SAP Slips on U.S. Sluggishness

The economic torpor here hurts the company's top line.
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SAN FRANCISCO - Shares of SAP (SAP) - Get Report dropped Wednesday after first-quarter revenue fell short of expectations on weaker U.S. business.

Shares were down $1.65, or 3.2%, to $50.80 in recent trading.

The German business software developer said its top line grew 13.8% to $3.82 billion (2.46 billion euros), from $3.36 billion (2.162 billion euros) for the same quarter of last year. But analysts were expecting revenue of $3.96 billion, according to Thomson Financial.

Net income fell by 22% to $376 million (242 million euros), vs. $481.7 million (310 million euros) in the year-ago period. EPS was 32.6 cents (0.21 euro), vs. 40 cents (0.26 euro) a year ago.

Excluding items, EPS was 45 cents (0.29 euro). Analysts were looking for 43 cents.

On the conference call, co-CEO Henning Kagermann attributed the shortfall to a difficult macro environment isolated to the U.S., where the average deal size was smaller. The company has adjusted its go-to-market strategy for the U.S., including some personnel changes, Kagermann said.

"The good news was that we closed 50% of our business in U.S. from new customers," Kagermann said. "We have actually gained market share in the U.S."

For the full year, the company expects revenue for software and software-related services, excluding special items, to grow by 24% to 27%, which would be a range of $14 billion to $14.7 billion. A consensus estimate on a comparable figure was not available. Analysts expect full-year total revenue to be $18.8 billion.

The company said it would delay the rollout of its small- to medium-size business product, Business ByDesign, which is on-demand software. SAP said it would to take up to 18 months longer to reach its goal of $1 billion in revenue and 10,000 customers. The company will also reduce its planned investment in BBD during 2008.

At constant currency, software and software-related services revenue grew 36% in the Asia-Pacific region, 27% in Europe, the Middle East and Africa, and 16% in the Americas (20% in the U.S., where software license sales fell 2% at constant currency).

SAP's primary competitor in software applications that manage large businesses is

Oracle

(ORCL) - Get Report

, which reported difficulty closing some deals late in its third quarter.

But SAP and

Microsoft

(MSFT) - Get Report

are both attempting to make headway in the market for on-demand software.

Salesforce.com

(CRM) - Get Report

, whose first quarter ends Wednesday, dominates in that market. Microsoft fully released its Dynamics CRM Online April 22.