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Commerce One warns, gets help from SAP

The foundering business-to-business company says second-quarter revenue will sink below expectations, but the German software maker throws it a $225 million life jacket.

Commerce One warned Friday that second-quarter revenue would sink below expectations, but German software maker SAP is throwing the foundering business-to-business company a $225 million life jacket.

Commerce One now expects revenue for the second quarter, which ends June 30, to be approximately $100 million to $120 million. Analysts polled by First Call expected the company to report revenue of $161.8 million for the quarter.

Meanwhile, SAP, which a year ago forged ties with Commerce One to develop online marketplaces, has agreed to invest up to $225 million in the company and tighten their existing alliance. With the investment, SAP will own approximately 20 percent of Commerce One's outstanding stock, including shares already owned by the software behemoth.

The deal bodes well for both parties, according to Gartner analyst Karen Peterson, in that it lays to rest recent worries that the partnership was unraveling.

"This alleviates some concerns of the imminent breakup of SAP and Commerce One and demonstrates they can work together to create a common platform," said Peterson. The deal is "really good for Commerce One, but good for SAP as well."

Partnerships in general are fraught with breakups, and customers are often cautious of how well different parties can work together to deliver a solid product, Peterson said. She pointed to the cracks in the high-profile pact between IBM, Ariba and i2 Technologies as an example.

The investment helped boost Commerce One's stock, which had sagged 80 percent this year. In midday trading, shares of the company were up 83 cents, or 20 percent, to $5.14. SAP shares dipped on the news, down a dime to $34.65.

Under the terms of Friday's agreement, SAP will receive certain registration rights to purchase additional shares of Commerce One common stock. It has also won the right to appoint a representative of its company to Commerce One's board. The transaction, pending regulatory approval, is expected to close in July or August.

Pleasanton, Calif.-based Commerce One, which partly blamed its revenue shortfall on delayed customer spending in Europe, has had difficulty negotiating the economic downturn as companies exercise caution in spending or making new investments in software and technology.

Last quarter, Commerce One matched lowered estimates after warning in April of a sales shortfall. Its business-to-business competitors, including i2 and Ariba, have also had difficulty meeting earnings targets given the lull in the business-to-business sector.

Although online marketplaces have gotten off to a slow start, analysts still see the market growing past the trillion-dollar mark by 2004. Private exchanges are expected to experience the bulk of the projected growth. Companies set up private exchanges to trade goods and services with their own partners, suppliers and customers in an attempt to reduce costs and simplify purchasing and shipping transactions.

SAP recently unveiled a plan to zero in on the development and support of online private exchanges via SAPMarkets, a business-to-business subsidiary that houses the Commerce One alliance.

In Friday's Commerce One transaction, SAP also agreed to limits on its ability to purchase more than 23 percent of the company's outstanding shares or to attempt to acquire Commerce One in a deal without the approval of Commerce One's board.

Commerce One said it sees growth in its sales pipeline and remains "cautiously" optimistic regarding the second half of the year. The company is slated to release second-quarter earnings on July 19.