The company said it had lowered the division’s earnings target for 2005, and now expected growth of 6.8-7.3 percent instead of the forecast 10 percent.
It also lowered its overall earnings target to 6.6-7.1, from 7.7 percent. The group said that it expected profits in the second quarter of 2005 to show a sharp fall from the first-quarter figure.
In initial trading on the Swiss stock market, the price of shares in the group was showing a fall of 9.38 percent to 8.11 Swiss francs.
A dealer at the Banque cantonale vaudoise, who declined to be named, said that the fall was in reaction to the profits warning which was not matched by the effects of the jobs cuts.
The group would shed 1,300 jobs throughout the world in its power transformer business. This was equivalent to 10 percent of its workforce in this division. The redundancies would cost the company about $240 million.
ABB said it would close a number of plants in “high-cost countries,” but did not give details, although Swedish Radio reports that there will be no closures Sweden apart from a plant in Ludvika, the sale of which had already been announced.
“Overcapacity has been the biggest problem in the transformer industry in recent years, mainly the result of deregulation in the power sector,” ABB chief Fred Kindle said in a company statement.
“The situation has been made worse, however, by the unprecedented increase in raw material prices we’ve seen since 2004. As a result, we must take further steps now to improve the profitability of this important business and to strengthen our leading market position.”
ABB is the world’s top producer of transformers used in power plants and electrical locomotives.
The transformer business is part of its key power technologies division.