Home Business amount Siemens sees strong demand persisting thanks to cost and supply pressure

Siemens sees strong demand persisting thanks to cost and supply pressure

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Siemens AG said strong orders from all markets are expected to continue in the coming months, helping the company battle rising inflation and supply chain issues that are weighing on returns.

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(Bloomberg) – Siemens AG said strong orders from all markets are expected to continue in the coming months, helping the company battle rising inflation and supply chain issues that are weighing on returns.

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The German industrial giant, reporting a quarterly net loss that beat expectations on Thursday, said it would double its efficiency gains to offset drag and pass on higher costs to customers.

“We are seeing strong demand from our markets, even over three to four quarters,” chief executive Roland Busch said in an interview with Bloomberg Television. “With our price increases to customers, which we are adjusting moderately, we can overcompensate for cost increases from our suppliers.”

Shares fell 1.7% at 9:30 a.m. in Frankfurt, taking losses this year to nearly 30%.

So far, manufacturers like Siemens have been fairly immune to an increasingly bleak outlook marked by record inflation and slowing growth as well as war in Ukraine. Supply chain shortages, driven by the chip crisis now in its third year, have pushed order books to record highs and companies expect to take months to reduce pent-up demand. Also on Thursday, Daimler Truck Holding AG said it would struggle to fill truck orders for the rest of the year.

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At Siemens, orders hit a record high of 99 billion euros ($102 billion) after strong growth in the quarter through June. Even so, there are signs of normalization, the company said.

Standardization

In the key digital industries division, which makes factory automation software and other labor-saving services, third-quarter profitability was held back by semiconductor shortages and higher spending for cloud-based businesses, Siemens said. Future business will be “clearly influenced by price inflation,” Busch said in speaking notes. The company expects to start reducing its backlog from fiscal 2023.

The prediction echoes BMW AG’s view that improved semiconductor availability will help ease supply chain pressure, allowing production to ramp up.

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Quarterly orders for the smart infrastructure unit rose 26%, although revenue in China fell due to coronavirus lockdowns. The Digital Industries and Smart Infrastructure units are at the heart of Siemens’ push towards higher-margin software offerings.

Impairment

On Thursday, Siemens cut its expected increase in earnings per share to 5.73 euros from 9.10 euros due to impairment charges. Siemens wrote down the value of its stake in Siemens Energy AG by 2.7 billion euros in June following the turbine maker’s repeated profit warnings. Thursday, he doubled the depreciation linked to his exit from Russia to 1.2 billion euros.

Further write-downs on Siemens’ operations in Russia are possible with regard to its leasing activities in the country, in the region of a three-digit amount of one million euros.

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Although facing a complex economic environment marked by sanctions against Russia, high inflation and the effects of the pandemic, the company said it avoided “more significant disruptions” in the quarter.

Software Player

Siemens is still reorganizing its business toward higher-margin software product lines. The company has sold most of the smaller divested divisions and is focusing on areas with the highest growth potential. In recent weeks, it has bought US software company Brightly for $1.6 billion, launched a new digital business platform and bought a minority stake in Volkswagen AG’s electric car charging subsidiary, Electrify America.

The Mobility division of Siemens, which manufactures trains, won orders worth 2.8 billion euros. Yields fell due to the exit from Russia and the company cut its profit margin forecast to 8.5% from 10.5% previously.

Profit from the industrial business was 2.9 billion euros with returns of 17% slightly below analysts’ expectations.

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