Software AG shares dropped over 20% yesterday after its prelim Q4 results indicated an 8%-10% drop in total revenue to Euro 290m-Euro 295m (constant currency) compared to a year ago, and licence revenue that was 25% to 27% below Q4 last year at Euro 90m to Euro 95m (constant currency). Full results are due on January 24.
Three culprits were identified. BPM and integration software sales in the US fell and even 40% growth in this division in Europe could not counter the effect. The result was flat YoY revenue for the division.
The second issue was that the usual Q4 budget flush on database systems that normally boosts Software AG’s Enterprise Transactions Systems (ETS) business, did not materialize.
The third factor was lower revenues in Brazil due to the decision to transfer ETS customers to a direct sales model in 2010. Although ETS revenues were stable in Europe and up in the US, they did not full compensate for the drag in Brazil.
The full year picture is not looking much better with flat revenue of cEuro 1.1b (constant currency). Business process and integration license and maintenance revenue grew by 6%-7% but ETS declined by 9%-10%.
The results raise concerns in two areas. From the Software AG perspective, weakness in its business process segment is particularly bad news as this is its growth segment - business processes and integration play to enterprises’ need to optimise and ‘do more with less’.
Looking at the prelims from a wider industry and economic perspective, they raise the alert level that a decline could be imminent, particularly given Oracle’s recent results (see Oracle shocks, spikes wider market fears). SAP’s results are due later this month and will give a further steer on what is happening within the tech sector.