The global economic meltdown filtered through to the technology industry with a 20% fall in the IT-heavy NASDAQ index last week. John Stokdyk reports.
Just before Black Friday struck, German ERP software giant SAP issued a trading statement warning that its sales would fail to hit forecasts because customers were putting orders on hold as a result of the growing financial crisis. SAP's shares fell 16% on the Frankfurt exchange after the announcement, and rivals Oracle (10%) and Microsoft (6%) both experienced drops.
On-demand CRM software house RightNow also predicted "negative cash flow" from operations in the third quarter due to lengthening payment terms and slower cash collections, which resulted in a 14% drop in its share price to a three-year low.
In the UK, FTSE-listed Sage also saw the value of its shares drop 14% in one day on 6 October, but recovered some of the ground on succeeding days.
Ovum analyst David Mitchell said that the late September slowdown in "deal flow" affected more suppliers than just SAP.
"The suddenness of the stall should not surprise anyone that is familiar with the way the software market works; market changes can be quite sudden," he said. "The reversal of the trend can be equally sudden and each sales week is significant in the current climate."
Big software companies live with uneven revenue peaks, usually rising to a climax around the ends of their quarterly periods. "While this may not be healthy, it is a fact of life in this market and one that customers use to their advantage to gain the most favourable commercial terms," Mitchell said. Often more than half the revenue in a given quarter can be booked in the last 2-3 days.
To survive in worsening market conditions, Mitchell said software companies needed to have a diverse geographical base and a good mix of product modules and service revenues.
SAP co-CEO Henning Kagermann was upbeat in the face of the slump. While SAP couldn't avoid the impact of the crisis, he said, "We can weather the storm better than most."
