Semiconductor squeeze forces ABB to shrink sales outlook

* Full-year sales guidance growth cut to 6-8%

* ABB joins other companies in facing chip shortage

* Tight labour market adds to challenges

* ABB expects supply chain problems to continue

By John Revill

ZURICH, Oct 21 (Reuters) - ABB ABBN.S 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%.

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.

As a result ABB 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.

"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.

Power cuts in China, and logistics difficulties such as harbour closures as COVID-19 restrictions returned also made it more difficult for ABB to get the parts it needed, he added.

"It has been a struggle which all industries are feeling today, this is not an ABB problem, this is a clear market problem," Rosengren said. "It will take a couple more quarters before we see it better."

Companies including Canadian auto parts maker Magna MG.TO and Sweden's Ericsson ERICb.ST have been hit by tight supply chains, while chip scarcity has brought some car assembly lines to a halt.

Swiss elevator and escalator maker Schindler SCHP.S has also flagged supply-chain problems.

Another problem was a shortage of skilled labour, particularly in the United States, which was affecting ABB and its customers.

Still, demand was buoyant, with the company's orders surging 26% while its backlog grew by $2.1 billion to $16 billion.

"Demand has gone through the roof, but with the restrictions of movement under COVID that creates a tough labour market to attract good workers," said Rosengren.

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.

ABB 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.

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.

ABB'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%.

"The supply chain disruptions are a short-term thing," said founding partner Christer Gardell, whose group controls 5.2% of ABB according to Refinitiv data.

"When the supply chain blip normalises, ABB should deliver even better margins as they work through the growing order book," he told Reuters.

Still, the supply squeeze could affect others, analysts said.

"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.

Reporting by John Revill; Editing by Stephen Coates and Edmund Blair

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.