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SAP earnings rise as sales sink

Software sales tumble by nearly one-third, and the outlook for the full year has gone sour. Still, third-quarter earnings get a boost from a lower tax rate and higher profit margins.

SAP saw a 12 percent gain in earnings for its third quarter but a 9 percent drop in sales, the company reported Wednesday. The software maker also expects a larger sales decline for the full year, news that sent its shares tumbling more than 7 percent in morning trading.

For the quarter ended September 30, SAP earned 435 million euros ($643 million) versus 389 million euros in 2008's third quarter. The company attributed the earnings gain to better profit margins due to cost cuts and a more favorite tax rate (21 percent versus 31.9 percent a year ago) from acquisition-related items.


"We are pleased to report another quarter of increasing margins despite a decline in revenues. This demonstrates our continued success in maintaining tight cost controls," Werner Brandt, SAP's chief financial officer, said in a statement.

Revenues did decline, dropping to 2.5 billion euros from 2.8 billion euros in the third quarter of 2008. Software sales took the largest hit, sinking 31 percent to 525 million euros from 763 million euros a year ago. Revenue from SAP services fell 3 percent.

The outlook for the full year has also gone sour. The company now expects 2009 sales for both software and services to drop by between 6 percent and 8 percent, larger than the 4 percent to 6 percent forecast earlier this year. Like many of its competitors, SAP is experiencing sluggish demand globally for software and services.

"While we are seeing signs of stabilization in the general environment, the market remains difficult. Third-quarter software and software-related service revenues came in lower than we expected mainly because of a particularly challenging environment in the emerging markets and Japan," said Brandt.

To stem the tide, SAP is now focusing on making deals that are smaller and longer term.

"Despite the continued tough spending environment, we are pleased to see further progress in the evolution of our volume business as a result of smaller deals," said SAP CEO Leo Apotheker in a statement. "In addition, we are driving more multiyear agreements, where customers buy and consume software over many periods, which we believe is a positive transition for both SAP and our customers."

In January, SAP had predicted that 2009 would be a challenging year, forcing it to further cut costs and trim jobs.