Shares in SAP (SAPG.DE: Quote, Profile, Research) fall 0.3 percent, underperforming the German large cap DAX index .GDAXI, which is up 0.3 percent, as Merrill Lynch downgrades the business software specialist to "neutral" from "buy" and cuts its price target to 32.50 euros from 36 euros.
In a note to clients, the brokerage says it continues to see SAP as a strong software maker over the long term, but says there is the risk SAP will continue to warn in the short term as reported licence revenue is likely to continue to fall short of still too bullish expectations.
"The current fourth quarter is such a situation. SAP generates over 40 percent of its annual licence revenue this quarter. The spending environment is at its worst for decades and hence we could easily see another profit warning in January," the brokerages says.
Merrill Lynch adds that a recently held survey of chief investment officers shows that 70 percent of those polled are expecting a recession, significantly worse than three months ago this was at 64 percent.
"More worryingly is that 44 percent of CIOs are currently delaying software spending decisions due to the economic uncertainty. This means that in a quarter where SAP needs every help it can get, given the large amount of contracts it needs to sign, it will run more and more against closed doors." the brokerage concludes.