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Last updated: July 28, 2005 5:32 pm

Siemens misses expectations

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The scale of the task facing Siemens chief executive Klaus Kleinfeld was highlighted on Thursday as the German conglomerate's third-quarter profits undershot expectations, despite shedding its loss-making mobile handsets business.

Analysts said the performance focused attention on other problem areas, such as its communications and IT businesses.

Mr Kleinfeld, who took over as chief executive in January, and last month announced his first major success with the sale of the handsets business to BenQ of Taiwan, said “further steps and hard work” were necessary. In April, he gave a “personal commitment” that all parts of the lightbulbs-to-turbines group would reach their margin targets within 18-24 months.

In the medium term, Siemens aims to grow sales twice as fast as the global economy, helped by traditionally strong areas such as automation and drives, power generation, medical equipment and Osram, the lighting division. A&D, for instance, beat forecasts and posted a record €328m ($397m) operating profit.

Group net income fell from €815m to €389m in the fiscal third quarter to June 30, with operating profits down by a quarter at €980m.

For the current fiscal year, net income from continued operations excluding handsets will be flat at €3.1bn amid more restructuring at the remaining communications businesses.

The forecast contrasts with last week's forecast from General Electric for earnings growth of 10 per cent or more this year.

The sale of Siemens's handsets business, expected to be completed during the current quarter, will draw a line under the most high profile of its problems. The unit lost another €236m in the third quarter.

Other problem areas include the rest of the communications business, and IT unit SBS, where declining profitability and restructuring charges caused losses to widen to €109m from €2m.

In addition, analysts were disappointed with the performance at the logistics and assembly division, which makes conveyor belts and baggage handling machines, which drifted to a €49m loss, from a profit of €14m. “The performance at [IT unit] Siemens Business Services, communications and logistics and assembly systems is disappointing. Hence we are in the process of taking appropriate measures,” Mr Kleinfeld said.

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