SAP, the world’s largest maker of business software, on Wednesday painted a bleak picture of corporate spending on information technology when it said that sales of new software fell by a third in the first quarter of the year.
The Walldorf-based company said software sales – an indicator of follow-on sales from upgrades and maintenance – dropped 33 per cent to €418m, while software and maintenance revenues were flat at €1.74bn.
Last year, SAP regularly reported double-digit growth in both positions and last summer still boasted the economic crisis could raise information-technology spending as its clients looked to cut costs with new software.
But last autumn the company suddenly gave a stark warning about the fall-out of the global recession and said it could not give a sales forecast for 2009. Cost cuts, including a pay freeze and jobs cuts, soon followed.
“While visibility for software revenues remains limited, we continue to take steps to protect our margin in this tough operating environment,” Léo Apotheker, SAP’s co-chief executive said in a statement on Wednesday.
He stuck to his pledge, made at the start of the year, that cost cuts would help SAP to achieve an operating margin of 24.5-25.5 per cent in 2009, albeit down from a profit margin of 28.2 per cent the prior year.
SAP said this forecast was based on “the assumption” that full-year revenues from software and related services would be “flat” or show “a decline of 1 per cent” – although it said this was not a formal sales target.
The company is cutting jobs for the first time in its 37-year history, aiming to reduce its workforce by 3,000 people, some 6 per cent of total staff, to 48,500 by the end of 2009. Some 2,200 posts were cut last quarter.
This led to a one-off restructuring charge of €160m in the first three months of the year, helping to drag operating income down 8 per cent to €332m. Net income hit €204m, down 16 per cent from quarter one 2008.
Mr Apotheker, who takes sole responsibility of SAP when co-ceo Henning Kagermann retires later this month, said cost cuts were starting to have an effect and pledged SAP would continue with “tight cost controls.”