Bloomberg News

Siemens Blindsided by China Wind Boom Plans ‘Massive’ Investment

February 24, 2012

Feb. 22 (Bloomberg) -- Siemens AG, the world’s largest maker of offshore wind turbines, said it underestimated the pace of growth in the Chinese wind market and will ramp up spending to catch up as local competitors increase their lead.

“We’re investing massively in research and development and to make use of economies of scale in production,” Felix Ferlemann, head of Siemens’s wind-power business, said in response to e-mailed questions. “We were somewhat taken by surprise by the strong growth of the Chinese market.”

China led the world in installing wind-power capacity last year. Munich-based Siemens is working to keep pace in the country, where it’s lagging behind suppliers such as Vestas Wind Systems A/S, while competition puts pressure on prices. Profitability at Siemens’s renewable-energy unit was wiped out last year, calling into question Chief Executive Officer Peter Loescher’s strategy of focusing more on green technologies.

Siemens maintains its goal of becoming “a leading company in wind power,” while it’s not important if this takes two years or five, Ferlemann said. The company set a goal in 2009 to rank this year among the world’s top three wind-power companies by installed generating capacity.

Turnover at the Top

The target was issued by Andreas Nauen, who ran the wind- power operation until he left in March 2010 to become CEO at a German unit of Indian wind-turbine maker Suzlon Energy Ltd. Nauen was succeeded by Jens-Peter Saul, who led the business for less than 19 months before Ferlemann took over.

Siemens ranked ninth in 2010 among wind-turbine makers by annual installed capacity, according to estimates by Eduardo Tabbush, an analyst at Bloomberg New Energy Finance, who said the German company may climb to fifth place by 2015. Vestas and Chinese producers Sinovel Wind Group Co. and Xinjiang Goldwind Science & Technology Co. will remain the top three manufacturers for the near future, in terms of megawatts sold, he said.

The renewable-energy division, previously among Siemens’s best performers, had an operating loss of 2 million euros ($2.65 million) for the fiscal year ended Sept. 30 on excess capacity in countries including the U.S., and price pressure in China. The company does not break out profit for the wind unit.

Earnings Decline

Vestas, based in Aarhus, Denmark, posted an annual loss for the first time in six years in 2011. Sinovel forecast on Jan. 30 that its 2011 earnings probably fell by more than 50 percent because of lower prices.

The 10 orders that Siemens won worldwide in 2011 for wind- farm equipment included one from China, according to data collected by Bloomberg New Energy Finance. That compares with at least seven contracts from China that Vestas announced.

The German company aims for its wind-power operations to return to a profit margin of at least 10 percent of revenue by cutting costs and streamlining operations, Michael Suess, the head of Siemens’s energy businesses, said in September.

Profitability will drop to about 6.5 percent of sales this year from 8.5 percent in 2011, according to estimates by Michael Busse, an analyst at Silvia Quandt Research in Frankfurt.

Siemens is sitting on a record backlog of almost 12 billion euros worth of wind-power orders, including its first from China for offshore equipment. The company said in December it will expand wind-turbine manufacturing, sales and service units in China through two ventures with Shanghai Electric Group Co.

“With our planned joint ventures in China, we’ll soon also have a good position there and benefit from growth in the world’s largest wind market,” Ferlemann said.

--Editors: Tom Lavell, Robert Valpuesta

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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