Earnings Season: A Mixed Bag From Europe

Looking at the flurry of quarterly results coming out of Europe's big tech companies this week, it's hard to tell which way the spring weather is headed. Some companies are catching a bit of sun, and others are just getting rained upon.

Take {complink 4269|Koninklijke Philips Electronics N.V.}, for instance. The Dutch company surprised everyone with better-than-expected first-quarter numbers. One-time gains and much-awaited improvements within its consumer and healthcare divisions boosted Philips' results and gave some hopeful signs that previous management changes were working.

Coming off a $211 million (160 million euro) loss in the fourth quarter, the company this time reported that first-quarter net profit jumped 80 percent to 249 million euro, while sales rose 7 percent to 5.6 billion euro.

Over in Germany, engineering conglomerate {complink 4929|Siemens AG} also reported revenue growth in its fiscal 2012 second quarter. The company said sales were up 9 percent year-over-year to 19.3 billion euro, buoyed by a strong order backlog.

However, the good news was shaded by storm clouds; new orders were down 13 percent, and income was “considerably below the prior year due to burdens in the Power Transmission Division and an equity investment loss at NSN,” according to the company statement above. “As expected, the second quarter was not easy,” noted Siemens President and CEO Peter Löscher.

Seeing the approaching storm, the company also slashed its full-year profit forecast because it incurred another major charge associated with delays in offshore wind power projects, Reuters reported.

In Switzerland, chipmaker {complink 5218|STMicroelectronics NV} took a hit on its first-quarter revenue as it continues to restructure a struggling wireless business with partner Ericsson. Sales fell 8 percent to $2.02 billion on a sequential basis, and its net income loss widened to $176 million from an $11 million loss in the previous fourth quarter.

President and CEO Carlo Bozotti commented further on the company's performance in a statement:

    ST's wholly-owned businesses in the first quarter posted a sequential decrease of 3%, better than historical seasonality, benefiting from growth in the Automotive segment and the Analog, MEMS and Microcontrollers sector. Our Wireless segment losses weighed heavily on our quarterly results again. However, ST-Ericsson has announced today its new strategic direction and renewed business model with a key objective to significantly reduce its operating losses throughout 2012 as it moves towards leadership and improved financial returns.

Up north, there was better news from the United Kingdom, the base of semiconductor intellectual property provider {complink 444|ARM Ltd.}. The company's pre-tax quarterly profit soared to $100.19 million (£61.9 million), up 22 percent from £50.7 million in the year-ago period. Revenues were $209.4 million, up 13 percent on $185.5 million in the same quarter a year before.

The company said it saw growth in shipments of chips based on its processor technology, with 1.1 billion chips shipped into mobile phones and mobile computers, similar to a year ago, and 800 million chips shipped into consumer and embedded digital devices, up 15 percent year-on-year.

Despite the sunny patches, companies here are generally remaining cautious in their overall 2012 outlooks. With continued uncertainty about the European debt crisis, the lag effect of the recession, and the slowdown in spending in key economic segments, many executives are still nervously hedging their forecasts. It looks as if it's high time to keep the rain boots ready. There will be some sloshing around in muddy terrain for a while longer.

45 comments on “Earnings Season: A Mixed Bag From Europe

  1. Barbara Jorgensen
    April 26, 2012

    Jenn: it certainly has been a mixed bag so far, and I think that in part reflects how spotty the receovery has been in both markets and products. Some chip companies had a great quarter; they seem to be the companies in the mobile arena. Among OEMs, Apple did great; Samsung not so much. Consumers are still being selective about what they spend money on and there's not a lot of “the wave lifting all boats” effect going on. Even among US companies, there's hesitancy about Europe, but that's more macroeconomic than it is technology-related. Good analysis, although it is tough to draw too many conclusions about the overall marekt.

  2. bolaji ojo
    April 26, 2012

    Jenn, I wonder how the economy is performing in Europe and how much of the region's economic problem is reflected in these results. In the case of American companies, often a huge chunk of their results is now generated outside of the United States so the impact of the US economy itself is reduced.

