News - Business Tech

Unisys announced Tuesday that it has named J. Edward Coleman as its new chief executive.

Coleman will take on the roles of chairman and CEO. He replaces Joseph McGrath, who served as CEO for the past three years, and whose departure was announced last month. Henry Duques will step down from his position as chairman of the company's board but will become lead director instead.

In a statement, Unisys touted Coleman as a master of corporate transformations and turnarounds. Most recently, he served as CEO of Gateway for a little more than a year. In that short amount of time, he managed to work out a deal with Acer to buy the troubled PC maker. He has more than 30 years' experience in the IT industry and has held executive positions at CompuCom and Arrow Electronics.

Unisys' statement said, "(Coleman) has a strong track record of helping IT companies successfully narrow their business focus and build on core strengths to drive revenue and earnings growth. Throughout his career he has shown himself able to drive change from vision to execution, with a proven focus on operational improvement."

He'll have his work cut out for him. For most of the year, Unisys' stock has stayed below the $5 mark, and the company has faced declining revenues.

After a whiplash session on the markets a day earlier, investors were treated to another harrowing ride Tuesday, with the Dow Jones industrial average plunging more than 500 points.

The steep sell-off seems to be partly a reaction to comments from Federal Reserve Chairman Ben Bernanke, who issued a warning Tuesday that the economic malaise could very well continue through the next year.

At the end of the trading day, the Dow closed down 508.39 points at 9,447.11, marking its fourth-consecutive day of losses and a second day where the Dow ended below the 10,000 mark.

And the tech-heavy Nasdaq performed just as poorly, falling 108.08 points to end the session at 1,754.88. The S&P 500 also took a beating, ending the day down 60.66 points to 996.23.

In the tech sector, Microsoft closed down 5.98 percent to $23.42 a share; Cisco Systems was down 7.14 percent to $19 a share; Apple was down 8.9 percent to $89.41 a share; and Network Appliance took the largest hit with a 12.2 percent decline to $12.95 a share.

Meanwhile, the CNET Tech Index, like the broader markets, fell more than 5 percent. The CNET Tech Index fell 72.43 points to 1,204.24, or 5.67 percent.

Shares of SAP and Google continued their downward trek, as Wall Street weighed in Tuesday with earnings cuts.

Google's shares dropped as low as 5.6 percent in intra-day trading to $350.26 a share, following a 2008 and 2009 estimated earnings cut and lowered price target offered by Stifel Nicolaus analysts. And SAP, which saw its shares pummeled Monday after issuing a warning its third quarter was not shaping up as anticipated, suffered a further decline as analysts cut their earnings estimates.

SAP, an enterprise software behemoth, had its price target reduced to $35 a share from $45 a share by Patrick Walravens, a JMP Securities analyst. He also reduced his SAP earnings estimates to 1.81 euros ($2.47) per share from 1.90 euros ($2.59) per share for 2008, and his 2009 forecast to 2.14 euros ($2.92) from 2.18 euros ($2.97) per share.

Walravens noted in his SAP research note:

While the valuation is getting interesting, we still have several concerns. First, one industry source suggested to us that 4Q could see "a big drop" in orders compared to prior fourth quarters. We think it is important to get a read on how the 4Q business is building and how 2009 might look. Second, our due diligence suggests that 2Q and 3Q may have each included license revenue in the tens of millions from a deal with a major food company--possibly setting up a more difficult sequential comp in 4Q. Third, as we discussed last week, another industry source suggested that one of SAP's customers may have stalled a deal as it saw its own customers beginning to delay payments. This behavior may well intensify in 4Q. Last, we note that it may be more difficult for SAP to reduce expenses than might be the case for Oracle given the high concentration of SAP employees in German and Europe.

On the Google front, analyst George Askew and Reed Meyer of Stifel Nicolaus lowered their Google price target to $525 a share from $600 a share, as well as cut the earnings estimates for 2008 and 2009.

The analysts cut Google's earnings estimates to $19.37 a share from $20.20 a share for 2008, while also trimming back 2009 to $23.51 a share from $26.01 a share.

Askew and Meyer noted in their research note:

We are reducing our financial projections for Google to reflect a more cautious global economic outlook. Our belief is based on 1) the apparent sharp slowdown in business activity late in 3Q08 for companies globally as the ongoing credit crisis depressed business and consumer confidence, and 2) the negative revenue impact of foreign currency moves relative to the stronger U.S. dollar. We conservatively project the economic slowdown to continue through 2009.

