Table of Contents

Key figures

Note: “Group profit from Operations” is reconciled to “Income before income taxes” of Operations under “Reconciliation to financial statements” on the table “Segment information” included in this release.

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		Press Presse Prensa For the business and financial press Munich, April 28, 2004

Siemens in the second quarter (January 1 to March 31) of fiscal 2004

“I am pleased with our overall performance for the second quarter,” said Siemens CEO Heinrich v. Pierer. “We progressed well in the Groups and largely hit our earnings targets. The same goes for sales and orders, in a still challenging macroeconomic environment. This shows we have moved further along the right path toward achieving our operational goals.

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The main exception is TS, where problems arose in the rolling stock business, principally involving Combino railcars. This forced us to take significant charges, and I cannot rule out further earnings impacts. We have established a special team to address this situation, drawing on the technical expertise of the company as a whole. Despite these difficulties we remain committed to our full-year targets. However, the charges make them more challenging to achieve.”

For the second quarter ended March 31, 2004, Siemens reported net income of €1.210 billion and basic earnings per share of €1.36, compared to €568 million and €0.64 in the second quarter a year earlier. The primary driver of net income was €1.076 billion in Group Profit from Operations. A number of additional factors influenced net income in the current period. A pre-tax gain of €590 million on the sale of Infineon shares was partly offset by a goodwill impairment of €433 million related to Siemens’ 2001 acquisition of businesses from Atecs Mannesmann, which were merged into Siemens Dematic. Net income also included a reversal of €246 million in deferred tax liabilities.

In Operations, a majority of Siemens’ Groups achieved both double-digit profit growth and higher earnings margins compared to the prior-year period. The leading earnings contributors for the quarter included Power Generation (PG), Automation and Drives (A&D), Medical Solutions (Med), Siemens VDO Automotive (SV), and Osram. Due primarily to the charges at TS in its rolling stock business, second-quarter Group Profit from Operations was up only slightly year-over-year.

Second-quarter orders of €19.716 billion were up 3% from €19.084 billion in the second quarter a year earlier. Sales of €17.794 billion were down 2% from €18.230 billion in the prior-year quarter. Excluding currency translation effects and the net effect of acquisitions and dispositions (i.e., on a comparable basis), orders increased 5% and sales rose 2% year-over-year.

Net cash from operating and investing activities in the second quarter was €3.565 billion, including net proceeds of €1.794 billion from the sale of Infineon shares. Excluding this effect, net cash was still up sharply compared to €1.398 billion in the second quarter a year ago.

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Operations in the second quarter of fiscal 2004

Information and Communications

Information and Communication Networks (ICN)

ICN posted another sharply improved quarter year-over-year, reflecting the positive impact of previous restructuring efforts. The earnings turn-around was most evident in ICN’s Carrier Networks and Services business, which recorded a €5 million profit on sales of €753 million compared to a loss of €180 million on sales of €797 million in the second quarter a year earlier. The Enterprise Networks division earned €46 million on sales of €867 million compared to €49 million on sales of €887 million in the prior-year quarter. For ICN overall, second-quarter sales were nearly level with the prior year on a comparable basis. Orders rose year-over-year, particularly at the Carrier Networks division.

Information and Communication Mobile (ICM)

ICM nearly doubled its second-quarter Group profit year-over-year, to €109 million, combining double-digit sales growth with higher earnings margins. The Mobile Networks division led the way with €76 million in profits on sales of €1.163 billion, compared to €44 million on sales of €1.067 billion a year earlier. The Mobile Phones division increased sales 26%, to €1.243 billion, and profits rose to €13 million from €2 million, despite a lower average selling price per unit compared to the prior-year quarter. Handset volume rose to 12.8 million units from 8.0 million in the same period a year earlier. Average selling price remained stable compared to the first quarter of this fiscal year (the seasonally strong Christmas quarter), when handset volume was 15.2 million units. For ICM as a whole, second-quarter sales rose 14% to €2.661 billion, and second-quarter orders climbed 18% to €2.713 billion.

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Siemens Business Services (SBS)

Group profit of €26 million at SBS rose 4% compared to the second quarter a year earlier, as the Group countered volume-driven pressure on earnings with cost-reduction measures. Sales declined year-over-year, to €1.121 billion, while orders rose to €1.334 billion on the strength of large new contracts in Europe.

Automation & Control

Automation and Drives (A&D)

A&D continued to increase its operating leverage, achieving a 28% increase in Group profit, to €235 million, on a 3% rise in sales. As in recent quarters, higher productivity and a streamlined cost structure enabled A&D to increase earnings in a difficult market environment. The Industrial Automation Systems and Motion Control Systems divisions were leading contributors to Group profit, and improving profitability in the U.S. also contributed to A&D’s earnings growth. Sales rose to €2.102 billion and orders were also up year-over-year, at €2.180 billion.

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Industrial Solutions and Services (I&S)

I&S posted €26 million in Group profit, as the Group benefited from higher productivity resulting from previous restructuring efforts. Sales were level with the second quarter a year earlier, while orders rose 10% year-over-year on a comparable basis, benefiting from major new orders in China. I&S continues to streamline its business portfolio.