  3. Himanshugupta
    April 26, 2012

    Dutch and German economies are two strong economies. Can we say by just looking into the economic conditions of the two companies that these countries are performing better than others. It may not be as simple as companies can tell only about their respective fields but i was wondering how good/bad is economic condition in general there.

  4. Himanshugupta
    April 26, 2012

    Dutch and German economies are two strong economies. Can we say by just looking into the economic conditions of the two companies that these countries are performing better than others. It may not be as simple as companies can tell only about their respective fields but i was wondering how good/bad is economic condition in general there.

  5. Daniel
    April 27, 2012

    Jennefer, that's a great news for electronic industries. I read that still most of the EU countries are with economic slowdown phase. So any positive news/results from companies based in EU can pull the economic system further. But I think it may take another one or two years for the economic system to get stabilize and flourish.

  6. Jay_Bond
    April 27, 2012

    @Bolaji, I was wondering the same thing. I know my companies sales and profits for Europe are down, and that is considered the weak point in the globe at the moment. I understand that some companies are still posting excellent quarters, but it also makes you wonder could these numbers actually be better if this European crisis wasn't going on.

  7. Ashu001
    April 27, 2012


    I am not sure it is only to do with Economic Strength of the Home economies.

    After all,both Siemens and Phillips make a strong majority of their sales overseas(and in particular outside the Eurozone).

    My bet is rather it has everything to do with the Business you are in and the Currency in which your Sales are represented.

    STM suffers predominantly because they are based in Switzerland and the Swiss have by far the strongest currency in the last one year.

    ARM on the other hand benefits the most from a Booming Mobile sales market globally.

    I am sure,if you look at some Electronics manufacturers based in America,you would also get good numbers because of the Weak Dollar.



  8. Ariella
    April 27, 2012

    I'm wondering about this. Certainly, certain European countries must be doing better than others. Would we get a clearer picture of the economic reality by not lumping all those countries together?

  9. elctrnx_lyf
    April 27, 2012

    The forecast is not really positive in Europe because of the week economy at this moment. I'm not really sure about the reasons for this slow down but definitely look forward to stay on right note with investments pumping in and expects to see profits in future.

  10. stochastic excursion
    April 27, 2012

    The outlook is surprisingly good considering the problems with reconciling the debt and avoiding default in the Eurozone.  It seems like the impact would be in more operating overhead, where these companies trade primarily in Euros, having a “Plan B” would entail extra expense and effort.

  11. Houngbo_Hospice
    April 27, 2012

    Germany is doing much better than other european countries, I think. But overall the continent is not yet recovering from the economic downturn.

  12. ITempire
    April 28, 2012

    @ Jennifer

    From the stats you shared, one thing I find common amongst most or all companies is that profit as a % have grown more than the revenue %. I am curious that is it an indication that supply chain problems (both backward and forward) are easing out or is it something else due to which costs are getting well fit in the pocket?

  13. ITempire
    April 28, 2012

    @ stochastic

    As we can see that revenues are growing for the companies mentioned here and this means that entities have more cash generated themselves. This indicates that reliance on debt finance is decreasing which many be good for European economy as a whole.

  14. _hm
    April 28, 2012

    Do these results indicates success of some products for organization and failure of product for other divisions? Dreaming and conceptulize product of next few years or even decade is of prime importance for better earnings and continued growth.


  15. Jennifer Baljko
    April 28, 2012

    Barbara: You're right.. I think it's reflective of a spotty recovery, not just by country or technology, but more broadly across many industries. Think it will be this way, at least in Europe, for some time to come.

  16. Jennifer Baljko
    April 28, 2012

    Right, Bolaji. All of the European companies mentioned are large global organizations, so softness in Europe is only one part of the equation. Generally, though, there are some specific financial issues companies are keeping on the radar screen. For instance, ongoing and potentially long-term problems in Greece, Spain, Italy, Portugal and Ireland have an impact on how other governments make decisions, which eventually impact businesses and operations.

