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SAP warns China's slowdown is hurting software sales

The SAP logo is seen on a building at the SAP India labs campus in Bangalore June 24, 2009. REUTERS/Punit Paranjpe
The SAP logo is seen on a building at the SAP India labs campus in Bangalore June 24, 2009. REUTERS/Punit Paranjpe

By Maria Sheahan

FRANKFURT (Reuters) - German business software maker SAP AG trimmed its sales outlook for this year, warning that a slowdown in China was prompting companies across Asia to put investments on hold.

China's growth rate slowed to 7.5 percent in the second quarter, the ninth quarter in the last 10 that expansion has weakened, in a setback for companies betting on a continued boom in the world's second-biggest economy.

"The slowdown in China is now also impacting the tech industry," co-Chief Executive Jim Hagemann Snabe told journalists on Thursday.

That was having a knock-on effect to other companies in the region. Companies in Japan, Australia and New Zealand, particularly, have become more hesitant about investing, Snabe said.

SAP's biggest competitor, U.S.-based Oracle, last month blamed Asia and Latin America for its disappointing software sales and subscriptions.

The company cut its outlook for revenue growth from software and software-related services to at least 10 percent in 2013, excluding exchange-rate fluctuations, compared with a previous forecast for 11-13 percent growth.

In the second quarter, its software sales to customers in Asia-Pacific Japan dropped 10 percent at constant currencies, the second quarter in a row of double-digit declines, after rapid growth last year.

Including exchange-rate effects, sales were down 17 percent.

Snabe said he expected business in Asia-Pacific to recover, though it was hard to predict when. "We will continue to invest in Asia-Pacific," he said.

Shares in SAP were down 2 percent at 56.53 euros by 0913 GMT, in a flat market.

"It's only in the short-term that they may face difficulties, given the negative economic environment and the bottleneck in investments in the SAP client base," said Frank Niemann and Tobias Ortwein, analysts at Pierre Audoin Consultants.

"In the long term, it's a good story with more innovation likely to come."

SWITCH TO CLOUD

SAP, whose software helps companies manage supplies, human resources and customers relations, is reducing its reliance on traditional business software to become a major player in cloud computing.

The company reiterated that it expects 2013 operating profit to rise to 5.85-5.95 billion euros ($7.7-$7.8 billion) at constant currencies, from 5.21 billion in 2012 as it contains costs and banks on growing demand for cloud-based services.

SAP has launched a cloud-based version of its HANA tool, which helps companies analyze large quantities of data quickly and competes with Oracle's Exalytics product, as well as a new version of its Business Suite software running on top of HANA, which it started offering in mid-May.

It has spent billions of euros to buy Internet-based computing companies Ariba and SuccessFactors and battle IBM and Oracle as well as nimbler rivals like Salesforce.com Inc and Workday Inc for market share.

"We have about 30 million cloud users now, which gives us by far the largest subscriber base in the cloud," Snabe said, referring to the global market.

In the short term, customers' switch to cloud computing will hurt revenue growth because payments for cloud-based services are made in installments rather than up-front in full, but that effect is expected to even out in the long run.

In the three months through June, SAP's software and software-related service revenue grew 10 percent to 3.35 billion euros, the slowest growth rate in five quarters and a little below the 3.41 billion euros analysts had forecast.

Second-quarter operating profit was also up by 10 percent at constant currencies, at 1.22 billion euros, broadly in line with expectations.

($1 = 0.7637 euros)

(Corrects spelling of analyst's name in 11th paragraph)

(Additional reporting by Natalia Drozdiak; Editing by Erica Billingham)

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