Siemens returns to profit as cost-cutting drive bites, mobile phone unit revives

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Posted 2:18PM on Wednesday, January 23, 2002

FRANKFURT, Germany - Siemens AG, the German electronics and engineering giant, said Wednesday it posted a profit in the last three months of 2001 as cost-cutting helped end a series of three consecutive quarterly losses, though earnings were still weaker than a year ago. Net profit was 538 million euros ($473 million) in the quarter, the first in Siemens' financial year. That was down 46 percent from a profit of 1 billion euros a year earlier. Siemens last year launched a restructuring program including 20,000 job cuts in a bid to reduce costs and ride out the downturn in the world economy. A Christmas-season marketing blitz also helped lift results at its ailing mobile phone business. Chief executive Heinrich von Pierer said the company was satisfied with how the shake-up was progressing, and said he had "confidence that we can continue to improve our results despite ongoing weakness in the economic environment." Giving details, Siemens posted profit before interest, tax and amortization of 487 million euros ($423 million), including a charge of 147 million euros ($130 million) related to the cost-cutting drive. Those figures were within analysts' expectations, and Siemens shares were up 1 percent in afternoon trading in Frankfurt. The results delivered "a mixed signal" to investors, said Roland Pitz, a securities analyst at HVB in Munich. While earnings were reassuring, he said "the problem is, they didn't give a concrete forecast" for 2002. Overall, 11 of the company's 13 divisions made money. The biggest earner was power-generation equipment, where higher sales helped operating profit rise to 302 million euros ($266 million) from 106 million euros a year earlier. Siemens mobile phone unit posted an operating profit of 37 million euros ($33 million), still far shy of the 219 million euros it earned a year earlier, but a turnaround from the previous quarter's 21 million euro loss. Pitz said the company had boosted profits from its handset business by cutting costs and aiming at the lower end of the market. "For a lot of consumers, it was a good chance to buy a good brand name for a lower price," he said. Handset sales in the last three months of 2001 reached 9 million -- close to the 9.3 million they sold in the same quarter a year ago, when the economy was stronger. But its mobile phone network division showed continuing weakness, with Siemens blaming lower prices and slower growth in the U.S. market for broadband Internet access for an operating loss of 124 million euros ($109 million). Siemens said that business would remain tough well into 2002 and said it may have to make more cutbacks. Von Pierer declined to indicate the cost of any new restructuring measures or whether they would include more job cuts. Siemens bottom line for the quarter benefitted from a gain of 332 million euros ($292 million) from selling shares in its former computer-chip subsidiary Infineon AG. Siemens cut its stake to 41.3 percent to get Infineon off its books from January. Still, that revenue was partly offset by a charge of 175 million euros ($154 million) -- Siemens' share of Infineon's losses.