  17. Jennifer Baljko
    April 28, 2012

    himanshugupta,jacob-yes,germanyandsomeofthenortherneuropeancountriesarestilldoingwellenough,butthingshaveslowedandnowplacesliketheunitedkingdomhaveslippedbackintorecession. whilepocketsofgoodnewsiswelcome(asinsomeofthesecompanies'earnings),therealityisthatanyrecoverywe'veseeninmostdevelopedworldcountrieshasbeenweakand itwillbequitesometimebeforeweseeastable,long-termuptick.


  18. Jennifer Baljko
    April 28, 2012

    jbond – It's easy to speculate that companies would do better if Europe was generally doing better, but to Barbara and Bolaji's points, smaller amounts of income and revenue are tied to regional performance. Europe's crisis is a the weighty issue now, but like cycles before it, when any part of the global economy weakens, it ripples back to balance sheets one way or another. Remember the Asian financial crisis in the late 1990s that hit the tech sector particularly hard? Financial crisis, it seems, just keeps moving around the world at different times.

  19. Jennifer Baljko
    April 28, 2012






  20. Jennifer Baljko
    April 28, 2012

    Ariella… It may help to “unlump” the region, but I'm not sure how clearer the picture would be. All of these companies are dependent on a global economy, and strong sales are also dependent on the products they offer  and industries they sell into. 

  21. Ashu001
    April 28, 2012


    I could'nt read most of your comment clearly;but you seem to be saying that Currency fluctuations and the products which you sell matter a lot for most Electronics Businesses today.

    Yes,That is Highly accurate.

    Currencies are not stable;todays currencies are free-floating so their value matter a lot for the manufacturer based in that country.

    Traditionally,the Swiss France,The Japanese Yen and the US Dollar have been Safe Havens in times of either Political or Economic Turmoil.

    So,whenever things get ugly globally these three countries appreciate in value.

    And 2011,was very ugly Economically particularly for the Eurozone,with the strong possibility of total breakup of the Euro.In such a sceanario,the Swiss Franc ,especially wins particularly due to its proximity to the Eurozone.So all Europeans pour their Finanical Savings and Assets into Switzerland.And this was why the Swiss Franc was one of the strongest currencies in 2011 and forced the SNB to intervene aggressively and effectively establish a dirty float/peg for the Euro-Swiss Franc.

    After all,if the Swiss Franc kept on rising in Value,it would have been curtains for the entire Swiss Export sector(as Europe is by far their biggest market) and at the same time,Europe is also one its biggest competitors for exports globally in most manufactured products.

    Anyways,The turmoil in the Eurozone is gonna get uglier once again come      May 7th.Especially as Hollande looks all set to Gain the French Presidency & Greece also is likely to choose a Govt which is likely to reject Austerity.

    If things get to uncomfortable,Germany+Holland+Luxembourg+finland will choose to exit the Eurozone together and launch a new currency.

    In that sceanario,the hits to not just the Banking sector but also most companies who export from this zone will be extensive.I just don't see France+the rest of the PIIGS being able to export their way out of this mess.They are all bankrupt today;what is more likely is they will push Double Digit Inflation rates on their citizens and start seizing Private property in the name of Public Good.

    Eitherways it does'nt look good for Europe.

    Lets wait and watch.


  22. Ashu001
    April 28, 2012


    Quite right.

    Financial Crisises tend to happen with increasing regularity over the last Two-Three decades or so.

    And more often than not,most Manufacturers are caught unawares by when it does strike.

    What more can Electronics Companies do to prepare themselves better for such uncertainities?

    I personally feel they could move to do a combination of Three things

    1)Bring some of their manufacturing(say 25%) which is now offshored back close to their Key consumers (in North America and Europe).

    2)Move a little away from Just  in Time Manufacturing ,which will enable them to keep more products in stock on-site;so when successes in products do happen they should be able to make the most of it.

    and 3)Build more cash on their Balance Sheet;so even if Financial markets get shut off for 6 months,they should have no issues operating.

    What do you think?



  23. Ashu001
    April 28, 2012


    Most of the Bigger Multi-Nationals(based out of US,Japan and Europe) tend to not depend on Debt finance for anything today.

