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SAP Shares Slide on Earnings Warning

German software provider SAP said today that its revenues for the third quarter of 2008 fell below expectations, largely due to the credit crunch spreading to global markets.

The news of the drop sent shares tumbling on a day that saw the Dow Jones Industrial average dip below 10,000 for the first time in four years. SAP closed down by 13 percent to end the regular trading day at $39.68. During after-hours trading it was headed upward. The Dow also managed to recover to end the day over 360 points off.

Despite the roller-coaster day in the markets, SAP said revenues grew during the quarter, but not by as much as either SAP (NYSE: SAP) or the market expected, co-CEO Henning Kagermann said during a hastily called conference call today.

"We could not overcome the sudden change in the economic environment brought on by the dramatic acceleration of changes in the financial and economic markets," he said.

To combat the downturn, SAP will focus on added margins, cutting back on "all variable costs" and implementing a hiring freeze, which includes not replacing staff who are leaving, Kagermann said.

However, these moves do not mean SAP is cutting back or downsizing, Kagermann said, because "we do not wish to sacrifice potential growth opportunities when the market recovers." SAP will focus on added margin sales, he added.

Kagermann said SAP is "in preparedness mode, we're continuing to monitor the situation and will adjust accordingly," and pointed out that the underlying drivers of the company's business are solid. "We have a broad and diversified customer base and a high margin recurring maintenance stream, and I believe we can weather the storm better than most," he explained. SAP recently raised its maintenance charges.

SAP expects software and software related service revenues for the third quarter to be 1.97 billion to 1.98 billion euros ($2.656 billion to $2.67 billion), up over the 1.74 billion euros ($2.346 billion) chalked up in the same period last year.

That represents an increase of 13 to 14 percent.

Software revenues from the U.S. market for the third quarter are expected to hit 740 million to 750 million euros, ($997.5 million to $1.01 billion), SAP said. This would be seven to nine percent more than the 715 million euros ($963.3 million) chalked up in the third quarter of 2007, SAP said. Analysts had reportedly expected 20 percent growth.

"We remain in the middle of guidance for software and software related revenues, and will be better able to assess the situation in the next couple of weeks," Kagermann said. SAP plans to release its full third quarter results on Oct. 28th.

The financial crisis that hit during the last two weeks of September "affected our ability to sign contracts," Kagermann said. "Many customers put IT investments on hold and that also impacted software purchases where financing was a problem."

SAP is not alone; overall IT spending is expected to fall because of the chaos in the financial markets.

Nonetheless, Kagermann was upbeat, predicting "gains in market share" in the fourth quarter. Over the past year, the increased focus on SAP Business Suite, for large enterprises, Business All-in-One, for SMBs, and the smooth integration of Business Objects, which SAP bought for $6.7 billion in October, "will help us," Kagermann said.

SAP plans to leverage the business intelligence capabilities it obtained by purchasing Business Objects.

Other SAP executives present at the conference were co-CEO Leo Apotheker, who will take over when Kagermann steps down in March, and Werner Brandt, SAP's chief financial officer.