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Does SAP recommend to setup BW in SAP Solution Manager rather than to use the corporate BW?

Yes, absolutely for the following reasons: the data volume transferred to SAP Solution Manager is relatively low compared with usual sizes of corporate BW systems used for e.g. for financial reporting. The BW functionality use is kept to a minimum. Data Ownership in customer organization for the technical IT content of SAP Solution Manager is different from the business content. Furthermore there might be incompatible BW customizing settings (e.g. End-to-End Root Cause Analysis requires special allowed character sets).