SAN FRANCISCO -- Chalk up another tech giant enduring the effects of the liquidity pinch.SAP ( SAP) said its third-quarter profit fell as the economic malaise suppressed software sales to midsized companies. American depositary shares of SAP were down 42 cents, or 1.4%, to $29.80 in recent Tuesday trading. Net income at the German business software company fell 5% to $584.5 million (388 million euros, at the average prevailing exchange rate for the quarter), or 53 cents a share, from $614.7 million, or 53 cents a share, in the year-ago period. Excluding one-time charges, operating income grew 23% year over year to $1.1 billion (731 million euros), Bill McDermott, CEO of Global Field Operations, said in an interview. The company earned 62 cents a share, before items. On that basis, analysts were expecting EPS of 57 cents a share, according to Thomson Reuters. "SAP continues to be the market leader and one of the bellwether companies," McDermott said. "It can give you a feel for what's going on in the economy." Broad economic turmoil made deal closures more challenging. During the final weeks of September, "we were in the midst of a global liquidity crisis not specific to SAP," McDermott said. Small and midsized companies had a difficult time getting capital during the last two weeks, when SAP typically closes on a large volume of business. The third quarter's results were driven by sales to large businesses, CFO Werner Brandt said on the conference call.
To counter customers' credit issues, SAP has dramatically increased the availability of financing, offered to all customers through partners, the largest of which is Siemens ( SI), McDermott said. SAP also has imposed a hiring freeze to weather the unpredictable economy. SAP's revenue grew 16% to $4.2 billion (2.8 billion euros at the average prevailing exchange rate), excluding special charges, from $3.6 billion (2.4 billion euros) for the same period of last year. Analysts were expecting $4 billion, excluding special charges. The special charge is a writedown of $61.8 million (41 million euros) in deferred revenue from Business Objects, which was acquired in 2008. Software sales grew at double digits in all geographies, growing fastest in the Americas at 26% year over year, which was comparable to the region's growth in the prior year, McDermott said. Operating margin was 26.1%, vs. 25.8% in the same quarter of last year. For the fourth quarter, SAP anticipates software and software-related services revenue to grow at 20% to 22% year over year, McDermott said. The guidance implies software and services revenue of $4.47 billion to $4.54 billion for the fourth quarter. Based on planned cost reductions of $200 million, SAP expects an operating margin of 28% in constant currency, excluding acquisition-related charges of $271.2 million (180 million euros), McDermott said. SAP's primary competitor in business-application software, Oracle ( ORCL), said revenue rose 18% year over year for its quarter ended in August. But September was the month in which software giant Microsoft ( MSFT) saw businesses suddenly restrain software spending due to worsening economic conditions.