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Siemens sees 2010 harder than 2009, Q4 net loss

December 8, 2009 Leave a comment Go to comments

German engineering firm took €1.63 billion writedown on Nokia Siemens Networks.

Siemens AG, the German industrial conglomerate, Thursday said it expects 2010 to be more challenging than 2009 as the effects of the economic downturn continue to buffet its business, after it reported a fourth quarter net loss.

Warning that it will take “some time before the global economy completely re-stabilizes,” Chief Executive Peter Loescher said 2010 “will be more difficult for Siemens than 2009, due to the long-cycle character of its business,” and the company said it expects sales and operating profit at its core business to fall this fiscal year.

Siemens is a barometer for the world’s manufacturing industry, with 405,000 employees in 190 countries and products that span hospital equipment, transportation, factory automation gear and power turbines. In common with rivals General Electric Co. and Netherlands-based Philips Electronics NV, it has suffered from the demand slump brought about by the downturn.

Its industrial sector includes many short-cycle products that are subject to the ups and downs of the economy and which have been hard hit by the recession. Meanwhile, its energy sector, which accounts for roughly one third of its total revenue, is dependent on contracts for big-ticket items for which sales and profits are booked over a longer period, leading to a lag effect.

Siemens has benefited from its exposure to long-cycle businesses such as the energy sector where it has seen high order intake in recent quarters. However, in the fourth quarter, energy-related orders were down 10% on year.

Most markets in the industry sector, which includes lighting and train manufacturing, will bottom out by the end of the first half of the current fiscal year, Siemens said, after reporting that margins in the segment fell to 6.3% in the three months to Sept. 30 from 8.2% a year ago.

For the year ending Sept. 30, 2010, meanwhile, the Munich-based company expects revenue to decline by a mid-single-digit percentage on an organic basis, which strips out acquisitions and one-time effects, after reporting sales of EUR76.65 billion in fiscal 2009. Operating profit is forecast to be in a range between EUR6 billion and EUR6.5 billion in fiscal 2010, down from EUR7.47 billion last time.

For Siemens’ healthcare sector, revenue for the 2010 fiscal year is expected to be slightly below last year, and operating profit broadly steady.

“The new 2010 profit guidance is identical to our previous expectation, but revenue guidance slightly lower,” said Commerzbank analyst Ingo-Martin Schachel. He has an add recommendation on Siemens stock and EUR70 target price.

At 1444 GMT, Siemens shares traded down 3.4% at EUR65.25 in a higher German market on profit taking. The stock has risen around 24% over the past six months.

Siemens’ posted a fourth quarter net loss of EUR1.13 billion, hit by a EUR1.63 billion write-down at Nokia Siemens Networks, its telecommunications equipment joint venture with Finland’s Nokia Corp. That compares with a net loss of EUR2.47 billion a year earlier when it incurred charges totaling EUR3.4 billion related to job cuts, divestments and provisions for settling an alleged bribery case.

Fourth-quarter sales fell 9% to EUR19.71 billion while order intake declined 16% to EUR18.75 billion. Siemens order backlog at Sept. 30 stood at EUR81.2 billion.

Siemens also said Thursday it wants to make its IT Solutions and Services unit a legally separate entity from July 1, 2010. Chief Financial Officer Joe Kaeser said all options for the unit, which has 35,000 employees, are open, including an initial public offering or a joint venture. Kaeser declined to provide an enterprise value for the unit.

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