Brian.oco 0 Posting Whiz

At mid-afternoon trading today the Dow was up 339 points and the NASDAQ is up 47 points.

I’m a bit surprised because most of the economic news coming out today was negative. Housing prices are down, foreclosures are up, consumer confidence is at its lowest point in 35 years, and the White House has been reduced to begging banks that took part in the $700 billion bailout to stop hoarding the money they got from Uncle Sam. Fidelity Investments, Whirlpool and General Motors have all promised big layoffs, as well.

Go figure.

So we’re probably seeing some bargain hunting out there and any jump in stock prices is, I’m afraid, of the temporary variety. Some of this volatility should abate after next Tuesday’s presidential election but Wall Street seems resistant to the reality of an Obama administration. If the Obamanator is elected, look for more short-term volatility until he clears up his plans on taxes, particularly capital gains taxes, which Obama advocates hiking. Further explanation would be needed on the 2003 Bush tax cuts, which expire in 2010 and are seemingly gone for good under an Obama administration.

Fair or unfair politically, Wall Street hates tax hikes, especially capital gains tax cuts. It takes money out of the pockets of investors and into Uncle Sam’s wallet. Where it goes from there is up in the air, but you know it’s not going back into the capital markets.

Aside from all that, another tech biggie weighed in with Q3 earnings, with mixed results. SAP, the globe’s biggest producer of business-software applications, reported that its profits fell by $485 million for the quarter. In the same period in 2007, profits fell by $408 million. Some accounting issues got in the way, as usual with big companies -- SAP said its earnings were impacted by one-time costs related to the $6.8 billion acquisition of Business Objects SA, a Paris-based software company. SAP said in a statement that it would reduce its full-year outlook for operating margin -- a measure of a business's profitability -- because of the "uncertain economic situation."

"In light of the uncertainties surrounding the current economic and business environment, the company decided to no longer provide a specific outlook for software and software-related service revenues for the full-year 2008," SAP’s statement said. The company’s stock has been trading off by three or four points (down to $28 per share in NYSE trading on Tuesday) but SAP doesn’t seem worried. In a separate statement, SAP Co-CEO Henning Kagermann said that "we are assessing business activity continuously, and we are balancing the need for greater efficiencies with steady advancements in our products, customer services and technologies, while addressing customers' most critical business issues."

"This approach has worked well for customers and SAP throughout the up and down economic cycles of the past," Kagermann added. "We've been through uncertainty before, and have always emerged as a better, stronger and more efficient company."

Most of SAP’s revenues during Q3 went to large companies, as smaller firms had trouble getting the credit they needed to buy software from SAP. To amend that situation, SAP is working with smaller companies to help them get financing.

Was Street was neither thrilled or disappointed by the SAP numbers, which I guess is a good thing in an economy this sick. Goldman Sachs software analyst Sarah Friar maintained her “neutral” rating and $43 price target on SAP stock. “We remain mindful of the macro indicators that point firmly to a softening in tech capital spending for 2008 and 2009 (especially in light of the Q3 negative pre-announcement), and valuation is still not compelling, in our view,” she writes. Friar added that “the company indicated that it had a very tough time closing the quarter and with the economic uncertainty now beginning to affect SAP’s closure rates, visibility going forward is quite low.”

An internal email circulating around the Web this morning from SAP higher-ups also caused some concern in trading today. In it, the company’s co-CEO’s said that the software giant might freeze spending – an ominous sign for its partners, suppliers and the global economy overall. “We will review all planned investments in IT equipment, hardware, software…as well as internal IT projects. Do not order any new equipment at this time," the email said.

“No one at this point can say how markets and customers will react in the coming months,” the email adds. “In this turbulent economic environment, we will be giving added attention to sustaining our margin and earnings health.”

Also, directly from the SAP email . . .

* On Headcount and Hiring Freeze: “There is a complete headcount and hiring freeze, and all existing job vacancies will be canceled. This includes any temporary workers, interns, and students. There will be no replacements for employees leaving SAP. No internal transfers may take place. Only those written offers sent to a candidate and/or internal transfers agreed to on or before October 7, 2008, will go forward.”

* On Third-Party Expenses: “Since we are not hiring, all engagement with external recruiters must cease immediately. We will discontinue engagement with management consultants and evaluate the impact this has on ongoing projects. Until further notice, all external training is to be canceled. Internal meetings must be held within SAP buildings, and you cannot rent external conference facilities for this purpose.”

* On Travel: “Cease ALL internal non-customer-facing travel in October…Any non-customer-facing travel already booked should be canceled immediately, even if this incurs penalties.” SAP sales people will also have to fly coach from now on unless they use miles to upgrade, the email said.

This is real-world stuff, a harsh reaction to a harsh economic environment. Look for more companies to take the same steps over the next few weeks.

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