Emerging markets power Q1 profit surge at Siemens
Siemens, Europe's biggest engineering conglomerate, beat profit forecasts due to robust demand in fast-growing emerging economies and said signs for future sales were strong.
January 27, 2011 / 09:57 IST
Siemens, Europe's biggest engineering conglomerate, beat profit forecasts due to robust demand in fast-growing emerging economies and said signs for future sales were strong.
Like most of its German peers, Siemens relies heavily on exports of manufactured goods to China, Brazil, India and Russia to power growth, profiting from aggressive infrastructure investment in those countries.Siemens and steelmaker ThyssenKrupp have also benefited from emerging economies' appetite for German luxury cars, high-end engineering machinery and industrial equipment.Latest data showed German manufacturing orders grew at their fastest rate in 10 months in November, quicker than economists expected, mainly due to strong demand from outside the euro zone for durable goods.Siemens said growth was driven by its bread-and-butter Industry Sector, which makes equipment that large companies use to run factories, automation gear to help industrial plants run smoothly and LED lightbulbs to cut luxury cars' energy bills.Businesses whose products take longer than four months to make, or long-cycle ones such as railway locomotives and power plants, also played catch-up in matching the short-cycle recovery in lightbulbs and automation drives."Orders and revenue grew in all regions, particularly in emerging markets," Siemens Chief Executive Peter Loescher said on Tuesday, referring to the first quarter to end-December.India powers on Order intake -- an indicator of future sales -- rose 49% in China and 160% in India, where Siemens won a contract to build power plants in Gujarat and Ahmedabad."Order intake was good, much better than I expected. Very strong profitability in the Industry Sector, with some weakness in renewables," said Commerzbank analyst Ingo-Martin Schachel.Total new orders rose, including the supply of gas turbines for a GS Electric power plant in South Korea, a rolling mill for Chinese steelmaker Xiangtan Iron, a wellhead compression solution for Russia's Technogarant and transmission technology for power grids in Brazil and Paraguay.Siemens Chief Financial Officer Joe Kaeser told analysts the supply chain for short-cycle businesses -- whose products take less than three months to make -- might already be overbought, such as in some process industries in China.As a result, he added, the company would see growth ease somewhat in the second half of 2011.Analysts said it was not necessarily a negative sign that Siemens flagged the second half may be weaker for businesses that drove first-quarter growth, but rather characteristic of the company's traditionally conservative outlook."We see this as more reflective of their overall economic caution," Citi analyst Mark Fielding said.Shares in Siemens closed down 0.5% at 93.85 euros after rising as much as 2.3% during the day, with traders pointing to limited upside potential in the near term."Today's good figures were only seen as confirmation of the latest uptrend. The biggest unknown is whether this upward trend will continue in the coming months," a trader said.China, where Siemens generated nearly 8% of group revenue last year, in 2009 vaulted past the United States into pole position as buyer of German engineering products.Siemens made around 30% of sales in emerging markets last year and has been making lower-priced products to tap a broader customer base.Net profit from continuing operations -- which exclude units planned to be spun off -- rose 17% to 1.79 billion euros (USD 2.44 billion) in the quarter, beating a Reuters poll.US rival General Electric on Friday posted a better-than-expected profit while Philips said on Monday that its quarterly profit was below forecasts. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
