Siemens Sees Subdued Growth in China Lasting Into Next Year

Siemens AG sees a slowdown in China continuing into 2024, as a critical market for the company’s factory-automation devices grapples with a weakening economy.

(Bloomberg) — Siemens AG sees a slowdown in China continuing into 2024, as a critical market for the company’s factory-automation devices grapples with a weakening economy.

Chief Executive Officer Roland Busch said the company, which saw orders at its digital industries unit decline by more than a third last quarter in China, is looking to benefit from a possible state-led stimulus program for high-tech manufacturing. Shares dropped 6%, the most in more than a year.

“We expected China to recover into the second half of the calendar year,” Busch said Thursday in a Bloomberg Television interview. “This did not happen at all. Private consumption didn’t pick up and exports are down.”

Speaking later in a call with reporters, Busch added that subdued growth in China “could last a few quarters.”

Busch’s comments echo concerns across the industrial sector about China, which is experiencing a rare period of falling prices as consumer and business demand continues to weaken. A prolonged property market slump, plunging demand for exports and subdued consumer spending are weighing on the economy’s recovery.

Read more: China Slides Into Deflation as Consumer, Factory Prices Drop

While Siemens’s long-term projections remain intact, the company cut its profit-margin outlook for the digital industries unit by half a percentage point to as much as 23% after orders declined by more than a third. 

The company reported net income of €1.4 billion ($1.5 billion) in the three months through the end of June. The result reversed a loss during the same period last year but was shy of the €1.6 billion analysts predicted. 

What Bloomberg Intelligence Says:

Siemens’ 3Q Digital Industries orders drop to a two-year low of €4.1 billion could drive a 4-5% decline for 2023 DI consensus profit and suggests downside risk for its 2024 prospects. Weak orders for DI, 27% of group sales, was driven by normalization of demand and destocking in factory automation, notably in China and Europe, and raises alarm bells for 2H short-cycle expectations across the industrials sector.

— Omid Vaziri, BI industrials analyst

The results cool some of the enthusiasm Siemens has generated in recent months as demand jumped for its higher-margin, software-driven products that helped automate factories and lower the carbon footprint of industrial customers. 

The company, which has raised its outlook twice this year, confirmed its overall forecasts on Thursday and said a record €110 billion order backlog cushioned a slowdown in new sales.

Read more: Siemens Energy Sees €4.5 Billion Hit, Wind Losses Prompt Review

Outside of its industrial business, Siemens reported a €647 million loss from its 25.1% stake in Siemens Energy. Its former power generation unit recently announced that its annual net loss will roughly quadruple as it addresses flaws in its wind turbines. 

Last year, Siemens posted a loss in its fiscal third quarter due to the Siemens Energy impairment.

–With assistance from Oliver Crook.

(Updates with shares in second paragraph.)

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