    In fact they have tended not to for quite some time.

    On the contrary many Banks are dependent on these Multi-Nationals today for Cash.

    I remember the US Pharma Major-Pfizer doing it first but here's the entire story.

    Banks are no longer performing their most critical purposes(which is to extend credit to borrowers who need it) today thanks to the Financial Crisis.




  24. Ashu001
    April 28, 2012


    The main reason that is happening is because Companies don't have Growth Visibility & future Projects Visibility.

    Consequently,whatever money they make(in profits) gets passed straight through to the Bottom-line on the Balance Sheet rather get re-invested back in the Business.

    Its very difficult to plan for the future in such an environment.Nobody can predict will Europe continue to wallow in Recession for next One Year? 5 Years? 10 Years or will it start growing aggressively from 2014? 2016? 2020???

    Capital Expenditure in most of Europe and America is falling today(very-very sharply) and its not because The Corporates have no cash to spend(on the other hand they are sitting on record Cash Piles).

    But rather everything to do with Regulatory& Tax uncertainty[Fools like Hollande want to raise Tax rates to 75%!!!] as well as lack of visibility on Future Growth.



  25. Ashu001
    April 28, 2012


    Its tough to predict and plan for the future.

    The big problem that nobody in Europe wants to accept is that Europe is a Two-Speed economy and not everybody has benefitted equally from the Eurozone.

    Germany+Holland+Luxembourg+Finland is one Europe and France+PIIGS is the other Europe that has not benefitted equally from the Eurozone(they only got access to cheap loans and Cheap credit while all the Jobs went either to Northern Europe or overseas to Asia/America).

    And now,the Germans expect them to take the burden exclusively on themselves in the form of Austerity(Why do you think Greece+France+Italy+Portugal+Spain are rebelling so loudly now???)

    The demands of Austerity are just too much for them to bear.

    Sitting In America we don't realize it,but imagine if we were told that our Salaries would fall by 10% every year for next five years??? At the same time Taxes and all Benefits would also not be like what they were when our Parents Retired…

    Would we still continue to work so hard?

    I don't think so.



  26. Houngbo_Hospice
    April 28, 2012


    “many Banks are dependent on these Multi-Nationals today for Cash.”

    No doubt, banks are suffering from the financial crisis, still, many banks are doing pretty well than other businesses. Don't you think?

  27. bolaji ojo
    April 28, 2012

    Ashish, I disagree with you only in one tiny detail. Europe does not have a 2-speed economy. Believe me what they have in France is not what they have in Germany, which is quite different from what's in the United Kingdom, which, of course, is not what holds in Spain, Portugal or even Ireland. And, you know as well as anyone the Greek and the Italians are on a different planet. Mixed bag? Certainly, but more like a a bag of mixed nuts!

  28. Ariella
    April 28, 2012

    Sitting In America we don't realize it,but imagine if we were told that our Salaries would fall by 10% every year for next five years??? At the same time Taxes and all Benefits would also not be like what they were when our Parents Retired…

    @Asish, Unfortunately, some people are in just that situation. In fact, in some industries, the salaries are now 40% lower than they were prior to 2008, though the cost of living is higher.  As for retirement, that gets complicated, in part, because people are living longer than did in the previous generation on average. I do know of people who are still working at 80 and others who are not yet 70 but forced into retirment when their jobs are cut.

  29. ITempire
    April 29, 2012

    @ Ashish

    I agree with you that due to financial crisis the lending ability of the banks has become extremely weak. At your point about dependancy of corporations on financial institutions, if you mean that they dont 'depend' but they use it frequently, then its correct but if you mean that corporations have made a habit of doing business without debt financing, it wont be reflective of the situation esp in the global scenario. Corporations use a debt-equity mix that suits their profile and profitability even these days and trend might not change.

  30. Taimoor Zubar
    April 29, 2012

    All of the European companies mentioned are large global organizations, so softness in Europe is only one part of the equation”

    Given the economic conditions in Europe, I think the reason why companies like Phillips and Siemens have gained success is because of their global nature. It's important to see their revenue breakdown in detail and see what part of the revenue is coming from sales in other countries. Also, both these companies have looked to innovate on the consumer side so this may be a reason behind the success.