Google is scheduled to report its third quarter financial results on October 16, while SAP is scheduled to report its earnings on October 28.

Advanced Micro Devices appears to have found an alternative to going fabless.

The dramatic announcement by AMD Tuesday, which focuses on a new entity known for now as The Foundry Company, shows that there is another way to restructure that doesn't entail completely jettisoning manufacturing operations--referred to in the semiconductor industry as fabs or fabrication facilities.

"Real men have fabs." This quote attributed to former AMD CEO and Chairman Jerry Sanders has some import here. Though fabless concerns, such as Nvidia, have been held up as lean, mean chip-supplying machines that don't have the burden of funding costly manufacturing facilities, the downside is often ignored by Wall Street.

Going completely fabless separates the company from key process technologies that are needed to stay ahead. That's especially true in AMD's case, where the sole processor rival is chip behemoth Intel, which derives much of its strength by moving quickly from one chip manufacturing process to another. Going to a new manufacturing process typically results in faster, more power-efficient processors.

This artist's rendering shows what AMD expects its New York facility to look like when it opens for business about three to four years from now.

(Credit: AMD)

Look no further than the state AMD finds itself in today. It is a generation behind Intel, which has been shipping chips based on the 45-nanometer process for almost year. AMD is currently struggling to get out its first generation of 45nm processors.

The newly created Foundry Company was described by AMD Chief Executive Dirk Meyer on Tuesday as a "brand-new and leading-edge semiconductor manufacturing company." It will be run by Doug Grose, who will relinquish his current role as AMD's senior vice president of manufacturing operations to become CEO of The Foundry Company.

Two things will happen as a result of the backing by the Abu Dhabi-based investors. First, AMD, through the joint company Advanced Technology Investment Co. (ATIC), will expand its current manufacturing facilities in Dresden, Germany, and transform this into a foundry company that also builds chips for other companies.

As part of this expansion, Dresden will bring in IBM's silicon-on-insulator (SOI) and so-called "bulk silicon" technologies. "We deepen and widen our relationship with IBM," AMD said Tuesday. "So we'll be able to take bulk and SOI together to the 22-nanometer generation and beyond." (The next generation of chips will be made on a 32-nanometer process, followed by 22-nanometer in the 2012 time frame.)

AMD's Fab 36 in Dresden will focus on IBM's silicon-on-insulator (SOI) and so-called "bulk silicon" technologies.

(Credit: AMD)

Second, AMD will move forward to build manufacturing facilities at the Luther Forest Technology Campus, near the town of Malta, N.Y. "At the earliest opportunity we will break ground on upstate New York and begin work on what we believe will be the most sophisticated manufacturing facility in the United States," AMD said.

The intention is to "bring that fab online in the late 2011, 2012 time frame," AMD said. "And further cementing that upstate New York corridor as one of the leading (areas) in the world for nanotechnology." The planned facility will provide 1,400 jobs for the region, according to AMD.

AMD may also expand beyond Dresden and New York. "Once we complete the Dresden expansion and build out upstate New York--and if commercially justified--we will consider the creation of research and manufacturing facilities in Abu Dhabi," said Grose.

Hector Ruiz--the current AMD chairman--will relinquish his role as AMD's executive chairman to become chairman of The Foundry Company.

Advanced Micro Devices is shedding its cost-intensive chip-manufacturing operations in a bid to stay afloat financially.

On Tuesday, AMD and Advanced Technology Investment Co. announced a broad restructuring plan that centers on the creation of a new entity, temporarily titled The Foundry Company, that will take over the manufacture of processors for AMD. Early word of the restructuring came Monday night.

ATIC, which is based in Adu Dhabi, United Arab Emirates, was formed this year. According to its Web site, ATIC is a tech investment company "wholly owned by the government of Abu Dhabi."

In addition, Abu Dhabi-based Mubadala Development will increase its current investment in AMD to 19.3 percent. According to its site, six-year-old Mubadala's "sole shareholder is the government of the Emirate of Abu Dhabi."

The overall deal is expected to close at the beginning of 2009, the companies said.

