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SAP Shares Tumble on Outlook

SAP (NYSE: SAP) on Wednesday had only mixed news for investors hoping for a positive sign in its third-quarter results: While income totaled $644 million -- up 12 percent from last year -- sales saw a steep drop and the company slashed its outlook for the remainder of the year.

During the quarter, SAP said sales fell 9 percent to 2.5 billion euros, while its new full-year outlook now expects sales to slip 6 percent to 8 percent. The company had earlier given guidance on a decline of 4 percent to 6 percent.

Investors wasted no time reacting to the bleak outlook, sending the stock down $4.67 a share, or 9 percent, to $46.56 after the earnings report.

In its third quarter, SAP said total software revenue tumbled 31 percent while its services sales shed 3 percent. The declines were significantly larger than the licensing revenue dip arch-rival Oracle reported in its latest quarter.

SAP CEO Leo Apotheker told analysts to prepare for fiscal-year sales of around 8.6 billion euros, a good 2 percent to 4 percent lower than he had previously guided in the second quarter of this year.

"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," Apotheker said 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."

The lousy macroeconomic climate combined with the seasonally weak quarter conspired to keep SAP from delivering the breakout quarter needed to restore faith in the stock. However, Apotheker said despite the lower revenue, outlook, and tough economic conditions, SAP is still making a sizable number of small deals and remains focused on longer-term agreements with customers.

"We have the benefit of many years of experience in facilitating the purchase of our software in this manner, including the success we had in signing multiyear, global enterprise agreements with our largest customers," he said. "We have now started to leverage this approach with a bigger group of customers. And, most importantly, our solutions are built on a highly flexible and modular architecture allowing us to easily adopt this model."

During the first nine months of the fiscal year, SAP posted a 3 percent decline in software and service revenue to 5.6 billion euros.

Nine of the 16 analysts tracking the stock rate it a "hold" while only three maintain a "strong buy" recommendation.