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Semiconductor squeeze forces ABB to shrink sales outlook

By Reuters

<div> <p>By John Revill</p> <p><span class="caps">ZURICH</span> -<span class="caps">ABB</span> expects the supply chain crunch to continue into next year, the Swiss engineering group said on Thursday, as a shortage of semiconductors made it cut its 2021 sales outlook, sending its shares down 6%.</p> <p>The maker of industrial robots and drives is the latest company to warn about shortages reducing its ability to meet demand from customers ramping up output after the pandemic-induced slump in activity.</p> <p>As a result <span class="caps">ABB</span> reported its third quarter sales increasing by 4%, less than half the 10% rate it expected in July. It now expects full-year sales growth of 6% to 8%, slower than the previous outlook for a 10% increase. </p> <p>“Semiconductors is the main problem, our products are very digital and they contain a lot of semiconductors not least in machine automation, robotics and electrification,” Chief Executive Rosengren told reporters. </p> <p>Power cuts in China, and logistics difficulties such as harbour closures as <span class="caps">COVID</span>-19 restrictions returned also made it more difficult for <span class="caps">ABB</span> to get the parts it needed, he added.</p> <p>“It has been a struggle which all industries are feeling today, this is not an <span class="caps">ABB</span> problem, this is a clear market problem,” Rosengren said. “It will take a couple more quarters before we see it better.”</p> <p>Companies including Canadian auto parts maker Magna and Sweden’s Ericsson have been hit by tight supply chains, while chip scarcity has brought some car assembly lines to a halt.</p> <p>Swiss elevator and escalator maker Schindler has also flagged supply-chain problems.</p> <p>Another problem was a shortage of skilled labour, particularly in the United States, which was affecting <span class="caps">ABB</span> and its customers.</p> <p>Still, demand was buoyant, with the company’s orders surging 26% while its backlog grew by $2.1 billion to $16 billion. </p> <p>“Demand has gone through the roof, but with the restrictions of movement under <span class="caps">COVID</span> that creates a tough labour market to attract good workers,” said Rosengren.</p> <p>The company was looking to mitigate the impact by redesigning products to use less scarce chips, sourcing new suppliers and building up its own stocks.</p> <p><span class="caps">ABB</span> shares were trading 6.2% lower in early afternoon activity in Switzerland following the more muted outlook, and the third quarter sales of $7.03 billion that missed forecasts.</p> <p>Operational earnings before interest, tax and amortisation rose 32% to $1.06 billion, in line with forecasts, while net profit came in at $652 million, slightly below expectations.</p> <p><span class="caps">ABB</span>’s third biggest investor, the activist group Cevian Capital was confident the supply chain problems would be overcome and was pleased with the improvement in operating profit margin to 15.1%.</p> <p>“The supply chain disruptions are a short-term thing,” said founding partner Christer Gardell, whose group controls 5.2% of <span class="caps">ABB</span> according to Refinitiv data. </p> <p>“When the supply chain blip normalises, <span class="caps">ABB</span> should deliver even better margins as they work through the growing order book,” he told Reuters.</p> <p>Still, the supply squeeze could affect others, analysts said.</p> <p>“The larger than expected negative impact from the supply chain could also impact other companies, including its electrical peers Siemens, Schneider and Legrand,” said JP Morgan analyst Andreas Willi.</p> </div>