Frankfurt: Europe’s largest engineering firm, Siemens AG, said first quarter orders dropped significantly after manufacturers ran down stocks of automation equipment and US hospitals postponed purchases of scanners. Orders through December decreased from a year earlier to about €22.2 billion (Rs1.4 trillion), the Munich-based company said in a presentation. The inflow of new work was unchanged from the fourth quarter.
Chief executive officer Peter Loescher is combating a slowdown in demand with a €1.2 billion savings programme which includes 16,750 job cuts by 2010. A challenging market environment has made customers more sensitive to prices and put pressure on margins, chief financial officer Joe Kaeser told investors at a conference in New York on Tuesday.
Slowdown effect: A file photo of Siemens CEO Peter Loescher. Daniel Acker / Bloomberg
Siemens profit sensitivity to significant volume declines is potentially much larger than most other companies in the sector, Mark Troman, an analyst at Merrill Lynch, said in a note. The fixed cost base looks high relative to peers with at least 400,000 employees.
The engineer, which has refocused its business on power networks, automation equipment and scanners used in health care, has lost 51% in 12 months in Frankfurt trading, weighed down by costs related to contract writedowns and a bribery scandal.
Operating profit from the health-care, industry and energy divisions, referred to as sector profit, jumped in the period, helped by an increase in sales of about 5%, the company said. Siemens posted €1.67 billion in operating profit and sales of €18.4 billion in the first quarter of last year.
All three divisions have been hurt by the global financial crisis. At health care, the US market for scanners hasn’t bottomed out, and the trend is likely to spill out to the global market, the company said. The industry division’s Osram light-bulb unit will continue to see soft demand and clients in the energy industry are likely to postpone orders, Siemens said.
The company said it’s more cautious about the outlook for 2009 and especially 2010.