Siemens Beats Expectations in First Quarter

Siemens AG on Thursday was able to reassure investors by announcing a clear improvement in quarterly results, despite a further deterioration at its ICN networks unit, which is to lose a further 6,500 jobs in an effort to turn the business around.

Siemens announced net earnings of 1.281 billion euro for the three months ending 31 March 2002, the second quarter of its 2001/2002 business year. This was ahead of analysts' forecasts.

In the previous quarter, the Munich-based diversified technology and engineering conglomerate had seen a net profit of 538 million euro.

The second-quarter profit included an a extraordinary gain of 561 million euro from the sale of part of Siemens' stake in Infineon Technologies, its semiconductors spin-off, but this still left an underlying profit of 720 million euro, which compared favorably with the 690 million euro forecast by most analysts.

Group sales rose 3% on the year to 21.258 billion euro.

Siemens' operating figures were similarly satisfying. Earnings before interest and taxes came in at 919 million euro, around twice the level of the previous quarter.

Strong earnings from the group's power station and medical equipment units made up for the fact that its ICN telecoms networks business plunged deeper into the red. "The figures are better than expected in most respects," said WestLB analyst Adrian Hopkinson.

Speaking at the results conference, Chief Executive Heinrich von Pierer expressed annoyance at analysts' underestimations of the group's performance, since these had weighed on the group's share price.

Lehman Brothers' low expectations, for example, had led it to remove Siemens from its Recommended list on the eve of the results conference. Nor were the analysts doing themselves any favors, the Siemens chief stressed. "These ladies and gentlemen must take care or they will lose too much of their credibility," he said.

Still, on Thursday it was payback time for the Siemens share price. It closed up 4.26% at 66.31 euro.

Siemens provided no forecasts for the rest of its business year, which ends on 30 September 2002. Von Pierer described the economic environment as insufficiently clear to allow an estimate to be made. But he said full-year operating profit would rise clearly.

ICN remains Siemens' problem child. It posted a quarterly operating loss of 158 million euro. "We are unable to give the all-clear for ICN," said von Pierer. He does not expect the unit to see an upturn in demand for its products for 12–18 months yet, while profitability won't come, in his view, until the year after next. "This is a growth area, but it's going to need some time."

Von Pierer estimated that ICN's 6,500 job cuts, most of which would be instituted abroad, would save the unit 1.5 billion euro annually.

This move plus the 10,000 job cuts previously announced will mean that the unit will have cut one in three of its workforce.

But ICM, Siemens' mobile phone and infrastructure unit, is now well on the way to recovery. It sold 8.3 million handsets up from 6.9 million a year ago, and posted a quarterly profit of 44 million euro.

Siemens' power generation business posted a profit of 450 million, up from 129 million in the year-ago period, while the Medical Solutions raised its profit by 24% on the quarter and 45% on the year to 262 million euro.