Here are the full details of Tuesday's announcement, as listed in the press release from AMD and ATIC:

Upon closing, The Foundry Company will:

• Have a total enterprise value of $5 billion, consisting of AMD's contribution of manufacturing assets and intellectual property (including its fabrication facilities in Dresden, Germany), intellectual capital and employees valued together at $2.4 billion; ATIC's contribution of $1.4 billion in new capital; and $1.2 billion of debt assumed by The Foundry Company from AMD.

AMD's Fab 36 in Dresden, Germany.

(Credit: AMD)

• Be consolidated with AMD for purposes of financial reporting.

• Have a board of directors whose membership is equally divided between representatives of AMD and ATIC.

• Have only AMD and ATIC as stockholders, each of which at the closing will have equal voting rights.

• Be owned 44.4 percent by AMD and 55.6 percent by ATIC on a fully converted to common basis. ATIC's economic ownership will increase over time based on the differences in securities held by AMD and ATIC, and depending on whether AMD elects to invest proportionately with ATIC in future capital infusions to support The Foundry Company's growth.

• Have its principal headquarters in Silicon Valley, and its research and development and manufacturing leadership teams and ecosystems in New York, Dresden, and Austin, Texas;

• Have an exclusive supply agreement with limited exceptions to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products.

• Begin construction of the Fab 4X manufacturing facility in New York in the middle of 2009, directly employing more than 1,400 workers in upstate New York when the facility is in full operation.

• Expect to increase capacity through completing the 300mm conversion of a second state-of-the-art facility in Dresden in 2009.

• Join the IBM technology development alliance for both SOI (silicon on insulator) and bulk silicon technology, greatly expanding the addressable market of The Foundry Company.

• After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi.

• Announce its permanent corporate name and identity.

Upon closing, AMD will:

• Have equal voting rights with ATIC in The Foundry Company.

• Own 44.4 percent of The Foundry Company on a fully converted to common basis.

Artist's rendering of the planned Fab 4X in New York.

(Credit: AMD)

• Improve its liquidity through The Foundry Company's assumption of approximately $1.2 billion of AMD's debt, ATIC's $700 million payment to AMD for ownership interests in The Foundry Company, and Mubadala's purchase for $314 million of 58 million newly issued AMD shares and warrants for 30 million additional shares.

• Tightly focus on the design and development of the next generation of innovation based on the fusion of computing and graphics processing.

• Elect a Mubadala designee as a member of its board of directors.

• Excluding its consolidation of The Foundry Company for financial reporting purposes, improve its net cash position by $2.1 billion, through The Foundry Company's assumption of approximately $1.1 billion in debt (net of approximately $100 million cash transferred by AMD to The Foundry Company) and cash payments from ATIC and Mubadala aggregating $1 billion.

• Have the option, but not any requirement, to provide additional capital funding to The Foundry Company in response to future capital calls.

• Have an exclusive supply agreement with The Foundry Company, with limited exceptions, to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products.

Upon closing, ATIC will:

• Have equal voting rights with AMD in The Foundry Company.

• Own 55.6 percent of The Foundry Company on a fully converted to common basis.

• Invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD.

• Commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden and construction of a new facility in upstate New York.

Upon closing, Mubadala will:

• Purchase for an aggregate of $314 million 58 million newly issued AMD shares and warrants for 30 million additional shares, giving it a total stake in AMD of 19.3 percent on a fully diluted basis.

• Have a right to designate a representative for election as a member of the board of directors of AMD.

Update Tuesday 4:12 a.m. PDT: AMD has made the official announcement of the manufacturing spin-off.

On Tuesday, Advanced Micro Devices will announce a long-expected restructuring, according to sources familiar with the deal.

As expected, the No. 2 supplier of PC processors will split into two companies: one for designing chips, the other for manufacturing them. The capital-intensive business of manufacturing chips is weighing on AMD as it reels under a $5 billion debt load.

The investment is expected to allow AMD to remain directly involved in chip manufacturing--crucial for competing with Intel, which has used its manufacturing prowess to great advantage.

AMD would not comment Monday.

The company has secured about $5.7 billion of "confirmed, pledged investment," with some of the money earmarked for a future manufacturing facility in Malta, New York, according to sources.

