Network Unit Worries Overshadow Siemens' Return to Profit

Reaping the first rewards from its rigorous rationalization program, which includes the loss of 20,000 jobs, technology giant Siemens AG on Wednesday reported a return to profit in the last three months of 2001.

But Siemens chairman Heinrich von Pierer remained cautious in his outlook for the rest of the group's 2001/02 fiscal year, which ends on Sept. 30.

"All in all, developments in the first quarter are encouraging," he said.

But he added that it was still too early to sound the all-clear signal. Group net profit over the October to December 2001 period came in at 538 million euros.

High restructuring costs had weighed on the previous quarter's results, which had come in at a 1.1 billion euros loss. But in the first-quarter of its 2000/2001 business year, the group still posted a profit of 1 billion euros.

Sales in the first quarter rose by 7% on the year to 20.5 billion euros. Excluding the first-time consolidation of the Atecs companies and currency effects, sales were flat. Incoming orders rose 12% to nearly 25 billion euros.

But Siemens posted a 124 million euros loss for its Information and Communication Networks (ICN) unit, which continues to suffer the effects of capital expenditure cuts by telecom operators.

A year earlier, the unit still booked a profit of 150 million euros.Von Pierer said that a restructuring program already in place for ICN would be revised once more, in particular in the United States.

The current program drawn up by ICN chief Thomas Ganswindt is aimed at generating savings of 2.2 billion euros.

But nearly all other of the group's former problem children have returned to profit. The ICM mobile phone unit posted a quarterly profit of 37 million euros.

Boosted by strong Christmas sales, mobile phone sales reached 9 million units over the period. Sales generated by mobile-network infrastructure rose 19%.

Earnings and light maker Osram and the group's industrial arm came under pressure as a result of the weak economic climate, but von Pierer said that he doesn't foresee a further deterioration in these areas.

The highest profit was reported by Siemens' power-generation division, which contributed around 302 million euros to the group result. But even here there is growing fear of a downturn.

"There is concern that the turbine business will start to weaken," said Thomas Deser, fund manager at Union Investment.

Von Pierer stressed that the business had so far hardly been affected by order cancellations. Most analysts showed themselves satisfied with Siemens' figures. Some observers had even expected the group to still post a loss for the quarter.

"The problem areas in particular have developed reasonably well," said Roland Pitz at HypoVereinsbank. But other experts warned against exaggerated euphoria, especially when it comes to the group's fixed network and mobile phone business.

Furthermore, Merrill Lynch took the view that the figures were not as good as they looked on paper.

Shares in Siemens initially rose sharply but were dragged into negative territory later in the session on speculation that Merrill Lynch will downgrade the stock.

But the stock recovered once more along with the rest of the market to end the session 2.44% higher at 70.64 euros. Von Pierer declined to give a forecast for the current quarter but said the group was aiming at a rise in operating profit.

The group's income will be boosted by 550 million euros special earnings from the sale of shares in former subsidiary Infineon.