* Software AG stock hits 4-month low, SAP down 3.6 pct
* Company cites lower license sales, delayed projects
* No overall weakness in mainframe market - analyst
* Not necessarily bad news for SAP too - trader
By Nicola Leske and Daniela Pegna
FRANKFURT, July 14 Software AG (SOWG.DE) shares plummeted to a four-month low on Thursday after the company's quarterly results proved weaker than expected due to lower license sales and delayed projects.
The company said late the previous day that deals it expected to close in June had been delayed and that it had identified "operating weaknesses" in Europe, sending its stock down some 16 percent to its lowest since March.
Based in Darmstadt, south of Frankfurt, the group said it planned to make up for lost revenue with its strong pipeline in the second half of the year. [ID:nN1E76C1WA]
Software AG -- which provides software for companies to integrate new and legacy IT systems, and also for transactional databases -- is a distant second to business software maker SAP (SAPG.DE).
It has spent more than 1.2 billion euros ($1.7 billion) on acquisitions in the past few years to buy a total of seven companies.
In 2009, it bought IT consultancy IDS Scheer to ramp up its business processes division, which sells infrastructure software for example and implements SAP software.
"Demand for SAP implementation remained weak, according to Software AG, which stands somewhat in contrast to companies like Cap Gemini (CAPP.PA), which saw a mild recovery of first-quarter bookings related to Europe," Commerzbank analyst Thomas Becker said.
A Frankfurt-based trader said that development did not necessarily mean bad news for SAP, whose shares dropped 3.6 percent.
"It may not be correct to make a read-across to SAP's second quarter because IDS Scheer has been a serial underperformer since long before Software AG bought it," the trader said.
He added, however, that Software AG's statement may trigger an early release of SAP's second-quarter results, which are scheduled for July 28.
While some analysts and traders expressed concern whether Software AG could compensate for lost revenue in the second half, others pointed to the company's positive track record.
"Since 2003, there have been quarterly hiccups from time to time. However, the management has an excellent track record of beating its full-year EPS targets," said UBS analyst Knut Woller, who nevertheless downgraded the company to a "hold" rating from "buy".
Commerzbank's Becker said delays in deals did not point to an overall weak mainframe market but cautioned that Software AG's business process business (BPE), which includes IDS Scheer, lagged its peers.
"It is our view that ETS (mainframe) is more a timing issue than an accelerated downtrend of the underlying mainframe market. Yet BPE remains very volatile, particular in Europe, trailing market growth and competition in the first half," Becker said.
But the Frankfurt-based trader warned that Software AG may have a deeper, more structural problem. "We have long said that Software AG has under-invested in growth ... Our point has been that corners might have been cut, particularly concerning R&D, in pursuit of EBIT margin."
Software AG shares were down 14 percent at 36.165 euros by 0950 GMT, having fallen as low as 35.32. The German mid-cap index .MDAXI was down 0.6 percent while the tech index TecDax .TECDAX took a 2 percent dip.
(Editing by David Holmes)
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