By Falguni Bhuta

Business software maker SAP’s shares closed down almost 8 percent in Frankfurt Friday after the German company announced preliminary quarterly results that disappointed investors.

Shares of the Waldorf, Germany-based SAP closed at 39 euros on the German stock exchange, its biggest one-day slump in four years. Late Thursday evening, SAP said license sales in the United States and Asia had missed expectations.

The slowing growth of giants like SAP and its largest rival Oracle is an indication of the general slump in the software market, analysts said.

SAP’s fourth quarter revenues rose around 7 percent to 2.95 billion euros compared to revenues in the year-ago quarter, which was half as much as analysts expected. Analysts’ were most concerned that SAP’s license revenue was 1.26 billion, below the consensus estimate of 1.35 billion euros. License revenue is a common growth indicator in the software industry because it reflects how much new software customers are buying.

SAP’s results were particularly slow in the United States, one of the largest markets for business software companies. During the fourth quarter, SAP’s U.S. revenues grew 15 percent quarter over quarter, the company’s weakest performance in three years.

Merrill Lynch analyst Kash Rangan said software stocks could be under pressure in 2007 because of a boarder slowdown in software spending.

Oracle’s recently announced quarter showed similar slowing U.S. growth. The RedwoodShores, California-based company’s mid-December report also disappointed investors and drove down its stock (see Oracle Disappoints Investors).

Analysts also said SAP faces growing pricing pressure from Oracle, which has been on an acquisition spree since 2004. “We believe the competitive environment is getting tougher,” said Cowen & Co. analyst Peter Goldmacher in a research note.

Slowing market growth comes as the German group tries to get customers to switch from its older products and strategies to a newer technology called Service Oriented Architecture (SOA), said AMR Research analyst Bruce Richardson.

Business software companies are in between new product cycles and customers want to wait before they upgrade. SAP is also moving its into the mid-sized corporate market after focusing for years on large corporations.

“There is very less that is exciting for the buyer—nothing that is going to improve their competitive positions or margins,” Mr. Richardson said.

SAP may also be distracted by speculation about the fate of CEO Henning Kagermann, who turns 60 this July and may retire to make way for a successor. Mr. Kagermann has been leading the company since 1998 and board members recently said they would renew his contract for another year at a board meeting in February (see SAP Keen to Keep Kagermann).

Contact the writer: Fbhuta@redherring.com