Software AG shares tumble as sales fall short

Shares in Software AG, Germany’s second largest software company, tumbled by more than 20 per cent after fourth quarter sales and profit missed estimates due to growing customer caution and weak US sales of its business process optimisation software.

The company said it expected quarterly net income to decline by up to 30 per cent to between €45m and €50m after customers withheld investment that traditionally boosted sales in the fourth quarter. Revenues are set to decline by around 10 per cent to between €290 and €295m.

Analysts surveyed by Bloomberg expected a profit of around €70.4m and €340 million in sales.

Software AG’s license revenues – a measure closely watched by analysts due to the opportunity for repeat service business – were as much as 27 per cent below the prior year, at constant currency rates.

Oracle’s slower than expected revenue growth and cautious forecast last month hit technology stocks amid fears that falling confidence is beginning to hold back corporate spending on business software.

In spite of financial market turmoil and fears of a slowdown in Europe, Oracle and rival SAP had previously been among the most resilient technology stocks.

Software AG is the latest in a series of European tech companies that have reported weaker demand. Logica, the IT services company, last month cut 1,300 jobs saying that its customers had never been so unsure of the future.

Investors had anticipated a decline in Software AG’s Brazil enterprise transaction revenues due to the prior year impact of transferring local customers to a new direct sale model. But Software AG was unable to make up this shortfall in Europe and the US as it had hoped. It is the second time in little more than six months that the company’s sales figures have precipitated a sharp share price fall.

“Presumably, the predicted economic slowdown meant that customers’ residual budget, in contrast to normal years, was not invested in capacity expansion,” Software AG said in a statement. For the full year the company expects to achieve turnover of nearly €1.1bn, the same as the previous year at constant currency rates. In October it had forecast an increase of up to 5 per cent.

Arndt Zinnhardt, chief financial officer, said Software AG “had to face a difficult business environment which has slowed down our revenue growth after a promising nine month performance in 2011”.

Analysts at Exane said they believed Software AG’s problems to be driven by macroeconomics and not company-specific.

Software AG’s shares tumbled by 20 per cent to €24.19 dragging down SAP’s stock, which fell 1.4 per cent to €42.07.

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