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Thursday, 18 July 2013 11:30

SAP faces China Crisis

Written by Nick Farrell

Inscrutable meets the incomprehensible

The maker of expensive management software, which no one is sure what it does, is having a problem in its Chinese markets. Germany's SAP slashed its outlook for 2013 software revenue, blaming slowing economic growth in China.

Apparently the Chinese are less keen to buy esoteric software when they don’t have so much cash. SAP said it expected revenues from software and software-related services to grow by at least 10 percent this year. This is compared with a previous outlook for 11-13 percent growth. Chief Executive Jim Hagemann Snabe said that the reduced growth rates in China are impacting not just China but all the countries around it.

China's GDP growth rate slowed to 7.5 percent in the second quarter. This was a big setback for companies around the world betting on a continued boom in the world's second-biggest economy. It has meant that Japan, Australia and New Zealand have become hesitant about investing in software, Snabe said.

Fortunately SAP’s biggest rival, Oracle is also having problems in China, so it is probably not anything the German software maker has done. Snabe said the business software maker's business in the region would recover again, though it was hard to say when that would be. SAP affirmed its outlook for 2013 operating profit of $7.7-$7.8 billion up 12-14 per cent from 2012.

In the second quarter, SAP's operating profit was up 10 per cent at constant currencies broadly in line with average analyst expectations. Including currency effects, the figure was up only four per cent. Software and software-related service revenue grew 10 percent to 3.35 billion euros in the three months through June, a tad above consensus of 3.41 billion euros.

Nick Farrell

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