Caution: Don't Exaggerate SAP's Woes by Arindam Nag and Steve McGrath
Summary: SAP AG ADR (NYSE:SAP) shares tumbled over 10% Thursday after it disclosed that software-license sales were up only 7% in Q4; this was the second quarter in a row SAP was forced to issue revenue warnings. This puts the pressure on SAP to give a firmer commitment for a speedy launch of its mid-market product line, currently slated for H2 2007, upon which much of the company's future growth hangs. But arch rival Oracle Corp. (NYSE:ORCL) has had its own spate of bad news recently; its Q4 organic growth actually declined. And discounting currency changes, SAP's sales shortfall is just €40 million lower than its low-end forecast -- relatively minor for a company with over €9 billion in sales. Before the warning, SAP traded at 28x 2006 earnings, vs. ORCL's 18 and Microsoft Corp.'s (NASDAQ:MSFT) 21. For investors, the questions will be: (1) Will it continue to be punished by a weak dollar/strong euro? (2) Can it control discretionary spending? (3) When will it release its much-awaited mid-market products?
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