Wind turbine-maker Siemens Gamesa Renewable Energy SA has reduced the profit outlook for its fiscal year 2022, which started in October. Results in its fiscal first quarter were affected by supply chain disruption "now expected to last longer than previously anticipated," the company announced late Jan. 20.

Supply chain turbulence has caused higher-than-expected cost inflation, the company said. Volatile market conditions in some regions also affected some customers' investment decisions, resulting in delays to some projects.

Taking into account these higher costs and changing assumptions for market and production conditions, the turbine-maker now expects a negative EBIT impact of €289 million in the first quarter of fiscal year 2022, "mainly due to cost estimate deviations in onerous contracts." These are contracts that cost a company more to fulfill than they bring in.

Group comparable revenues in fiscal year 2022 versus fiscal year 2021 are now expected to fall between 9% and 2%. This is down from a previously forecasted revenue decline of 7% to 2%.

Siemens Gamesa's beleaguered 5.X onshore wind platform, which has experienced ramp-up difficulties, continues to cause headaches. It required some design changes, and production and delivery schedules were pushed back. "The negative impact of these delays and changes in production plans has been exacerbated by the existing bottlenecks in the supply chain," Siemens Gamesa said in a statement.

Design changes in the 5.X turbine mainly affected the blades, Siemens Gamesa CEO Andreas Nauen told analysts in a Jan. 21 call. Tests revealed problems with the rotor blades and materials inside were changed to fix this, Nauen said.

"Naturally, this is very disappointing," Berenberg analysts said in a note reacting to the preliminary results. "The company issued a warning on these same issues last quarter but clearly underestimated the scale of the challenges."

Detailing the demand picture for wind turbines, Nauen said deals with customers are not struck at the same pace as usual. "Nobody is asking for delaying contracts once signed. What we sometimes see is the contracts and the execution on the customer side doesn't go as planned," the CEO said.

This is happening with the company's offshore wind contract in Taiwan, Nauen said. Legislative uncertainty in home market Spain "more or less halted all commercial activity, and customers said, 'I'm not signing until this settles,'" the CEO said.

To the limit and over the cliff

The company is also grappling with a General Electric Co. patent dispute in the U.S., which was ruled partially in GE's favor this week. The U.S. International Trade Commission said in a Jan. 18 notice that Siemens infringed on a patent on low-voltage ride-through technology with software issued before 2021. "The GE situation that we see in the U.S. also slowed down the commercial activity," Nauen said.

Like the rest of the industry, Siemens Gamesa is increasing the prices of its equipment to pass on a surge in commodity costs, chiefly steel. A rise in turbine prices brings customers' business cases "to the limit of maybe over the cliff, and that's why they don't sign," Nauen said. This argument contradicts many utilities who have said in recent months that rising equipment prices will simply be passed through to the power price.

All of this comes despite what should be a bright market backdrop. Commitment to decarbonization and renewable energy is growing across the world, with key economies easing the way for more wind deployment. But competitors including Vestas Wind Systems A/S have also reported challenges in recent quarters, facing similar supply chain and logistics difficulties.

Two-thirds of Siemens Gamesa is owned by Siemens Energy AG, which posted otherwise positive preliminary results, boosted by its gas business, on Jan. 20. "Aside from the significant SGRE disappointment, [Siemens Energy's] results were very strong" Berenberg said. Still, the impact meant Siemens Energy had to curb its full-year 2022 guidance and said it is "reassessing its expectation for full-year 2023."

Speculation that the company could take full ownership of the wind turbine business has been brewing for some time. Siemens Energy CEO Christian Bruch has made no secret of his dissatisfaction with the turbine maker's performance. The market was also not impressed with the latest bad news, with the company's shares tumbling nearly 13% at 11 a.m. U.K. time on Jan. 21.

"Whether or not [Siemens Energy] will pursue the minorities of SGRE remains the key issue for most investors to whom we speak," Berenberg said, adding that this will only build given the continuing execution issues at SGRE.