  31. Taimoor Zubar
    April 29, 2012

    The big problem that nobody in Europe wants to accept is that Europe is a Two-Speed economy and not everybody has benefitted equally from the Eurozone.”

    I think two-speed economy is greatly hurting the EU and creating a rift between the two sets of countries. With current situation in Spain, the gap is enlarging. I think there's a limit to how much one country or two or three countries can support the rest of the zone. Unless the situation in other countries improves, I don't think the EU can survive for very long.

  32. Ashu001
    April 29, 2012


    I agree and appreciate most of what you said in your post here.

    The UK is a different case as they have their own independent currency ;so atleast they can control their own Monetary Destiny.

    The Reason why I clubbed France in with the PIIGS is primarily because the solution to their Economic woes is similar in nature and right now that is the simplest way to sort out the Existance issues that the Euro faces today.

    If Germany+Holland+Luxembourg+Finland(only countries with AAA rating left in the Eurozone);choose to exit the Eurozone together in an organized and coordinated manner for a New Euro/Deutschemark;the Old Euro will collapse in value by sufficent amounts(I am betting on a 100% fall in value from current valuations) to enable the remaining countries to Inflate away their debts.The Old Euro HQs will stay in Belgium while new Euro HQs will move to the Bundesbank in Germany.

    The countries which form the Old Euro will be given the option to join the New Euro after they have sufficently inflated away their debts and brought their competitive levels closer to that of the countries in the New Euro.

    Its also true that this will result in a massive Burst of Inflation for most People residing here-But after this initial burst of Inflation;they can raise Interest rates sufficently to atleast give savers some semblance of protection against Inflation.

    Instead of this constant worries about whether or not the Euro will survive (alongwith the real human cost of German imposed Austerity on the rest of the Eurozone),tackling the problem head on and aggressively will help a lot today.

    The rationale behind the Eurozone;to bind constantly warring people together in a common  Union was a noble one.Unfortunatly noble intentions without decisive actions led to this current situation.Either they choose this solution today or wait for a total breakup and resultant chaos(wars will very likely breakout as a result) in the Eurozone.AS far as the Schengen Treaty goes;its already on the verge of getting destroyed today.So no real stakeholders left amongst ordinary Europeans for the Eurozone.



  33. Ashu001
    April 29, 2012


    You raise a critical issue which affects more and more Americans today.

    CNN had a very nice article talking about this very issue today.

    Americans(working in the Private Sector) have openly accepted that they won't retire until they are probably close to 80.And for most Young Workers(ages of 20-40) their expectations on Social Security have gone down and down.You don't see the protests(&riots) like what you see in Europe today..

    I was also reading that if things stay as there,Social Security and Medicare will run out before 2030.Which is not that far off for most people looking to plan for retirement.

    And both leading candidates for the Presidential election(Obama and Romney) don't have serious proposals to plug that deficit…

    Romney would cut Taxes and Spend more and Obama would raise Taxes and Spend more!!!

    Even under Obama's Buffet Tax rule;there would not be any major change in the Deficit(hard as it sounds but its true!!!).

    Check these sets of Amazing interactive graphs out to get a clearer idea…

    A Total removal of Bush Tax cuts(once they expire in 2013);would actually go a much longer way…

    Here are some other great articles on the Retirement and Healthcare Problems most ordinary Americans face today.

    To sum up,quite simply Americans also face very serious Retirement challenges but its nothing like what the Europeans face.In Europe's case the problems are today and increasingly over the next decade while in America's case the problems are atleast over Two decades away.



  34. Ashu001
    April 29, 2012


    It depends on your definition of doing well.

    If you mean That Top Executives continue to get paid insane amounts as Compensation then you are right.But Shareholders and Customers continue to suffer.

    Even here we are on the verge of seeing a real revolt.

    You have to realise that most Banks have the World's Central Banks in their total control-This is why Central Bank policy is geared to defend them above everything else.

