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SAP Chief Says Oracle's Bid For PeopleSoft Driving Prices Down

Henning Kagermann says he's losing deals on price, but it's a short-term thing because he says the buyout's likely to fail.

SAP's CEO Henning Kagermann said Monday that Oracle's chances of acquiring PeopleSoft Inc. are "now less than 50%," and SAP has picked up some new business because of the bid. But "desperate pricing" by software companies as a result of the bid are hurting SAP in the short term, Kagermann told reporters at SAP's Innovation Congress in Basel, Switzerland.

Forty percent of the deals that SAP loses are lost because it was beaten on price, he said. Kagermann promised more details on the bid's effect on SAP when the $7.8 billion German software maker reports third-quarter results Oct. 17.

"We lose more on price than anything," he said. "If the whole industry starts to compete on price, price will never come back."

As for the deal's health, Kagermann says an increase in Oracle's bid price over recent months and PeopleSoft's continued market strength mean CEO Larry Ellison's strategy isn't working. Pretending to take over a company and saying, 'We'll replace their product with ours' is not what customers want." Oracle execs weren't available for comment at deadline.

SAP is discussing its research-and-development efforts with business and academic partners at the conference. Kagermann says the company will spend nearly 14% of revenue on R&D this year. Three-quarters of the company's software development takes place in Germany, and SAP will likely shift more of that work to Asia than to its U.S. development center in Palo Alto, Calif. Kagermann also says it's "not proven so far" whether SAP's customers will benefit from Web services, a new architecture for developing corporate software. Most projects are "simple examples" of the technology, he says, and lack the security, reliability, and performance to run large business applications.

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