Project delays and cancelled orders forced German engineering group Siemens to issue a profit warning today, sending its shares down as much as 19 per cent and shaking investor faith in its turnaround.
The stock took its biggest one-day percentage fall since it entered the German blue-chip index in April 1991.
"This signifies something of a loss of trust, even if part of the decline can be attributed to current market conditions," said Merck Finck analyst Theo Kitz. "Nevertheless, it will be a difficult time for management for a while," he added.
Chief Executive Peter Loescher, the first outsider and non-German to head Siemens, was appointed last May to slim down and reshape the unwieldy company. Since his appointment Siemens' market value has shrunk by around €37 billion.
Loescher and finance chief Joe Kaeser had confirmed company targets in January as the trains-to-lightbulbs conglomerate denied market talk then that it could cut its earnings outlook.
The Munich-based company said at the time it expected sales this fiscal year to increase at twice the rate of global gross domestic product growth, while operating profit should grow at least twice as fast as sales.
Now it expects a negative impact on earnings of around €900 million ($1.2 billion) in the current quarter.
Analysts fear they may be more to come despite assurances from Siemens that this amount represented the largest piece of any additional financial burdens for 2008.
The news comes as Siemens struggles to put an end to a corruption and bribery scandal that rocked the company. In the United States, Siemens is being investigated for suspected payments to parties described as business consultants and may face fines or be blacklisted from public contracts.
Siemens closed down 17.1 per cent at €66.42, the biggest decliner in the German blue-chip index, which fell 4.2 per cent.
"Just the other day Siemens went and told us about their wonderful profit. How do I know if they truly expect to make a profit," said Dirk Mueller, trader at German brokerage ICF.