Caution: Don't Exaggerate SAP's Woes by Arindam Nag and Steve McGrath
Summary: SAP AG ADR (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. (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 (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?
Related Links: SAP 's Software Sales Widely Miss Forecast; ADRs Slump, SAP Warns, Sending Shockwaves Through Enterprise Software, Deciphering SAP 's Poor Report