Siemens Dematic (SD)

Group profit at SD was a negative €30 million, despite higher earnings on stronger sales at the Electronics Assembly division. Overall results for SD were driven by a combination of factors including excess capacity and project cost overruns. Following an extensive internal review of the outlook for the SD’s airport logistics activities and distribution and industry activities, management concluded that goodwill related to SD was impaired. Because these businesses were acquired at the corporate level as part of Siemens’ Atecs Mannesmann transaction, the resulting goodwill impairment was taken centrally. Sales of €503 million for SD were substantially lower than in the same period a year earlier, while a major new contract with the U.S. Postal Service increased orders by 35% year-over-year on a comparable basis.

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Siemens Building Technologies (SBT)

SBT posted higher Group profit on lower sales year-over-year, reflecting the streamlining of its business portfolio between the periods under review. Sales and orders, at €996 million and €1.030 billion, respectively, were lower in comparison to the prior year primarily due to first-quarter divestiture of SBT’s facility management activities, coupled with currency translation effects and a weak construction market in Europe.

Power

Power Generation (PG)

PG was the top earnings performer among Siemens Groups, posting Group profit of €274 million. Earnings rose 5% even though the prior-year period benefited from substantial cancellation gains. PG’s service business continued to increase its earnings contribution year-over-year. The industrial turbine business acquired from Alstom between the periods under review also contributed to PG’s positive earnings development. Higher sales for PG overall, €1.713 billion, reflect the new volume from Alstom partly offset by negative currency translation effects. The same factors influenced orders of €2.414 billion.

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Power Transmission and Distribution (PTD)

Transportation

Transportation Systems (TS)

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Siemens VDO Automotive (SV)

SV recorded second-quarter Group profit of €128 million, up 8% year-over-year, on the strength of higher profitability at the Interior and Infotainment division. Second-quarter sales and orders of €2.162 billion and €2.160 billion, respectively, were nearly level year-over-year. Excluding currency translation effects and primarily the divestiture of SV’s cockpit module business between the periods under review, second-quarter sales and orders rose 8% year-over-year. After the close of the second quarter, Siemens completed its acquisition of certain U.S. automotive electronics manufacturing activities of DaimlerChrysler AG located in Huntsville, Alabama, and will consolidate them into Siemens worldwide as of April 1, 2004.

Medical

Medical Solutions (Med)

Med was once again a leading earnings contributor, with €228 million in Group profit for the second quarter. Med’s core diagnostics imaging businesses held their own in a competitive market, maintaining their earnings levels and driving the Group’s sales and orders higher year-over-year on a comparable basis. Second-quarter sales of €1.708 billion and orders of €1.736 billion reflect currency translation effects, as well as the sale of Med’s Life Support Systems business and the transfer of a portion of its electromedical systems business into a joint venture between the periods under review.

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Lighting

Osram

* Excluding currency translation effects.

Osram achieved a 15% increase in second-quarter Group profit, to €116 million, on the strength of higher profitability combined with higher sales at the Automotive Lighting and Opto Semiconductors divisions. At €1.088 billion, sales and orders were up 10% year-over-year excluding currency translation effects. Top-line growth was well balanced geographically on a currency-adjusted basis, highlighted by strengthening demand in Eastern Europe and Asia-Pacific.

Other operations

Other operations consist of centrally held equity investments and other operating businesses not related to a Group. These activities resulted in €137 million in Group profit in the second quarter, up from €87 million in the same period a year earlier. The improvement was driven by higher equity earnings in the current quarter, mostly from Bosch und Siemens Hausgeräte GmbH.

Corporate Items, Pensions and Eliminations
Corporate items, pensions and eliminations were a negative €108 million in the second quarter, compared to a negative €386 million in the same period a year earlier. In the prior-year period, Corporate items included a negative €127 million representing Siemens’ equity share of Infineon’s net loss for the quarter. Corporate items no longer include an equity share of Infineon’s results. The current period includes the pre-tax gain of €590 million on the sale of Infineon shares, partly offset by the €433 million goodwill impairment related to the airport logistics and distribution and industry activities of SD which were acquired at the corporate level as part of Siemens’ Atecs Mannesmann transaction. Centrally carried pension expense was €183 million in the second quarter compared to €187 million in the same period a year ago.

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Financing and Real Estate

Siemens Financial Services (SFS)

*Excluding currency translation effects.

Income before income taxes at SFS was €66 million compared to €58 million in the second quarter a year earlier.

Siemens Real Estate (SRE)

*Excluding currency translation effects.

Income before income taxes at SRE was €45 million in the second quarter compared to €55 million in the same period a year earlier, due primarily to a weaker market for sales of commercial real estate. The same conditions resulted in lower income before income tax on a consecutive-quarter basis. SRE has put a property development project in Frankfurt, Germany on hold pending an updated analysis of prevailing market conditions.

Eliminations, reclassifications and Corporate Treasury
Income before income taxes from Eliminations, reclassifications and Corporate Treasury was €128 million, compared to €28 million in the same period a year ago. The difference is primarily the result of positive mark-to-market effects at Corporate Treasury from interest rate derivative contracts not qualifying for hedge accounting, and higher interest income.

