Siemens IT 'keeps on struggling''

Recent optimism in IT services has been tempered by Siemens, which has revealed its IT division's profits and revenues have suffered in the last nine months.



Delivering its third quarter results on Wednesday, the engineer said revenues for IT Solutions and Services dropped slightly, and its earnings before tax sunk 3% on last year to €64m (£50m).



This is despite recent restructuring measures and inflated capabilities offshore and near-shore now being in place; largely explaining why new orders rose 9% to €1,209m (£949m).



As the company predicted in March, getting booted off an €85m IT contract with the Department for Work and Pensions accounted for the division's drop in profitability.



Yet in the third quarter, profit before tax dropped to €64m, representing a rise on the previous quarter of €35m in losses, suggesting things are moving in the right direction.



However, with the earnings before interest and tax margin standing at 5.1% in the third quarter, SIS just about met the target corridor of 5% to 7% as spelled out its policy programme.



"[Solutions and Services] faces a hard time trying to meet its target for the full financial year having achieved an EBIT margin of only 2.6% for the first nine months of the year," added Ovum analyst Cornelia Wels-Maug.



"Given that the EU only yesterday reported a slump in its well-respected indicator of the economic climate for the Euro zone, revenue growth in 4Q for SIS (and indeed, the rest of Siemens), whose business is still heavily reliant on Europe, will be an even tougher challenge."



More positively, the analyst credited Siemens' chief executive Peter Loscher, who only started as CEO in July last year, for keeping a tight rein on the overall profitability of each of the company's sector.



However, under a restructuring programme, he has "introduced more far-reaching changes that are bound to uproot the company's culture; a culture which has been woven over 160 years."



For its Solutions division, Siemens reported that revenues for the first nine months of this year, ending 30 June, were down 2% at €3,861m (£3,033m), though new orders were up 8% at €3,879m.



The company said the trading figures for its IT services arm were proof that "major orders fuel fast growth," but the analyst said they reflected that Siemens "keeps on struggling."