(Adds fund manager comments, context)
By Sarah Knight
FRANKFURT, July 24 (Reuters) - German electronics and engineering group Siemens AG said on Wednesday it expected fourth-quarter earnings to decline from the previous quarter after weaker demand in its major markets depressed orders.
Its shares dropped after the German giant reported a 20 percent fall in orders for the fiscal third quarter to end-June. Orders were particularly hurt by a 51 percent slump at its previously booming power generation unit.
"The outlook is simply bad, and when you look at the order intake it is really bad," said Frank Rothauge, an analyst at Sal. Oppenheim in Frankfurt. "It's all very well that Power had good profit figures, but the order intake has halved."
Falling telecom sales and earnings have dragged down Siemens over the last year, while sales in power generation, medical technology and other areas have been buoyant. Now the cushion from power generation may be deflating in the next few years as booming demand for turbines in the United States fades.
Siemens said it was struggling with an "extremely difficult environment" and would carry on with its planned restructuring programme, which involves the loss of over 30,000 jobs starting last year.
Sluggish economic growth dampened orders at 10 of its 13 units, where products range from mobile phones to trains and medical technology.
The group said its telecoms equipment business was hit again by a sharp drop in demand from carriers, particularly for switches and broadband access equipment.
By 1144 GMT, Siemens shares were down 5.77 percent at 47.21 euros, having fallen as low as 46.01 -- an eight month low. The Dow Jones European tech index was down 5.86 percent.
BETTER THAN MANY EXPECTED
For the three months to end-June, the group managed to beat most analysts' expectations, buoyed by the performance of its power generation, medical solutions, automation and drives units and its light bulb unit Osram.
Group earnings before interest and tax (EBIT) fell to 892 million euros ($883.2 million) from 919 million the previous quarter but were up from a loss of 479 million euro a year ago, when it took hefty charges.
Power generation posted a peak profit of 476 million euros.
Group sales fell four percent to 20.48 billion euros.
"The figures were not so bad," said Thiemo Lang, a fund manager at Munich-based Activest, which holds Siemens shares. "The downturn at the fixed-line network unit was far less than what we have come to expect from its competitors."
ICN, its fixed-line telecom network unit, posted a loss of 84 million euros including restructuring charges of 45 million.
Chief Financial Officer Heinz-Joachim Neuberger told reporters the company would take another charge in the triple-digit millions of euros in the fourth quarter to cover losses at ICN. He added that the total charge from both quarters may be less than the 300 million euros previously signalled.
ICM, the mobile infrastructure and handset unit, swung to a slight loss of nine million euros from a profit of 44 million the previous quarter, on falling demand and pricing pressures.
The company said it sold 8.2 million handsets in the quarter, down from 8.3 million the previous quarter.
Telecoms equipment makers Lucent Technologies , Nortel Networks and Ericsson and the world's number one handset maker Nokia have recently announced more job cuts or lowered forecasts amid a dearth of spending.
Their shares have fallen twice as hard as Siemens this year.
Fund managers said Siemens was holding up as its broad span of activities helped it to generate cash.
CASH
The company said it had net cash inflow from operating and investing activities of 1.466 billion euros, compared with a net cash outflow in year-ago quarter of 2.822 billion.
"Siemens had a positive cash flow, so that one can see they have control there," said Activest's Lang. "It is important considering that Alcatel , Lucent, Ericsson and Nortel have problems in bringing down debt.
Siemens stuck to tough operating margin targets of 8-11 percent by 2004 for its problem telecoms children ICN and ICM.
It did not provide a more detailed outlook. The firm has said it expects a "clear improvement in earnings this year" from 2001's net income of 624 million euros before special items and goodwill amortisation.
Nine-month net income was 2.544 billion euros, including special items of 936 million in gains on the sale of shares in Infineon Technologies.