AMD will own part of the new manufacturing entity, for the time being to be called The Foundry Company, while Advanced Technology Investment Co. (ATIC) will own the rest. One of the investors, Abu Dhabi-based Mubadala Development Co., invested approximately $622 million in AMD last November.

Mubadala already holds an 8.1 percent stake in AMD. Upon closing the deal, Mubadala will own 19.3 percent of AMD, according to sources.

ATIC--also based in Abu Dhabi--will have equal voting rights with AMD in The Foundry Company and own 55.6 percent of the new entity. ATIC will invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD, according to sources close to the deal.

In addition, ATIC will commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden, Germany, and construction of a new facility in upstate New York, near the town of Malta.

Mubadala, for its part, will purchase 58 million newly issued AMD shares valued at $314 million and warrants for 30 million additional shares, giving it a total stake in AMD of approximately 19.3 percent on a fully diluted basis, sources said.

Mubadala will also have the right to designate a representative for election as a member of the board of directors of AMD.

All of this is expected to greatly improve AMD's liquidity.

AMD CEO Dirk Meyer and other company executives are expected to make the announcement Tuesday.

The investment is characterized by one source as coming from investors with "a long-term vision, who want to help (AMD) scale the foundry operations to compete globally." A foundry is a manufacturing facility.

AMD has been laboring for months over details of the restructuring, which it has termed "Asset Smart." AMD Chief Financial Officer Bob Rivet said during AMD's second-quarter earnings conference call that Asset Smart would be "a major reformation of the company."

Also, at that time, AMD announced that Meyer would take over as CEO and Hector Ruiz would relinquish that post but remain as chairman to oversee AMD's transition to Asset Smart.

AMD already has a relationship with IBM in which AMD uses IBM's advanced test manufacturing facilities.

Nvidia has become a Silicon Valley hot spot for rumors. One is tied to an analyst downgrade Monday, the other to the rumored Apple MacBook refresh.

An analyst rekindled speculation Monday that the world's largest graphics chip supplier would sell off its chipset business, while rumors persist that the company would play a larger role in an expected refresh of the Apple MacBook.

Nvidia graphic on its notebook home page

(Credit: Nvidia)

Nvidia shares fell Monday after a Pacific Crest analyst issued a negative report on the company's prospects. In the report, the analyst said "our checks confirm" that Nvidia will exit the chipset business next year.

Nvidia chipsets--sometimes referred to as MCPs--serve as supporting silicon for the company's graphics processors. In the past, Nvidia has denied that it will exit the chipset business.

The analyst also speculated that Nvidia will pre-announce negative results for the third quarter (ended October). Nvidia has been dogged by negative press and analyst reports after it disclosed issues with its processors and chipsets back in July.

If that wasn't enough, Pacific Crest said Nvidia may see share loss in the notebook market next year as a result of a future refresh of "Montevina" graphics silicon from Intel.

But not all is lost. On the upside, rumors persist that Nvidia will play a large role in an expected MacBook refresh this month. The latest rumor holds that Nvidia is showing off prototypes internally of upcoming MacBooks with new Nvidia silicon.

Some are even pointing to a graphic on the Nvidia notebook home page of a slim notebook design as a possible MacBook design--though a more plausible explanation is that it's simply generic artwork.

Apple uses Nvidia graphics chips in its high-end MacBook Pros, but the MacBook and MacBook Air use Intel integrated graphics silicon. One of the latter two could be recipients of new Nvidia graphics chips.

Nvidia would not comment on the rumors.

Despite the inscrutable language people often use when talking about the dynamics of the high-tech market, predicting when the industry is about to run into trouble isn't that difficult.

Here's how you do it: Start with companies like Applied Materials that make chip manufacturing equipment; when their orders are down, that means the chipmakers like Intel, Advanced Micro Devices, and Texas Instruments figure they don't need to increase their manufacturing capacity. That, in turn, means the PC and server makers are seeing demand slip. That means demand for consumer electronics and consumer software is also going to slip.

As the big guys run into trouble, the start-ups that haven't turned a profit will disappear, either into the arms of another company or into bankruptcy. Finally, the big corporate software makers like SAP and Oracle--the last refuges of tech investing--will take their hits as buyers put off long-term software projects.

At least, that's how it usually works.

