* 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
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
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
A Frankfurt-based trader said that development did not
necessarily mean bad news for SAP, whose shares dropped 3.6
"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,"
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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