Siemens is leaving Russia – what’s next for China?

Nfter 170 years, Siemens is withdrawing entirely from Russia. After the start of the war, the technology group had stopped new business in the country, but until recently still provided services such as maintenance work in the railway sector, insofar as this appeared permissible under the sanctions conditions.

CEO Roland Busch has now announced the comparatively late departure: “After a thorough assessment of the situation, Siemens has decided to completely leave the Russian market with its industrial business,” he said on Thursday. The spun-off company Siemens Healthineers should remain active in Putin’s empire with its activities in healthcare.

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Right at the beginning of his presentation of the latest quarterly figures, Busch tried to make clear whose side Siemens is on in the Ukraine conflict with an emotional story. “I’m thinking of Andrei, our head of security in Ukraine, who is still hanging out in Kyiv – in his basement,” said the Siemens boss and reported in a hoarse voice how Andrey had organized convoys for employees and their families, “while bombs were falling “.

A Siemens building in Warsaw now serves as accommodation for 150 refugees. His company provided a total of 14 million euros for Ukraine, including 4.5 million euros from employee donations, Busch said: “This is a turning point in history.”

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In fact, the withdrawal eleven weeks after the beginning of the war seems anything but hasty. Busch justified the hesitant approach with contractual obligations and the safety of his 3,000 employees in Russia.

“We did it respectfully. We gave our customers an advance warning of a few weeks and are now implementing it,” said Busch. The top priority is dealing decently with colleagues in Russia “and that they don’t get into dangerous situations either”.

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Siemens has been working for the state in Russia since 1852, but also for private companies. A few years ago, the Munich company invested more than 50 million euros in the construction of a workshop for Russian express trains.

Just last November, they signed contracts with the Russian railways for a major project for the joint development of a high-speed train that would be used on the route between Moscow and Saint Petersburg.

Now the good plans are gone. The exit from Russia costs Siemens about one percent of its group sales and canceled orders with a volume of four billion euros. Write-downs from the Russian business are already burdening the quarterly figures reported on Thursday with a drop in earnings of almost 600 million euros, further corrections of a similar amount could follow.

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The railway division Siemens Mobility is primarily affected, for which the sales forecast had to be lowered promptly. Instead of five to eight percent growth, Busch now expects zero growth here.

Due to the problems in Russia, among other things, Siemens has not raised its forecast for the current year, but has only confirmed it. “Some may have been hoping for a forecast upgrade,” commented one trader. After all, Siemens usually raises its targets over the course of the year. On the stock exchange, the Siemens share fell by 7.4 percent. Russia was not the only reason for the observers.

Russia bans transactions with former Gazprom subsidiaries abroad

Russia has imposed sanctions on Gazprom Germania and other former subsidiaries of its state-owned gas company. With a total of 31 listed companies, no more business should be done from the Russian side, it said.

Andreas Willi, analyst at the US bank JP Morgan, praised the strong order intake and “groundbreaking growth in automation technology”, but criticized disappointing profitability in the two areas of digital industries and smart infrastructure, i.e. the business with the digitization of factories respectively buildings.

Despite the criticism, Busch sees his company in a “position of strength”. With a volume of 94 billion euros, the order book is fuller than ever, an increase of more than 20 billion compared to the previous year. Now it’s a matter of processing the orders.

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Exactly here, however, Busch faces his next trouble spot – the situation in China. The lockdown in Shanghai is spreading across the country. “The supply chains are interrupted and logistics are stagnating,” reports Busch.

Siemens is currently ramping up production in Shanghai in a “closed cycle”. The employees sleep in the factories and are supplied with food by Siemens.

However, it will not be possible to compensate for the production losses within the current quarter. In addition to the missing components from our own production, there is an inflation-related increase in the cost of delivery. Siemens intends to pass this on to its customers through “reasonable price increases”.

China is too big to retreat

Busch does not believe in turning away from China to avoid a situation like the one in Russia. “The market is just so big, nobody can avoid it,” said Busch. However, the manager indicated that he might want to reduce his China exposure on the supplier side.

“There are certain dependencies that are perhaps not healthy,” said the Siemens boss. “You have to think now: Can you diversify something in terms of suppliers and supply chains?”

Siemens is not the only company working on it. This in turn creates a market for Siemens’ industrial business. “When you start to bend supply chains, that often means investing in production elsewhere, in software. Ideal for us.”

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