    Otherwise would Interest rates in America for Savers be at 0.5%-1%??? Even when Inflation is well in excess of 5% today???

    Banks get to borrow super-cheap funds from Central Banks like the Federal Reserve,the ECB and BoE and then invest those in Buying Safe Government Bonds(at 4% Interest rates).They then make money on the Spread.

    Think about it,Can you Borrow Money from the Federal Reserve at 0.5%???

    I don't think so.



  35. Ashu001
    April 29, 2012


    Since we are on the subject of Europe and basically whether or not its recovering,these articles should clearly demonstrate that Europe continues to flounder in a massive Recession;just the Recipe we need for a Breakup of an Unhappy Union.

    Nokia loses crown to Samsung

    European Auto Sales are Down

    Eurozone retail sales fall to record Lows

    Unemployment in Spain Hits record

    Uk continues slide into Recession

    Petrochemical Sales are down in Europe.

    The Former Head of the Bundesbank admits the Eurozone is a failure.

    And most importantly Banks continue to contract credit by reducing exposure to Loans.A European Depression is all but certain now.




  36. Wale Bakare
    April 29, 2012

    Ashish, yeah news coming out on every minutes very not positive. On ARM – not surprised with ARM pre-quarter financial reports. As i learned recently,  one of Europe ARM processor's licensed firms has just entered Africa with an award of contract to deploy its services there. By the time the firm put its feet on ground in Africa just like what Ericsson has been doing in last one or two decades that would probably catalyse both companies business operations.

  37. Taimoor Zubar
    April 30, 2012

    Given the sluggishness in European economy, it's interesting to see what measures European companies are taking to counter the decline in revenues. It's an interesting move by ARM to step out of Europe and reach Africa. I believe we shall see similar moves by other companies in their attempts to restore the revenues.

  38. Susan Fourtané
    April 30, 2012

    Wow, Ashish, if I want a quick recipe to get depressed I just need to go through reading that list of links. 🙁 There are good things happening, too. 


  39. Susan Fourtané
    April 30, 2012

    Hi, Jennifer,

    I just read a confirmation from Sky News that Spain is back in recession: its economy shrank by 0.3% in the first 3 months of 2012. Not good. Not good. 


  40. Ashu001
    April 30, 2012


    Yes that's right. The News out of the Eurozone continues to get uglier with each and every passing day.



  41. Daniel
    April 30, 2012

    Ashish, you are correct to an extent. Eventhough all the European countries have a common currency and economic system; they don’t have uniformly financial strength and policies. The local administrations in individual nations are handling the financial part with a different view and it too with in the country. There is no unanimous financial goal and policies across the EU countries, which can help to strengthen Euro and financial sector.

    April 30, 2012

    It really feels like we are bobbing along the bottom waiting for a big foot to stomp on us.  I sure hope things get better but I do not imagine it will happen significantly for the next few years.  The financial markets need to be sorted out (so we can borrow money more easily) and governments stabilised before solid growth can occur and the “feel good” returns.

  43. Anna Young
    April 30, 2012

    You're right about one thing FlyingScot, that it appears we are “bumping along the bottom”. The economy slumped into double deep recession here in the UK, since the economic turmoil of 1975. Recovery failed to gain traction and shrank by 0.2% in the first three months of 2012 – recent report. So not so great!

  44. bolaji ojo
    April 30, 2012

    Anna, What's the longer-term forecast for Europe's economy and are people worried about the likely effects on businesses?

  45. Anna Young
    May 1, 2012

    Bolaji, as you're aware, the economic forecast in Europe remains uneven across European countries. The balance of risks for economic growth is still tilted to the downside. Things are still fragile in the financial market, resulting in negative feedback. In the UK for example, cuts in government spending has adversely affected capital investment and subsequently a lower economic growth.

    Businesses are at risks. It's difficult for new business startups. People are squeezed, high unemployment rate-hence lower spending morale etc… Even the most optimistic forecasts suggest a slow growth recovery. The consensus is a grim future particularly in the periphery of Europe

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