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Most stocks are being dragged down again today after the news that JP Morgan Chase & Co. (NYSE: JPM) would buy rival Bear Stearns Cos. (NYSE: BSC) to avoid a bankruptcy stirred new worries over the tumbling economy. Siemens AG (NYSE: SI) is joining the market anxiety after issuing a warning related to its earnings. Europe's largest engineering group announced it expects earnings from the current quarter to drop by about 900 million euros ($1.4 billion). The company cited weak performance for its major business projects, dragged down by delays and order cancellations. Siemens reviewed major projects, focusing on its energy, transportation and IT solutions and services divisions.
The German conglomerate said that "the deterioration of these legacy projects" resulted in losses of 900 million euro, with 600 million euros brought by the power division, 200 million euros by the transport business and 100 million euros by the IT unit.
The company added that its IT solutions and services unit was affected after a customer, whose name was not disclosed, canceled a major order. In addition, Siemens has been seeing its performance under pressure coming from "structural challenges in the supplier markets" and "delays recruiting experienced project engineers."
In an attempt to ease investors' reactions, the company reaffirmed its 2010 targets, saying "definite progress toward these targets is expected in 2009." However, this was not too encouraging and failed to reassure traders who are concerned over Siemens' profitability. As a result, Wall Street pushed the stock down over 15% in morning trading.
After a bribery scandal that started in late 2006 and caused a major management shake-up, this is another big hit from the German engineering giant. Time will tell how the company manages to face both investigations for bribing government officials and traders' disappointment over its weak performance.
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
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