of the credit crunch.

SAP says its lower than expected revenue forecast for the third quarter of 2008 is an indication of the wider effects of the credit crunch.

Preliminary data for the period released yesterday showed a clear slowdown of the world's third largest software supplier's sales in the last two weeks of September.

SAP co-chief executive Henning Kagermann said concerns about the financial crisis had "triggered a very sudden and unexpected drop in business activity."

He said although the forecast revenue of around £1.5bn from software sales, service contracts and subscriptions was a 14% increase on the previous year, it was "below our expectations".

David Mitchell, senior vice-president at analyst firm Ovum, said the slowdown in September is true of many companies and not just SAP.

He said many companies have reported a reduction in market demand and SAP's share price, which dropped over 15%, was not the only one affected.

According to Mitchell, companies need to look beyond short term survival strategies, such as freezing recruitment, to longer term plans for revenue diversification.

He said companies should look to new geographies such as the Asia-Pacific region, non-business application products, and a balance between products and services.

Kagermann said SAP had already implemented such strategies to ensure growth in difficult time.

In May, Kagermann said SAP would ride out the downturn by pursuing a strategy of collaboration with partners to ensure a greater source of innovation in a difficult time.

SAP has not been as successful in the services department, with strong opposition to plans to move all customers on standard support to its enterprise support programme.

This would mean an increase of 5% of contract value for many customers who would be forced to pay for a more comprehensive support programme than they need.

Alan Bowling, chairman of the SAP User Group, said the mandatory nature of the change had received a negative response from members.

"Along with the German user group, we are sceptical that the enterprise support offering is sized appropriately and we remain concerned on its suitability for many small and medium-sized enterprises," he said.

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