Siemens AG issued a profit warning yesterday, saying that weaker-than-expected performance in its major business projects this quarter was going to pull its earnings down by approximately 900 million euros (US$1.4 billion).
The announcement was a surprise for the conglomerate, whose diverse products include trams, turbines and telecommunications equipment, given that it had said in January that sales were expected to double the pace of the global economy. It saw a first-quarter net profit of nearly 6.5 billion euros compared to 788 million euros in the same period a year earlier.
The Munich-based company, whose current quarter ends on March 31, said it had launched an extensive review of its major products this quarter, with an emphasis on its fossil power generation division in the company's energy sector as well as its mobility division in its industry sector and its IT Solutions and Services.
Specifically, the company said it had experienced delays in its fossil power generation division because "the large number of turnkey projects that have accumulated since 2004 has had an adverse effect."
It also said it was hampered by delays in recruiting experienced project engineers. Siemens said its IT unit suffered the loss of a major order in the UK from a customer, which it did not identify.
"The results of the review so far indicate a substantial impact on earnings in the current fiscal year," the company said, though it added that "going forward, the path to profitable growth has been charted."
Still, the company said that it expected "the negative impact on earnings to amount to approximately 900 million euros this quarter. The expectation is that this amount represents the largest piece of any additional financial burdens for 2008."
Last month, Siemens said it would reorganize its corporate telecom unit as it prepares to get out of the business.
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