German Software Maker's Move Pressures Stock in Pleasanton, Calif., Firm.

Byline: Jessica Guynn

Jan. 17--Commerce One Inc. and SAP AG have canceled part of their agreement to jointly market and sell software, prompting speculation that the German software giant is pulling out of the partnership considered critical to the Pleasanton-based company and triggering a sharp sell-off of Commerce One shares.

The decision to scale back the partnership was made at a meeting early this year between top SAP executive Hasso Plattner and Commerce One Chief Executive Mark Hoffman, according to a published report. Plattner reportedly urged Commerce One to generate its own business even if that means competing head-to-head with SAP.

Shares of Commerce One, which makes online software that connects buyers and suppliers over the Web, plunged 31 percent, or $1.18, to $2.68 in heavy trading Wednesday, making it one of the biggest percentage losers on Nasdaq.

Commerce One and SAP officials moved quickly to downplay the significance of the news that the two companies, which develop their own purchasing software but marketed the products together, will now sell those products separately.

The 20-month old partnership is not "breaking down," Mark Hoffman, chief executive officer of Commerce One, told the Times. "We were adjusting our strategy in a relatively small portion of the contract around purchasing applications. There are many other facets to our relationship that generate a significant amount of revenue."

Gary Fromer, chief strategist of SAP Markets, also called purchasing software a "minor portion" of the partnership and denied rumors that SAP is distancing itself from Commerce One. "Quite the opposite," Fromer said in a joint phone call with Hoffman.

"SAP and Commerce One have had what I would call an industry-defining alliance since mid-2000," Fromer said. The two companies will continue

to work together on developing software to run Internet marketplaces, Fromer said.

With a 20 percent stake in Commerce One, SAP is heavily invested in Commerce One's success, Fromer added. Last summer SAP paid $225 million to raise its ownership stake in Commerce One from 4 percent.

SAP and Commerce One formed the partnership in June 2000 to go after what was then a promising market for online marketplaces and purchasing. Under the agreement, SAP and Commerce One combined their online marketplace software and agreed to jointly market their purchasing software.

With the market for large online marketplaces -- where companies could buy and sell products and services -- never quite getting off the ground, the partnership has been a lifesaver for Commerce One, which has come to rely on SAP for a substantial number of customers and portion of its revenues.

The downturn in the economy and in corporate spending on technology has walloped Commerce One. The company was forced to fire nearly half its staff in October.

Analysts have speculated for months the partnership with SAP was unraveling. This split, they say, is just the latest in a series of moves that suggest major cracks have emerged in the partnership that many had once speculated would result in SAP buying Commerce One.

Late last year Commerce One launched a new product, sourcing software, which allows companies to find suppliers and buy goods and services in Internet auctions. Last week SAP Markets Inc., the exchange arm of SAP, launched its own sourcing software, putting the two companies in direct competition.

"The relationship is not as smooth as it once was," said Jon Ekoniak, senior research analyst with U.S. Bancorp Piper Jaffray, who called the partnership "critical" if Commerce One "wants to be a strong growth company."

That SAP is cooling the relationship puts more pressure on Commerce One, said Michael Hughes, an equity analyst with Raymond James & Associates. "The sourcing area is a hot space; if Commerce One's solutions gain traction that will help the company turnaround," Hughes said. "If they don't, Commerce One is going to be faced with some real issues."

Next week Commerce One plans to release its fourth-quarter results. Ekoniak expects Commerce One to post fourth-quarter revenue of $59 million and a pro forma loss of 16 cents.

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(c) 2002, Contra Costa Times, Calif. Distributed by Knight Ridder/Tribune Business News.

TICKER SYMBOL(S): CMRC, SAP