UPDATE 3-ABB looks to North America as China falters
* Q1 net income $685 mln, vs $692 mln forecast
* Q1 orders flat at $10.4 bln, vs $10.1 bln forecast
* Sees recovery in North America, weak demand in China
* Shares fall 3.1 pct, underperforming sector
By Caroline Copley
ZURICH, April 25 (Reuters) - Swiss engineer ABB is banking on a recovery in North America to offset a weaker China and austerity-ravaged southern Europe after first-quarter orders beat expectations.
Strong demand for power equipment in North America helped to drive first-quarter orders of $10.4 billion, compared with a forecast for $10.1 billion in a Reuters poll.
Orders in Asia, however, fell 11 percent year-on-year, dragged down by weaker demand in Chinese construction and rail transportation markets. Softness in the Mediterranean also weighed on orders in Europe, which slipped 5 percent.
"North America continues to look positive on both the power and automation front, while China remains an open question as far as the timing of new investments in key sectors for ABB like construction," chief executive Joe Hogan told a news conference.
Surveys earlier this week showed European factories had their worst month in April since June 2009, while China showed some improvement after a muted start to the year. The United States has been faring better, but surprisingly weak jobs data last week raised fears this may not continue.
Chief financial officer Michel Demare said he expected a faster recovery in China's industrial sector, although a question mark still hung over the timing of a rebound in the key nuclear, construction and rail transportation segments where ABB sells high margin products like switches and circuit breakers.
Shares in ABB were down 3.3 percent by 1248 GMT, compared with a 0.8 percent firmer European industrial goods and services sector index.
"Positive on North America, but more guarded otherwise," Vontobel analyst Panagiotis Spiliopoulos who has a 'buy' rating on the stock, said in a note.
"While investors should focus on solid order growth, the situation at low voltage and power systems and the more guarded margin outlook could weigh on the stock."
ABB is hoping a global push to upgrade electrical grid infrastructure and use energy more efficiently will drive long-term demand for its products, which are used by oil, mining and utility companies.
As the company flagged in February, a backlog of less profitable orders and aggressive price competition hit operating margins in the first quarter, which at 13.9 percent were below the 15.7 percent seen a year ago.
Nonetheless, cost savings helped compensate for price pressures and net profit in the first-quarter rose 5 percent to $685 million.
"We saw improved profitability in several businesses compared to the end of last year and we intend to build on that momentum to tap the many opportunities we see for profitable growth over the rest of the year," Hogan said in a statement.
Margins came under pressure in ABB's power businesses, which has faced aggressive price competition from Asian peers.
Rival Siemens said on Wednesday it may revamp its power transmission arm as it grapples with tough competition in the market for transformers and switch gears.
ABB reiterated it expects sales in its early-cycle businesses, which make products ranging from industrial robots to software, to grow at low single-digit percentage rates compared with 2011 levels until economic confidence improves.
In its later-cycle businesses, which produce power transformers for utilities, it expects a strong order backlog to propel growth at a high single-digit percentage rate.
French rival Schneider said last week organic sales would inch higher at best in 2012, hit by a slowdown in Asia and austerity measures in Europe.
Hogan said ABB was seeing good order activity in offshore wind power, contrasting with Siemens which slashed its full-year outlook after incurring a charge related to delayed offshore wind power projects in the second quarter.
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