European IT Bellwethers Slip

Given the ongoing uncertainty floating around Europe and the likelihood of another recession there, it was only a matter of time before we started seeing companies cite similar pressures.

Apparently, it's happening sooner than later. This week, both {complink 5218|STMicroelectronics NV} and {complink 4929|Siemens AG}, significant bellwethers for Europe's electronics sector, delivered bad news about their outlooks.

ST, Europe's biggest chip maker, reported Monday that its fourth-quarter sales dropped across all its main business segments. For the quarter, it posted an $11 million loss, compared with a $219 million profit a year earlier. The full-year profit fell from $830 million to $650 million, and annual sales fell 5.9 percent to $9.73 billion.

For the first quarter of this year, ST expects total revenue to fall 4 to 10 percent as demand for its wireless products softens, according a Wall Street Journal report. Much of the dropoff will be tied to the struggling ST-Ericsson venture.

Carlo Bozotti, the company's president and CEO, had this to say:

For ST-Ericsson, managing the wireless joint venture's shift from a legacy portfolio to the new product roadmap has proven more challenging than expected given the change in the business of one of their largest customers and its evolving plans. While the new portfolio is beginning to ramp, the current results of ST-Ericsson are still distant from the financial prospects we are envisioning.

On Tuesday, it was Siemens' turn in the hot seat. It said profits and new orders fell late last year, because customers grew cautious about investing in new projects. During its first fiscal quarter, which ended Dec. 31, profit dropped 17 percent to €1.5 billion ($1.94 billion). Sales rose 2 percent to €17.9 billion, but a 5 percent decline in new orders appears to be triggering some concerns about the company's near-term success.

After some better (albeit sporadic) news in 2011 about improved balance sheets and Germany's manufacturing strength, Europe seems to be losing traction. (See: Europe Economic Seesaw Continues and Will Global Economic Problems Hurt Electronics?)

International Monetary Fund chief Christine Lagarde made even more serious doom-and-gloom claims this week. Lagarde warned that failure to resolve the region's economic problems, which principally stems from Greece's spiraling debt issues and growing concerns about the larger economies of Italy and Spain, could slip financial markets into a “1930s moment” (read: depression).

Admittedly, I find myself reading all this with jaded cynicism forged over years of watching the supply-demand bullwhip mapping against bear or bull economic times. It sounds like more of the same news we've been hearing for the last few years, and there's no doubt that tough times are ahead for many parts of the world. But I wonder if we give these reports too much clout.

Many of these numbers are for the last quarter of the calendar year, when the broad consumer electronics sector usually experiences a seasonal high from the holiday selling season. However, if memory serves, the last part of the year and the first few months of a new year aren't generally the best months for chip makers or industrial conglomerates. What will be more telling, I think, is how these companies do in the June and September quarters. By then, we'll have a much truer sense of both Europe's health and the overall well-being of these companies.

16 comments on “European IT Bellwethers Slip

  1. Barbara Jorgensen
    January 25, 2012

    I know there is a lot at stake within the European Union and debt decisions can't be made on the fly. But I'm growing tired of the unending cycle of proposals and backoffs and proposals and… The longer this goes on, the longer the market will suffer.

  2. Houngbo_Hospice
    January 25, 2012

    Europe IT companies are in trouble like many other companies in the eurozone. But I think this is a global trend that is not limited to Europe only. Hopefully that will not drag the world economy down. 

  3. Houngbo_Hospice
    January 25, 2012

    “The longer this goes on, the longer the market will suffer.”

    It is obvious that, the European leaders don't have any better solution to the crisis. 

  4. Ariella
    January 25, 2012

    @Barbara, good point.

  5. Damilare
    January 25, 2012

    I suppose that is what happens when the politicians posture and agree on something and then the economists come in, crunch the numbers and decide that is not the case. However, it is surprising that they let that happen knowing how the uncertainty feeds into the vicious cycle called depression

  6. _hm
    January 25, 2012

    It may be due to lethargic in innovation and marketing. They need s to be more aggressive.


  7. Jennifer Baljko
    January 27, 2012

    @Barbara – I agree… a lot of the posturing has stop, and basically everyone on this side of the pond (myself included) need to knuckle down and deal with tough policy decisions.

  8. Jennifer Baljko
    January 27, 2012

    @hospice – I hope the same, but truth this the down side of a global economy:The Domino Effect.

  9. Jennifer Baljko
    January 27, 2012

    Re: @Hospice European leaders don't have any better solution to the crisis.”

    I don't know if any one – European leaders or otherwise – have a good solution.



  10. Jennifer Baljko
    January 27, 2012

    @damilare – right, maybe there are too many chefs in the kitchen right now. But during good times everyone's rolling in dough and willing to turn a blind eye to out of control spending and lending. Fiscal responsibility means managing the bad times AND the good times.


  11. Jennifer Baljko
    January 27, 2012

    @hm – Any specific ideas for being more aggressive or innovative?

  12. bolaji ojo
    January 27, 2012

    Jenn, You've in previous articles identified the problems facing the continent. What are the tough decisions you think must be made?

  13. Barbara Jorgensen
    January 27, 2012

    Jenn, your perspective is so valuable–it's easy to sit in the (albeit stuggling) US and solve Europe's problems from a distance. That said, indications on recent conference calls are businesses losing confidence in the EU market and in fact, one company has “de-selected” Italy as one of its locations. They'll support their customers from other regional sites. I really hope progress is made soon….

  14. Wale Bakare
    January 28, 2012

    _hm, how best do you think aggresiveness could be achieved in solving europe problem?

  15. Taimoor Zubar
    January 29, 2012

    I don't think it's a healthy picture for Europe here at least from the perspective of electronic industry. Any idea how other industries are coping up? Are they also undergoing the same situation?

  16. _hm
    January 29, 2012

    It is inner urge and instinctive. Like innovation and art, it needs drive from once on soul.

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