SAP, which rose 5.6% on Thursday, shared Q1 numbers that were better than feared in many ways. Revenue of €6.52 billion ($7.12 billion) was close to a €6.56 billion consensus, with total software/cloud revenue growing 7% to €5.4 billion ($5.9 billion).
But it's worth keeping in mind here that since a very large portion of SAP's revenue (like that of many peers) comes from annual or multi-year cloud subscription and software maintenance contracts, much of the company's Q1 revenue was booked (and to a large degree, billed and paid for) before the quarter started. Software license revenue, which is typically recognized around the time of booking, fell 31% after having dropped just 4% in Q4.
Moreover, SAP cut its full-year, constant-currency, revenue guidance to €27.8 billion to €28.5 billion ($30.36 billion to $31.12 billion ) from €29.2 billion to €29.7 billion ($31.89 billion to $32.43 billion). The company added that this outlook assumes its demand environment "deteriorates through the second quarter before gradually improving in the third and fourth quarter as economies reopen and population lockdowns end."
Separately, networking hardware vendor Extreme Networks (EXTR) fell 8.6% on Thursday after warning it expects to report March quarter revenue of about $210 million, well below prior guidance of $255 million to $265 million.
Not surprisingly, Extreme said demand fell sharply during the last three weeks of March thanks to COVID-19 lockdowns, and also noted that supply constraints and border closures weighed on sales. The guidance cut could be a leading indicator for what larger IT hardware firms, such as Cisco Systems (CSCO) , Hewlett-Packard Enterprise (HPE) and Dell Technologies (DELL) , are seeing.
SAP and Extreme's guidance cuts come as reports of major 2020 IT budget cuts continue swelling. There are also a growing number of reports indicating that businesses currently seeing major revenue declines are taking longer to pay for tech products and services that they've been billed for, and that enterprises more generally are both holding off on signing new software deals and seeking larger discounts.
In an April 5 note, Canaccord Genuity's Richard Davis and David Hynes Jr. reported hearing "from some companies that sell to airlines and certain energy companies that those customers have told them that they will miss payments this quarter." And in an April 8 note, BTIG's Gray Powell reported hearing that companies that were previously comfortable asking for 10% to 20% software discounts "are now expecting discounts in the 40%-50% range." He added that companies are also now more likely to look for more lenient payment terms for contracts.
Microchip, which was one of the first chipmakers in 2018 to report seeing sales pressures as a cyclical downturn got underway, said on Wednesday afternoon that it thinks its sales rose 3% sequentially in the seasonally weak March quarter, topping prior guidance for flat sales. The company also reported its backlog is up about 9% from where it was three months earlier.
So why did Microchip drop 1.4% on Thursday? The company said it thinks its bookings growth could be the result of inventory-building by customers worried about supply chain disruptions. The comments come a few days after rival NXP Semiconductors (NXPI) said (while cutting Q1 guidance) it turned down about $150 million worth of distributor orders in Q1 to keep channel inventory at normal levels, and two weeks after Micron Technology (MU) raised the possibility that some of its customers are stockpiling inventory.
And -- citing things such as massive layoffs, factory closures and global economic contraction -- Microchip forecast demand for its products "is likely to weaken significantly." End-markets that the company has meaningful exposure to include automotive, industrial, aerospace/defense, telecom equipment and data center hardware.
With major tech earnings reports set to begin arriving in less than two weeks, SAP, Extreme Networks and Microchip's disclosures are likely a sign of things to come.