Income statement highlights for Operations in the second quarter
In Operations, net sales were €17.618 billion compared to €18.113 billion a year earlier. Second-quarter gross profit margin improved to 28.3% of sales, from 27.8% a year ago, driven by higher margins at a majority of Siemens’ Groups. Research and development expense was 7.1% of sales, even with the level in the prior-year quarter. Marketing, selling, and general administration expense was 17.9% of sales, up from 17.4% in the same period a year earlier.

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Other operating income (expense), net was a negative €426 million, compared to a positive €69 million in the prior-year period. The current period includes the €433 million goodwill impairment mentioned above, while the prior-year period benefited from cancellation gains at PG. Income from investments in other companies, net was €762 million compared to €3 million in the second quarter a year earlier. The current period included the pre-tax gain of €590 million from the sale of Infineon shares and higher equity earnings at Bosch und Siemens Hausgeräte GmbH. The prior-year period included a negative €127 million from Siemens’ equity share of Infineon’s quarterly net loss.

Income and earnings per share in the first six months
Net income for the first six months of fiscal 2004 increased to €1.936 billion, up from €1.089 billion a year earlier. The current period includes the pre-tax gain of €590 million on the sale of Infineon shares, partly offset by the €433 million goodwill impairment related to the airport logistics and distribution and industry activities of SD acquired from Atecs Mannesmann. Net income also benefited from the reversal of €246 million in deferred tax liabilities. Operations also made a significant contribution to the growth in net income, as Group Profit from Operations rose 12% to €2.437 billion from €2.170 billion in the prior-year period. Basic earnings per share for the first six months of this year were €2.17 and diluted earnings per share were €2.08. Earnings per share in the same period a year ago were €1.22, without dilution.

Sales and order trends for the first six months
Sales in Germany for the first half of fiscal 2004 were €8.555 billion, up 3% compared to the first half a year earlier, while orders in Germany decreased 1% year-over-year, to €8.605 billion. International sales decreased 4% year-over-year, to €27.568 billion, and international orders increased 4%, to €31.601 billion. On a comparable basis, international sales for the first half rose 2% and international orders climbed 8%.

Within international results, sales for the first half of fiscal 2004 in the U.S. of €6.182 billion were 22% lower compared to the same period a year earlier, due primarily to the end of the gas turbine boom in the U.S. Orders of €6.597 billion were 13% lower year-over-year. Excluding currency translation effects, U.S. sales were 9% lower and U.S. orders were up 2% year-over-year. Sales in Asia-Pacific for the first six months remained stable year-over-year, at €4.307 billion, and orders decreased 2%, to €4.819 billion. Excluding currency translation effects, sales in the Asia-Pacific region rose 7% and orders rose 5%. Sales in China were €1.311 billion, 3% below the prior-year level, while orders reached €1.524 billion, up 16%. Excluding currency translation effects, sales rose 6% and orders climbed 27%.

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Liquidity for the first six months
For Siemens worldwide, net cash from operating and investing activities for the first six months of fiscal 2004 was €2.374 billion, including €1.794 billion in net proceeds from the sale of Infineon shares. For comparison, net cash was €261 million in the same period a year earlier. Both periods under review included supplemental pension contributions, totalling €1.255 billion in the first half of fiscal 2004 and €442 million in the same period of fiscal 2003.

Funding status of pension plans
The funding status of Siemens’ principal pension plans on March 31, 2004 improved significantly compared to the end of the prior fiscal year, with an underfunding of approximately €3.1 billion compared to an underfunding of approximately €5.0 billion at September 30, 2003. The return on plan assets during the first six months amounted to €1.012 billion. This represents a 12.0% return on an annualized basis, well above the expected annualized return of 6.7%. The projected benefit obligation of Siemens’ pension plans increased by approximately €300 million during the first six months, due to the net of pension service and interest costs less benefits paid.

Economic Value Added
Economic Value Added (EVA) for Siemens worldwide improved significantly in the first half compared to the positive EVA in the first half of the prior year. The improvement in EVA was driven by higher earnings, and excludes the goodwill impairment related to the former Atecs businesses and fiscal 2004 effects related to Infineon.

Note: Siemens CEO Heinrich v. Pierer and CFO Heinz-Joachim Neubürger will hold an English-language telephone conference with analysts on April 28, 2004 at 14:00 CET. You can follow this conference live on the Internet by going to www.siemens.com/analystcall. A recording of the telephone conference will be available later at the same location.

This press release report contains forward-looking statements based on beliefs of Siemens’ management. The words “anticipate,” “believe,” “estimate,” “forecast,” “expect,” “intend,” “plan,” “should” and “project” are used to identify forward-looking statements. Such statements reflect the company’s current views with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here. Siemens does not intend or assume any obligation to update these forward-looking statements.

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SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the three months ended March 31, 2004 and 2003 and as of September 30, 2003
(in millions of €)

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SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the six months ended March 31, 2004 and 2003 and as of September 30, 2003
(in millions of €)