Siemens Energy Faces Profit Forecast Downgrade Amid Gamesa Turbine Quality Issues

In the wake of a warning issued in June, Siemens Energy, the manufacturer of technology for the energy sector and a 32% stakeholder in the German industrial conglomerate Siemens, has lowered its profit forecast for the fiscal year 2022-2023. The company has come to the realization that the previously issued profit figures are no longer attainable due to quality issues plaguing its subsidiary, Gamesa, a prominent Spanish wind turbine manufacturer.

The root of Siemens Energy’s pessimism lies with Gamesa’s wind turbines, which have failed to meet customers’ quality requirements. Problems have surfaced in both the turbines already delivered and those still under construction, necessitating extensive correction and repair work. The scale of the issue is significant, and the company is allocating a hefty €1.6 billion to cover the associated costs, exceeding the expectations of analysts who predicted only €1.0 billion in costs. Consequently, Siemens Energy is now staring at a net loss of €2.9 billion for the third quarter, a notable difference compared to the €564 million loss experienced during the same period the previous year. Additionally, the fiscal year 2022-2023 is projected to conclude with a substantial net loss of €4.5 billion.

The problematic aspects of Gamesa turbines center on rotor blades and main bearings used in land-based wind turbines. Notably, the manufacturing process involves over 150 layers of fiberglass in the rotor blade. However, in some instances, the manufacturing process results in unwanted “wrinkles” within these layers, leading to quality concerns and performance issues.

Jochen Eickholt, the head of Siemens Gamesa Renewable Energy’s wind division, assured stakeholders that the extent of these troubles is not likely to reoccur. While acknowledging the challenges, he emphasized that the majority of turbines remain operational and that any necessary repairs can be undertaken during routine maintenance activities. It is essential to note that a previous Bloomberg investigation had attributed some of these problems to Gamesa’s practice of releasing new turbines too quickly to keep up with aggressive market competition. Eickholt conceded that, in hindsight, this approach resulted in selling turbines without adequate testing.

Last year, Siemens Energy decided to fully acquire the Siemens Gamesa unit in the hopes of gaining better control over the problem-ridden subsidiary. However, the acquisition did not immediately prove successful in rectifying the situation. Siemens Energy CEO, Christian Bruch, characterized the quarter as “very demanding” and pledged to conduct a thorough review of operations within the wind division to address the issues that are impeding the path to profitability.

Despite the challenges posed by Gamesa’s quality problems, Siemens Energy remains active in a market that favors its products. During the previous quarter, the company witnessed a remarkable 54% growth in its order book, reaching an impressive €14.9 billion. Comparable sales also surged by 8% compared to the same period in the previous fiscal year, amounting to €7.5 billion.

Siemens Energy, which was spun off from Siemens in 2020 with an IPO opening price of €22.00, has experienced a significant decline in its stock value due to the ongoing difficulties at its Spanish subsidiary. In June, the revelation of Gamesa’s problems resulted in a sharp overnight decline of over a third in Siemens Energy’s shares. On Monday, the company’s shares fell by 3.8% during early trading, making it the largest decliner on Germany’s main DAX index. Nevertheless, the share price showed signs of recovery later in the morning.

Siemens Energy faces an arduous path to profitability as it grapples with the challenges presented by Gamesa’s turbine quality issues. The substantial downgrade in profit forecast highlights the urgency for the company to address and resolve these concerns to regain investor confidence and secure a more stable future.

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