Siemens Faces Geopolitical Risks as Profit Declines

Siemens, a major player in the global industrial sector, has recently highlighted the increasing geopolitical risks that could impact its operations in the coming year. The company, known for its wide range of products including industrial controllers, software, and trains, reported its fourth-quarter earnings, which were slightly better than expected. However, the outlook for the future is clouded by concerns over trade conflicts and weak consumer demand.

In its latest report, Siemens set a target for comparable sales growth of 3-7 percent over the next 12 months. This is a slight decrease from the previous target of 4-8 percent for 2024. The company’s Chief Executive, Roland Busch, pointed out that the geopolitical landscape has become more challenging, particularly following the recent elections in the United States and the political instability in Germany, which are significant markets for Siemens.

Busch stated, "During the year, the world experienced ongoing geopolitical and macroeconomic uncertainties." He further emphasized that the political situations in both the U.S. and Germany suggest that the company may face tougher times ahead. Siemens anticipates only moderate macroeconomic growth in the upcoming year, citing risks such as trade conflicts that could hinder progress.

Despite these challenges, Siemens remains optimistic about certain sectors. While the manufacturing sector is grappling with issues like overcapacity and weak consumer demand, the company noted that its smart infrastructure and transport divisions are performing well. Additionally, Siemens boasts an impressive order backlog of €113 billion (approximately US$119 billion), marking its largest ever.

In response to the current market conditions, Siemens is not resting on its laurels. The company has announced a new program aimed at enhancing its focus on technology, which Busch described as "a growth program, not a savings program." This initiative is expected to lead to stronger customer engagement, faster innovation, and ultimately, higher profitable growth.

In terms of financial performance, Siemens reported a 7 percent decline in industrial profit, totaling €3.12 billion for the three months ending in September. This figure, however, surpassed analysts' expectations of €3.0 billion. The company’s revenue also saw a slight increase, reaching €20.81 billion, which was better than the forecast of €20.77 billion. On a comparable basis, sales rose by 2 percent, indicating some resilience in the face of economic headwinds.

Following the announcement of these results, Siemens shares were indicated to rise by 1.8 percent in premarket trading, as analysts reacted positively to the better-than-expected performance and the proposed increase in dividends from €4.70 to €5.20. Simon Toennessen from Jefferies remarked, "We expect the shares to do well today on the back of a strong Q4, a solid outlook and a much better than expected divi proposal." This reflects a general optimism among investors regarding Siemens' ability to navigate the current economic landscape.

While Siemens faces significant geopolitical and economic challenges, its proactive approach to innovation and customer focus may help it weather the storm. The company’s strong order backlog and commitment to growth suggest that it is well-positioned to adapt to changing market conditions. As the global economy continues to evolve, Siemens' ability to respond to these challenges will be crucial for its future success.