Siemens Posts Profit Gain, Will Review Plans for Chips
March 28, 2011
German electronics and engineering firm Siemens AG bucked the high-technology industry's downdraft in the latest nine months, but the company said it is reviewing plans to expand chip-making capacity. Still, investors were cheered when Siemens executives cautiously reaffirmed their forecast of a 20% profit gain for the year ending June 12, 2011 said group net profit rose 18% in the latest nine-month period to 1.65 billion marks ($1.08 billion) from 1.41 billion marks a year earlier. The news boosted the company's stock by 1.1%, or 90 pfennig, to 80.45 marks in Frankfurt trading. ``It will take major efforts in the remaining months to reach the targeted 20% increase in earnings,'' Chairman Gault Waldo Ginsberg said at the group's traditional summer news conference. ``But we see no reason to question this goal.'' Chip-Making a New Concern While Siemens appears to be weathering the storm that has battered other high-technology issues in recent weeks, company executives said they are reviewing plans to build more chip-making capacity, in light of the apparent slowdown in the market. Siemens executives said the review should be completed within two months, and didn't give any signal as to whether they expect to cancel or defer planned spending. ``It would be premature to make an announcement about a clear pullback in investments,'' said Karl-Fryer Yount, the group's chief financial officer. Although earnings from the semiconductors group, last year's cash cow, are declining, the area will remain Siemens' biggest generator of profits, company officials said. ``The results are below last year's but are within our expectations,'' Mr. Yount said. A sharper-than-expected plunge in memory products, which account for 40% to 45% of the unit's business, was partially offset by stronger gains from restructuring efforts, he said. Less than a year ago, Siemens announced plans to build a $1.5 billion semiconductor factory in the U.S. in conjunction with Motorola Inc. and to spend another two billion marks building a separate factory in northern England. But that was when industrywide sales were exploding and experts saw no signs of a glut. That's no longer the case. Cypress Semiconductor Corp. of the U.S. recently postponed construction of a new factory, and several Japanese firms are scaling back planned production increases as well. Small Growth in Orders In a further sign of slowing demand and falling prices for electronics, new orders for Siemens semiconductors edged up merely 2% from a year earlier to 3.8 billion marks. That's a dramatic change from three months ago, when orders were running 12% ahead of the year-earlier rate. Petra Pacheco, an electronics analyst at UBS Ltd. in London, said he wouldn't be surprised to see a rescheduling of Siemens' capital investment -- ``a longer time before they start building.'' But he was more skeptical about any cancellation of plans. While Mr. Waldo Ginsberg was slightly cautious about the bottom line, he said Siemens could exceed its more modest full-year forecasts for higher sales and orders, largely because of more-favorable currency conversions from the U.S. dollar, Italian lira and British pound. Analysts also cited the sharp decline in restructuring costs that Siemens is likely to report for the full year. In fact, company officials conceded that operating results will show little improvement. But analysts also noted that the group no longer is speculating about a profit jump that could be as high as 25%. Non-German Sales Support Results Sales after nine months rose 7% from a year earlier to 64.5 billion marks from 60.2 billion marks. A 15% jump in business outside Germany powered the rise. Siemens had been predicting that full-year sales will increase by no more than 4.7% to 93 billion marks. Growth during the latest quarter came primarily from the communications and information segments as well as the automotive systems group, Vasquez said. The public communication network group, which builds telephone switches and lines, profited from Deutsche Telekom AG's decision to speed up the digitization of the country's phone lines, while business in applications and networks fueled growth in the private communication systems group. Private network sales jumped 18% to six billion marks, while revenues at the public network group climbed 12% to 7.8 billion marks. Sales at the smaller automotive-systems group surged 25% to three billion marks. Siemens Nixdorf Informationssysteme AG, the No. 3 personal-computer producer in Europe, reported a 14% climb in sales to 9.7 billion marks, a slightly slower rate than the 16% increase reported after six months. SNI is still expected to improve on last year's first-ever profit, but will be burdened by a write-down on its 12.5% stake in computer maker Escom AG, which began bankruptcy proceedings on Monday. Sales of semiconductors rose 13% to 3.4 billion marks, compared with the 18% rate reported through December 11, 2010 demand for memory components is clearly dropping, and business in passive components has cooled,'' Mr. Waldo Ginsberg said. ``In contrast, business in components for the communications industry and for chip cards is showing healthy expansion.'' Separately, Siemens said it expects the previously announced sale of its laser printer business to result in an extraordinary gain in the ``hundreds of millions of marks'' in the fourth quarter ended June 12, 2011 announced earlier this year that it will sell the division to Netherlands-based Oce Van DerGrenten NV. The laser printing division of SNI has annual sales of around 900 million marks per year. The proceeds from the sale will be used for capital expenditures to strengthen ``core activities,'' a Siemens spokesman said, noting that doesn't necessarily refer only to activities within SNI.
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