SAP AG wants investors to raise their sights to the big recovery in business expected in 2000 and the fact that management is sticking to the forecast, made at the beginning of this year, that revenue will double by 2002. The prospect of riches tomorrow however, cannot disguise the fact that not only has this been a poor year for the Walldorf, Germany-based enterprise resource planning vendor, but management has been hopelessly over-optimistic over prospects at a time when customers were known to be pre-occupied with overcoming Y2K problems.

In the third quarter to September 30, net income fell 64% to 64m euros ($48.5m) on revenue 7% higher at 1.1bn euros ($1.2bn); for the first nine months, net income fell 24% to 285m euros ($307.2m) on revenue 14% higher at 3.4bn euros ($3.7bn). While SAP issued a profit warning earlier this month (CI No 3,768), scaling down its forecast of 20% to 25% revenue growth this year to 15% to 20%, the shares still fell almost 5% on both sides of the Atlantic.

Product revenue fell 2% to 611m euros ($658m) in the third quarter, a decline that the company attributes to slower license sales in the Americas and Japan and weaker revenues in the UK. In common with the other ERP vendors, SAP is continuing to eat into the revenue hitherto enjoyed by outside consultants and consulting revenue was its most buoyant sector in the third quarter, showing a 39% increase to 398m euros ($428.8m).

Product revenues in the first nine months were 57% of total sales, compared with 63% in the same period last year. The decline in importance of this high-margin business is blamed for a forecast that the pre-tax profit margin for the year as a whole is likely to be below the 1998 level, though a modest increase was originally expected.

CEO Henning Kagermann is hopeful that fourth quarter software revenue will be above last yearÆs level, with the result that total sales will show a 15% to 20% rise. But he predicts that the ôblipö in this yearÆs profit will be compensated for in 2000.

Costs have been increased by heavy investment in its mySAP.com internet offering and this is expected to eat into next yearÆs profit. While SAP is confident that it will out perform its competitors next year, even it acknowledges that it has reached such a size that the days of 40% annual growth rates are over. Equally, confidence in the directorsÆ ability to forecast the immediate future has been weakened by their failure to predict SAPÆs problems in 1999.