Bellweather SAP shares hit by preliminary Q3 results. How will other software vendors fare?

On Monday 6th October 2008 both SAP and Double-Take announced their preliminary Q3 trading results. SAP’s revenues were up 13–14% on the previous year but a little lower than the 16–17% expected; Double-Take’s revenues were around 7% down on their guidance for the Quarter.

Hardly ‘the end of the world’ then. However, traders marked down SAP’s shares by 13% and Double-Take’s shares were down 17% on the day’s trading. Yes, market sentiment is fickle these days. The slightest whiff of bad news sparks a sell-off. Hence Oracle’s shares fell 8% on SAP’s news.

More interesting however is the rational for the disappointing results from SAP’s and Double-Take’s CEOs. Henning Kagermann, Co-CEO of SAP said “The market developments of the past several weeks have been dramatic and worrying to many businesses. These concerns triggered a very sudden and unexpected drop in business activity at the end of the quarter… SAP was not immune from the economic and financial crisis”.

Dean Goodermote, Chairman and CEO of Double-Take Software said “In the latter part of September customers delayed closings on a number of expected deals in both Europe and in the American regions… the deals in question generally were our larger opportunities, and were across multiple verticals”.

The last 2 weeks of each Quarter is when most software sales orders close. The last two weeks of Q3 is when the economic hurricane hit, and Financial Directors all over the world emailed their managers with a “don’t spend anything until we have better market visibility—we may need every penny we have to ride out the storm”.

Vendors reliant on chunky large enterprise licence deals (like Oracle) are most at risk of missing their Q3 sales guidance. Whereas SaaS vendors like salesforce.com will be less affected by a fall in sales, although their high market valuations are at risk.

The key question is, what are everyone else’s Q3 results really like? SAP and Double-Take are the early-bird reports. Most Q3 results are formally published around the end of month c. 28th October.

What do you think will happen? Care to share your thoughts? I will set up a blog if there is interest in the ‘wisdom of crowds’ on the future of the software and services industry in light of the global economic slowdown. Are readers interested?