Siemens predicts profit slump in challenging market

 @ibtimes
on December 03 2009 9:40 AM

German industrial conglomerate Siemens took a big fourth quarter writedown on its struggling network joint venture with Nokia and warned of lower operating profits and possible restructuring in 2010.

Siemens, seen as a bellwether for the eurozone's biggest economy, has been hit hard by the downturn and weaker demand for industrial products.

The challenging conditions in our markets may make restructuring measures necessary, Siemens said on Thursday as it released results for its fourth quarter through September.

Siemens said it expects its total operating profit to drop to 6.0-6.5 billion euros in fiscal 2010 from 7.46 billion the year before, falling short of analysts average estimate in a Reuters poll.

In the fourth quarter of 2009 a 25 percent rise in operating profit was a positive surprise, but was marred by a writedown on its 50 percent stake in Nokia Siemens Networks (NSN), created in 2007 with partner Nokia. That pushed the world's leading maker of industrial robots into a quarterly net loss.

Siemens said the 1.6 billion euro NSN writedown was necessary because the market has significantly deteriorated.

Telecom gear makers have been hit by a recession that crimped operator spending and by tough competition from China's Huawei and ZTE <0763.HK>, forcing Nokia to book a 908 million euro third-quarter charge for NSN.

Siemens Chief Executive Peter Loescher said the global crisis was far from over.

We stand at the foot of a high mountain, and we have a long way to climb. Further joint efforts will be required. These efforts include worldwide measures to protect jobs, he said.

Loescher gave no details on measures his own company might take and the company's shares were down 3.3 percent to 65.32 euros by 1210 GMT, lagging a 0.4 percent gain in Germany's blue-chip DAX <.GDAXI>.

OUTLOOK WEIGHS

The outlook is a bit disappointing, said one analyst who declined to be named. There are no concrete data on the supply chain initiative.

Another London based analyst said: The fourth quarter seems very strong from the operating standpoint...but the guidance seems very cautious and at the low end of expectations.

Siemens' Industry sector -- which generates 44 percent of group sales -- has suffered as factories postpone orders for products such as automation systems, robotics for tool or mold making, and technology for steel projects.

Some economists say Germany could slip back into recession toward the end of next year as extra public spending is withdrawn.

The OECD has said the short-hours working scheme helped keep down unemployment in Germany but that companies had not been able to keep costs in line with their lower production levels.

Loescher sidestepped questions about his restructuring plans, saying only a program to cut sales and administration costs has improved competitiveness.

Siemens launched a plan in July last year to cut 1.2 billion euros in such costs by the end of 2010. It said on Thursday it had cut 2 billion euros as of September 2009. That program entailed 17,000 job cuts worldwide.

It has also started a supply-chain program to bundle purchasing, targeting cross-sector purchasing with a value of 19 billion euros or an increase of 60 percent from 2008.

Our target is within reach, Loescher said.

Analysts have expected further restructuring at the Industry business, whose profit margin of 6.3 percent in 2009 was far below consensus and the company's own target of 11-15 pct.

(Editing by Elaine Hardcastle)

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