Siemens to run down order book at energy division

Siemens AG, Europe's largest engineer, will be forced to run down the order book at its energy division in the first half of its next financial year as investment tails off.

The unit's book-to-bill ratio will probably fall below one during the six-month period starting in October, Chief Financial Officer Joe Kaeser said today in Munich. That means new orders will come slower than existing bookings are converted to sales.

Siemens faces falling orders and a "noticeable" drop in earnings in the third-quarter compared with both the year- earlier period and the previous quarter, Kaeser said. Investors watch order levels at European industrial companies such as Siemens for signs the recession is easing and that businesses are once again investing in machinery and components.

So-called "short-cycle" businesses spanning light bulbs to building controls should start to improve from fiscal second half, said Kaeser. The period starts in April 2010.

"We will reduce excess personnel by shorter work weeks, and we believe we will be able to continue doing that until the short-cyclical business experience a revival in demand," he said. "We will not see the record volumes of fiscal 2007/2008 for the time being."

At 1.29, the energy unit had the strongest book-to-bill ratio of Siemens's three main businesses in the second quarter. The industry division, Siemens's largest, was at 1.18, and the health care unit was below 1, meaning its order book was shrinking. The company said earlier that it expects energy orders to outstrip sales in the second half of the current fiscal year through September.

Siemens plans 1,400 job cuts beyond the 17,000 announced last year as Chief Executive Officer Peter Loescher battles against a global recession to meet a goal of beating last year's 6.6 billion euros ($9.4 billion) in so-called "sector profit" at its three main units. About 19,000 workers are currently on reduced hours.

The German maker of high-speed trains and power turbines was little changed in Frankfurt trading at 53.41 euros as of 2:36 p.m. local time. The stock is up 1.4 percent his year valuing the company at almost 50 billion euros.

Net income at Siemens probably fell 35 percent to 926 million euros in its fiscal third quarter, according to the average of 10 estimates in a Bloomberg survey. Sales totaled 18.8 billion euros, a decline of 2 percent, according to 14 estimates.

U.S. rival General Electric Co. reported a 44 percent drop in major equipment orders in the second quarter, and Chief Financial Officer Keith Sherin said he expects a decline of about 25 percent for the year. GE shares have lost 29 percent this year.

"With the continuation of the recession, there is an increasing risk of orders being canceled and postponed," Theo Kitz, an analyst at Merck Finck in Munich, said in a June 25 note on Siemens. "We see considerable potential for investor disappointment in the coming quarters."

Locally Siemens has operations in Buffalo Grove, Deerfield, Chicago, Elgin, Hoffman Estates, Schaumburg, Glen Ellyn, Elk Grove, Mundelein, Oak Brook, Rolling Meadows, and Wood Dale.

Renewable energy was the only one of Siemens's five energy businesses where order intake rose in the fiscal first half. Siemens is helping draw up a blueprint for a $555 billion project, together with Munich Re and 10 others, to bring solar power from the Sahara Desert to European homes.