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Siemens Reports Lower Profits Amid Weakening Demand
Overview of Siemens' Performance
German engineering company Siemens reported a miss in its profit forecasts for the latest quarter. This shortfall was attributed to weakening demand in several markets, including China, a critical driver for global manufacturing and Siemens' third-largest market. The company noted that the recovery in China, following its zero-Covid shutdown last year, has been tepid.
Shift in Demand Trends
Siemens has observed a "normalization of demand" as customers who pre-bought last year to avoid shortages are now running down their stocks of components. This trend is expected to continue in the upcoming quarters. Orders increased by 10% during the three months to the end of June, a decrease from the 13% increase in the previous quarter.
Performance of Siemens' Industrial Division
Siemens' industrial profit, which covers its mobility, smart infrastructure, and factory automation businesses, fell 4% to 2.75 billion euros ($3.02 billion). This was below the 2.90 billion euro forecast by analysts. As a result, the company's shares were down 3.6% in premarket activity.
Outlook for Digital Industries Business
Siemens maintained its group-level outlook for the year to September-end but lowered expectations for its digital industries business, which supplies factories with controllers. This division, considered the jewel in Siemens' crown, now expects comparable revenue growth of 13% to 15%, lower than its previous outlook of 17% to 20%.
Insight into the Health of the Global Economy
The performance of Siemens, whose products are used to automate factories and equip transport networks, provides an insight into the health of the global economy. Manufacturing activity has been slowing in recent months, as indicated by weakening purchasing manager data in Europe and China.
Financial Performance in the Third Quarter
Despite the challenges, Siemens' orders rose 10% to 24.24 billion euros in its third quarter, beating forecasts of 22.19 billion euros. However, revenue rose 6% to 18.89 billion, missing forecasts for 19.27 billion euros. The net profit of 1.44 billion euros also missed forecasts. Looking forward, Siemens expects comparable revenue growth of 9% to 11% for the 12 months to end-September and earnings per share of 9.60 to 9.90 euros.
Implications for New Businesses: A Hot Take
The recent performance of Siemens, a global leader in the engineering industry, offers valuable insights for new businesses, particularly those in the manufacturing sector. The company's miss in profit forecasts, attributed to weakening demand in several markets, signals potential challenges that new businesses might face in these markets.
Understanding Market Dynamics
Siemens' experience underscores the importance of understanding and responding to market dynamics. The company's observation of a "normalization of demand" as customers run down their pre-bought stocks of components indicates a shift in buying behavior that new businesses should take into account.
Strategic Planning and Forecasting
The lowered expectations for Siemens' digital industries business highlight the need for new businesses to have flexible strategies and realistic forecasts. While ambitious targets can drive growth, it's equally important to adjust expectations based on market realities.
Conclusion
In conclusion, Siemens' recent performance provides a real-world example of the challenges and opportunities that new businesses may encounter in the global manufacturing sector. By understanding market dynamics, adjusting strategies and forecasts based on these dynamics, and staying resilient in the face of challenges, new businesses can navigate their path to success.
Article First Published at: https://www.cnbc.com/2023/08/10/siemens-sees-weakening-demand-trends-as-q3-misses-forecasts.html
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