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SAP slips on word of sluggish sales

Shares of the software giant took a dip after it warned Wall Street of sluggish first quarter sales.

Shares of SAP took a dip after the German software giant warned analysts of sluggish first quarter sales.

At its annual spring meeting yesterday in New York, SAP told Wall Street investors that sales for the first half of 1999 would show no improvement over 1998 results.

In response, SAP shares dropped to its 52-week low of 25.3125, only to end the day off 1.125 to 26.25. SAP's stock value has tumbled 50 percent over the past year, analysts said.

Andrew Roskill, analyst at Warburg Dillon Read, said the news didn't come as a total surprise, as sales have been sluggish, the result of an overall ERP (Enterprise Resource Planning) market slowdown. Roskill downgraded SAP to a "hold" rating in November.

"I think the macro issues are weighing in on them--specifically there's a large dependence on the manufacturing sector and there's a Y2K slowdown," he said. Both SAP's manufacturing business and its sales in Asia Pacific are down.

While analysts noted that many corporations have their own Year 2000 problems under control, they are now starting to worry about the compliance of suppliers and customers--a problem that could create a further delay in ERP projects. Sales may not bounce back until as late as the fourth quarter, Roskill said.

In a note this morning, Credit Suisse First Boston said SAP's total revenue growth for 1999 should match the 20 percent SAP expects. The company posted 70-percent growth in first quarter of 1998.

Credit Suisse today lowered its 1999 license growth expectations for SAP to nil from 4 percent, and revised its first quarter growth expectations to 11 percent from 18 percent.

Order closure in the first quarter "remains sluggish and unpredictable and the underlying market remains tough," the Credit Suisse report noted.

Credit Suisse also noted that SAP has been stung by recent "high profile defections" that point to internal problems. Last week, SAP America president Jeremy Coote left the company to take a job at leading front office vendor Siebel. The move came just before SAP was planning its own big push to go live with its new Customer Relationship Management (CRM) line this spring.

On the upside, SAP is moving forward on several fronts. The company is planning to announce a major e-commerce initiative next month that includes business-to-business procurement, business-to-consumer online sales, and Internet-based stores.

SAP is also rolling out ValueSAP, a plan to tap more business from its existing customer base by focusing on the entire lifecycle of a customer's software installation---a strategy that goes beyond the initial implementation and focuses on overall investment return.

BT Alex. Brown, which rates SAP a "market perform," said in a note today that SAP reports it has penetrated just 20 to 25 percent of its customer base, leaving room for growth as new sales slow.