(Credit: Susan Dove/CNET Networks)

The formula may have been turned upside down Monday, with the big tech stocks leading the way into the cellar. CNET's Technology Index, which tracks 66 publicly traded tech companies, dropped 4.08 percent to 1,276.67 Monday, its lowest close in more than two years. And it could have been worse: At one point in the day, the CNET Index was at its lowest point since May 2005. A late rally brought some stocks back just before trading ended. The drop in the CNET Index was similar to a 3.08 percent drop in the Dow and 4.34 percent decline in the Nasdaq index.

Don't blame the start-ups for this one, though they may end up suffering the most for it. The tech crash Monday was led by one of the most sober names in tech, German corporate software maker SAP. SAP announced Monday that it would miss third-quarter expectations, sending its stock into a tailspin. SAP shares closed at $39.68 per share, down 13.08 percent for the day and a new 52-week low. (For more on Monday's meltdown, check out CNET TV's Daily Debrief.)

The rest of the enterprise software industry went down with the Germans. Shares at archrival Oracle closed the day down more than 6 percent to $18.30 per share. On-demand software provider Salesforce.com saw its shares drop 2.81 percent to $40.40 (a 52-week low) on both the SAP news and an analyst's report that intimated that demand may be slackening.

Among big Internet companies, the news wasn't much better. eBay led declines, with shares down 5.54 percent to $17.89 per share at the end of the day. That's more than $1 below the company's previous 52-week low. eBay said it was laying off 1,000, but, oh yeah, was still flush enough to spend more than $1.3 billion on three acquisitions. Google dropped 4 percent to close at $371.21, also a new 52-week low. And Yahoo ended the day down 4.31 percent to $15.31 per share, yet another 52-week low. (That kaput Microsoft offer must be looking awfully nice to some aggravated investors right about now.)

SAP and other enterprise software companies aren't supposed to be leading indicators for the tech industry--they're usually laggards. During the dot-com boom, big software companies like Oracle and SAP were among the last to fall victim to the downturn. At one point, Oracle CEO Larry Ellison surveyed the tech industry wreckage and enthusiastically speculated whether his company was counter-cyclical. (The idea was, companies would invest in Oracle software to save money through automation.)

Turns out, Oracle wasn't counter-cyclical, nor was anyone not in the business of auctioning abandoned dot-com office supplies.

A case of the jitters
So what happened Monday? Though it's been in the making for some time, the speed at which the financial industry has unraveled has been stunning, and its impact on spending plans at big corporations is likely significant. SAP was particularly vulnerable because of the way enterprise software is typically sold--in a rush at the end of the quarter. The quarter that just ended, unfortunately, happened to coincide with the near-collapse of the American banking system.

So what about all those tanking Internet stocks? So far, the sell-off appears to be based more on fear than reality. eBay said it would come in near the bottom of its earnings expectations, and there's been no word so far out of Yahoo and Google. But investors clearly aren't thrilled with eBay's acquisitive ways in the face of a bad economy, and they're worried about online advertising slowing down. Netflix had bad news, too, casting doubt on online consumer spending heading into the holiday season.

There are other question marks before we can really make sense of what happened Monday. Shares of Apple, for example, were down as much as 7 percent at one point in the afternoon, but ended the day up 1.1 percent at $98.14 per share (that's about $4 above Apple's 52-week low). But Apple was one of only seven companies on the CNET Index to see gains for the day. Other big companies like Microsoft, Intel, and Cisco Systems saw significant losses.

Companies that aren't as reliant on selling multimillion-dollar software at the end of the quarter (and instead rely on lower-priced items sold more evenly through the quarter) aren't likely to see an impact from the souring economy quite as quickly as SAP. But they won't avoid it for long, with consumer confidence slipping and unemployment rising. Translation: the results of the current quarter will unquestionably be the most closely watched numbers since the tech industry crawled back from the dot-com bust.

People say SAP is indicative of the health of corporate software sales. But the rest of tech should hope it's not a canary in the coal mine for the entire industry.

IBM on Monday launched a major initiative into cloud computing, a current term for Internet-based services, in an effort it hopes will challenge the early lead of cloud pioneers such as Amazon and Google.

Among the offerings launched on Monday is "Bluehouse," a Web-based social-networking and collaboration service designed for business, a test version of which is available from IBM's Web site.

