Semiconductor squeeze forces ABB to shrink sales outlook

By John Revill

ZURICH (Reuters) -ABB 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 and Sweden’s Ericsson 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 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)