Too Big To Fail?


January 27, 2012

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When a major market protagonist has a rough time it always causes concern, or blown out of proportion panic, from analysts, investors and shareholders.

So the news this week that Siemens – industrial bastion and wind turbine manufacturing giant – is down on first quarter profits following some one-off costs in its offshore wind operations, and a Euro 48million loss in its renewables business, attracted the usual comment.

Setting aside operations of the wider business, where losses are being blamed on a slowdown in short cycle orders from China, it’s worth bearing in mind that Siemens is potentially a victim of its own success. Something that is particularly apparent when looking at the payment of Euro 201million to North German grid operator, TenneT for project delays.

Currently Siemens, is one of only two significant offshore transmission supply chain businesses in the market (ABB being the other). This means that when you compare the number of projects live and in planning, versus the number of firms available to actually do the often-complex work, delays are almost inevitable.

And what this means of course is that until this issue is addressed, the costs will continue to fall on the shoulders of the largest players in the market. Of which Siemens is one.

Better it falls on those who are most able to absorb the costs, some may argue, rather than put the smaller firms out of business. While all the while the burden is confined to the larger businesses, and they continue to experience losses like these – so the nervousness amongst the tripartite of investors, shareholders and analysts continues, threatening the future of a market that is still fairly embryonic.

And whilst for Siemens, being able to supply HVDC offshore converter stations helps spread the risk away from a turbine manufacturer continually under threat from Asian businesses able to operate more ‘efficiently’, one wonders what cost this diversity is truly having on the company balance sheet. We are after all reminded that in these days of austerity there is no business too big to fail.

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