UPDATE 3-Siemens cautious after Q2 sales, profit fall

(Adds quotes from news conference, details, updates share)

By James Mackenzie

BOURNEMOUTH, England, April 24 (Reuters) - Germany's Siemens AG gave a cautious assessment of prospects for the rest of the year on Thursday after the weak dollar and falling power orders led to a fall in second-quarter profits and sales.

But the Munich-based industrial giant said it remained broadly on track to meet profitability targets, saying most of its 14 units were on the way to meeting the margin goals laid down as part of the Operation 2003 restructuring programme.

Chief Executive Heinrich Von Pierer also confirmed that Siemens had reached an advanced stage in talks to buy Alstom's industrial turbines unit and said the group was in a position to consider further acquisitions if it wanted.

Siemens posted second-quarter net profit of 568 million euros ($622.1 million), ahead of the consensus forecast but down from 1.28 billion a year earlier, when it booked a gain of 604 million euros from selling shares in chips unit Infineon .

Group sales fell 14 percent to 18.23 billion euros, hit by the weaker dollar and declining sales of gas turbine generators in the United States.

"The investment climate in key industries in important regional markets continues to be weak. We cannot see signs of a comprehensive improvement at the moment," Von Pierer told a news conference.

"We therefore expect, as we announced in December 2002, that business volumes will decline for the full fiscal year."

Siemens shares were 1.2 percent higher by 1244 GMT against a 0.3 percent fall on the pan-European DJ Stoxx tech index as the market gave a guarded welcome to the results.

"Overall the results were really not bad," said Friedrich Diel, a fund manager at Frankfurt Trust. "All of the divisions are performing on track, with the exception of its U.S. turbines business. Still that news came as no surprise as the whole U.S. market has been difficult recently."


Siemens, whose operations range from power stations, high-speed trains and industrial automation systems to mobile telephones and medical scanners, has been hit by sluggish growth in the United States and Europe as well as by the outbreak of the deadly SARS disease in Asia.

Earnings were once again propped up by the Medical Solutions division despite a slight decline in operating earnings to 255 million euros, as well as by an improved result from Automation and Drives, which lifted operating earnings to 184 million euros from 138 million a year earlier.

But earnings at the Power Generation division, which has underpinned group results over the past three years, dropped 42 percent to 262 million euros, while sales and orders fell 35 percent as previously booming U.S. demand dropped away.

Despite the decline, which followed a sharp drop in power station orders reported by General Electric earlier this month, Von Pierer told reporters he was confident demand would revive quickly in the mid-term given the American market's insatiable demand for energy and the poor U.S. power grid.

The acquisition of Alstom's industrial turbines business, which finance chief Heinz-Joachim Neubuerger said had sales of some 1.1-1.2 billion euros, would create a business with sales volumes of about two billion euros employing 10,000 people.

He said the deal would reinforce Siemens's market position behind GE and he did not expect any antitrust problems.

Von Pierer said Siemens was well placed to make further acquisitions and was looking at parts of the business of British engineering group Invensys as well as other parts of Alstom, but would be cautious about any purchases.


The troubled ICN fixed-net unit was slightly weaker than expected, although the operating loss narrowed to 147 million euros from a loss of 158 million, while the ICM mobiles division improved profit to 55 million euros from 44 million a year earlier, although sales fell 15 percent.

Siemens, the world's fourth-biggest mobile handset maker, also said it sold eight million handsets in the quarter.

Efficiency savings boosted operating margins despite declining sales in all but one of the divisions, although Siemens Building Technologies, would not reach its target after seeing margins shrink drastically, the group said.

(Additional reporting by Jess Smee in Frankfurt)