Is the glass half full or half empty?
This is what investors are asking about Germany’s Siemens and Switzerland’s ABB, the engineering groups that are among the proudest names in European manufacturing.
Peter Löscher and Joe Hogan, respective chief executives of the two companies, have talked up the longer-term prospects for their businesses despite unveiling results that some onlookers believe reveal signs of looming problems.
On the surface, the upbeat stance by the pair – both former employees of General Electric, the US industrial group – appears well-founded.
Siemens and ABB are among the leaders in their sectors, with a good reputation at the high-tech end of engineering.
While Siemens has the broader span of products, from trains to medical scanners, the Swiss company splits its sales fairly evenly between factory automation systems and transmission equipment for electricity.
Both Siemens and ABB have come out of the 2008-09 global recession in reasonable shape. They have robust balance sheets and have been expanding operations in emerging economies such as China and India.
Since October 1 2008, when the financial crisis was at about its worst point, the share prices of Siemens and ABB have, compared with the Eurofirst 300, risen 17.5 per cent and 21.8 per cent respectively.
However, the two groups’ recent results lead to a somewhat more negative view.
In January, Siemens said its first-quarter net profit declined 17 per cent compared with a year earlier.
It also announced a 5 per cent year-on-year fall in new orders, with an especially marked slowdown in China.
The conglomerate unveiled a special charge of more than €340m that was triggered largely by project delays – the latest in a series of one-off costs that has raised concerns about Siemens’ operational management.
The company has provided few details of a plan to boost annual revenue from €73.5bn in 2010/11 to €100bn over the next few years. The target is looking harder to meet, given the sluggish pace of growth of much of the world economy.
As for ABB, the company disclosed that, despite a 24 per cent rise in net income in 2011 to $3.17bn, it faces intense pricing pressure in its key area of power transmission equipment.
Much of this is linked to low-price products in fields such as transformers made by Chinese and Korean rivals.
Partly as a reaction, ABB has started an ambitious sequence of acquisitions in fields outside the transmissions sector, apparently in an effort to create a bigger buffer between itself and the emerging competition.
The deals have included the $4.2bn purchase in 2010 of Baldor, a US maker of industrial motors, plus the $3.9bn deal unveiled in January for US-based Thomas & Betts, which produces electrical components.
However, ABB has still to show it can assimilate these acquisitions effectively as well as cope with emerging competition in the power sector, either by shifting more manufacturing into low-cost nations or stepping up product innovation.
If anything, the pressures on Mr Löscher are greater.
According to Ben Uglow, an analyst at Morgan Stanley, the Siemens chief is facing calls from investors to “get the company back on track quickly” by tightening management control of poorly performing projects.
Mr Löscher remains committed to the €100bn sales target, though he says he intends to remain “deliberately vague” about when this might be achieved.
Big acquisitions potentially costing several billion euros “could be a part of this”.
The Siemens chief is keen to play up the company’s capabilities in technology investment in fields from power turbines to light-emitting diodes – novel kinds of light sources.
“As a company, we come out with 40 new inventions a day [as manifested by new patents], and this gives us a lot of underlying strengths,” he says.
Mr Hogan echoes his rival chief executive by underlining what he says is ABB’s record of innovation.
He says: “We are now capable of making robots sensitive enough to pick up an egg without breaking it.”
Other ABB robots can, with the help of sophisticated artificial vision systems, work out the shapes and positions of components being presented to them on a production line and then assemble the parts into products such as complex machines.
Both Mr Löscher and Mr Hogan are hoping that, however much their companies may feel the effects of the uncertainties of the world economy over the next few years, their propensity to innovate will keep their sales and profitability moving ahead at a decent pace.
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