Bluehouse allows users to carry out many of the activities associated with social networks, but is specifically designed for businesses, with features such as document and contact sharing, joint projects, online meetings and online communities. The project is intended as a way for businesses to connect to partners, agencies, suppliers, customers, and outside experts.

Other services introduced on Monday include Lotus Sametime Unyte, for Web conferences and document sharing; Rational Policy Tester OnDemand, which scans Web content to deal with compliance issues; Rational AppScan OnDemand, which scans Web applications for security bugs; and Telelogic Focal Point, which enables information sharing among project management, engineering, marketing, and other teams.

The concept of cloud computing incorporates other recent developments in Internet-based computing, such as software as a service and the rich browser-based interfaces associated with Web 2.0. Google promotes the concept through its Google Apps, and Amazon through its Elastic Compute Cloud (EC2).

The term "cloud" itself is an abstraction of the idea of the Internet, and is based on the cloud symbol often used to represent the Internet in diagrams.

Like Amazon, Google, and others, IBM has recently invested in data centers specifically geared for the delivery of cloud services. It has new centers in Sao Paulo, Brazil; Bangalore, India; Seoul, Korea; and Hanoi, Vietnam, bringing the total number of its hubs to 13.

Unlike more Internet-centric companies, IBM said it is able to help companies run services internally, as well as taking advantage of the cloud.

For instance, IBM's clients and partners will be given access to specialists in its 13 cloud-computing centers and 40 IBM Innovation Centers, who can help organizations test their applications. IBM is also creating a series of white papers and is providing marketing resources for software makers who want to build and sell their own cloud services.

"We are moving our clients, the industry and even IBM itself to have a mixture of data and applications that live in the data center and in the cloud," Willy Chiu, vice president of high performance on demand solutions at IBM, said in a statement.

IBM argued that cloud computing is a way for businesses to draw more value from their existing IT infrastructures, since much of the work is offloaded onto remote servers, but the cloud-computing concept has received sharp criticism recently from the likes of Oracle CEO Larry Ellison and Free Software Foundation President Richard Stallman.

In an interview with The Guardian last week, free software pioneer Stallman said cloud computing is "worse than stupidity" because it leaves users vulnerable.

"If you use a proprietary program or somebody else's Web server, you're defenseless. You're putty in the hands of whoever developed that software," he said.

During Oracle's annual financial analyst meeting in September, Ellison also criticized the companies rushing to roll out cloud services, saying the trend is "fashion-driven."

"It's complete gibberish. It's insane. When is this idiocy going to stop?" Ellison said.

Microsoft Chief Executive Steve Ballmer, speaking to delegates at a Microsoft-sponsored developer conference in London last week, said the company will launch an operating system for the cloud in four weeks.

Tentatively titled "Windows Cloud," although Ballmer suggested it would have a "snazzier name" at launch, the product is designed to make it possible to "just...write an application and...push it to the cloud," Ballmer said.

Matthew Broersma of ZDNet UK reported from London.

SAP warned that its third-quarter revenues are expected to come in below Wall Street's projections, driving its stock down by a whopping 17.6 percent in intraday trading.

The enterprise software behemoth noted that a preliminary review of its financial performance indicates that its third-quarter software and software-related service revenues are expected to range between 1.97 billion and 1.98 billion euros ($2.66 billion to $2.68 billion), a 13 percent to 14 percent increase over the same time last year.

However, Wall Street had been expecting the company to post revenues of 2.863 billion euros ($3.87 billion), according to Thomson Financial.

Henning Kagermann, SAP's co-chief executive, had this assessment in a statement:

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.

Throughout the third quarter, we felt quite positive about our ability to meet our expectations. Unfortunately, SAP was not immune from the economic and financial crisis that has enveloped the markets in the second half of September, causing us to report numbers below our expectations.

On the bright note, Kagermann noted that while revenues contracted, the business fundamentals of its operations remain intact.

"SAP did report double-digit growth in software and software-related service revenues for the quarter, and we expect to have gained further market share," he said.

Nonetheless, SAP shares fell 17.6 percent to $37.60 a share in intraday trading, as investors bailed on the stock.

SAP archrival Oracle, meanwhile, also saw its stock sink, as investors worried that SAP's woes are an industry problem and not just SAP-specific.

Oracle fell as much as 10.5 percent to $17.43 a share in intraday trading, compared to Friday's close.