Equities

Siemens Orders Fall, Sells Unit for €3.5B Amid China Slump

Siemens adjusts to China's market downturn with strategic divestitures, while Foxconn pivots to AI amid iPhone sales decline.

By Mackenzie Crow

5/16, 02:20 EDT
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Key Takeaway

  • Siemens AG reports a decline in factory orders due to weak demand in China, adjusting revenue expectations for its digital industries unit by up to -8%.
  • Siemens sells its Innomotics unit for €3.5 billion, shifting focus towards higher-margin, software-driven products amid strategic transformation.
  • Foxconn sees a 27% drop in iPhone sales in China but remains optimistic with a 40% growth projection for its server segment, pivoting towards AI and diversification.

Siemens Faces Challenges in China

Siemens AG reported a stagnant revenue and a decline in orders in the fiscal second quarter, attributing the downturn to a continued lack of demand for factory-automation products in China. Despite these challenges, the company has maintained its overall outlook for the year, though it has adjusted its expectations for the digital industries unit, forecasting a potential revenue decline of up to 8%. This adjustment reflects the broader economic pressures in China, including inflation, higher interest rates, and a real estate surplus, which have impacted business operations. Siemens' efforts to counterbalance these losses with gains in its smart infrastructure division highlight the company's strategic adjustments in response to shifting market dynamics.

Strategic Divestitures and Focus on High-Margin Areas

In a significant move to streamline its operations and focus on more profitable, software-driven product lines, Siemens announced the sale of its Innomotics unit to KPS Capital Partners for €3.5 billion. This divestiture is part of Siemens' broader strategy to exit from heavy-equipment manufacturing and pivot towards areas with higher margin potential. The sale of the business, which specializes in heavy-duty electric motors, marks a pivotal step in Siemens' ongoing transformation, aiming to enhance its competitiveness and profitability levels in comparison to its peers.

Foxconn's AI Optimism Amid iPhone Sales Decline

Hon Hai Precision Industry Co., also known as Foxconn, reported a first-quarter net profit of $679 million, which, despite showing a year-over-year increase, fell short of analysts' expectations. This shortfall came amidst a 27% decline in iPhone sales in China, underscoring the challenges faced by the company in the consumer electronics sector. However, Foxconn's shares have experienced a significant surge, driven by optimism surrounding the potential of artificial intelligence (AI). The company is actively pivoting towards AI and server-related businesses, anticipating a 40% growth in its server segment. This strategic shift, including the conversion of a Sharp Corp. display panel factory into an AI data center, reflects Foxconn's efforts to diversify its revenue sources and reduce its dependence on smartphone manufacturing.

Navigating Market Dynamics and Diversification Efforts

Foxconn's financial performance and strategic decisions underscore the complex interplay between market demand fluctuations and corporate strategy. The decline in iPhone sales in China presents a significant challenge, yet the company's focus on AI and server businesses offers a pathway to diversification and growth. Foxconn's projections of strong demand for cloud and networking products, alongside an expectation of flat revenue from consumer electronics, suggest a cautious yet optimistic outlook for the future. This balance between addressing immediate market challenges and investing in emerging technologies is crucial for Foxconn as it navigates the evolving technological landscape.

Management Quotes

  • Siemens AG Management:

    "Siemens kept its overall outlook for the year unchanged but lowered guidance for its key digital industries unit, saying revenue there could decline as much as 8% this year." "Revenue on a comparable basis reached €19.2 billion ($20.9 billion) in the three months through March, just short of the same period last year... Orders declined 12%." "The German company previously said it expects China’s economy to recover in the second half with Beijing’s push to boost high-tech manufacturing... cautioned, however, that its customers will continue to destock in the coming months, weighing on orders." "Siemens also said it reached a deal to sell its Innomotics unit to KPS Capital Partners for €3.5 billion."