Dec. 19 (Bloomberg) -- ABB Ltd., the world’s largest builder of electricity grids, will book an $850 million provision to cover a cartel probe and announced the biggest cost-cutting drive since facing bankruptcy in 2002.

The Swiss maker of factory robots and transformers plans to reduce costs by $1 billion after the economic slowdown clipped orders in October and November, the Zurich-based company said in a statement today.

ABB will shift more production to emerging markets, where the growth in orders is outpacing more mature markets. Joe Hogan, who became chief executive officer in September, joined his peer at Siemens AG in saying a strong order backlog will help it meet existing growth targets as new bookings fall. The provision to cover possible fines, asset writedowns, and the revamp -- coupled with exchange-rate losses -- will reduce fourth-quarter profit.

“It’s positive that Hogan has begun to prepare ABB for a downturn,” said Scott Babka, an analyst at Morgan Stanley, which reiterated its “underweight” recommendation. “The bigger issue is that orders will be down materially in 2009, which implies the earnings trough is unlikely till 2011.”

ABB has declined 52 percent this year, paring its market value to 36 billion francs ($32 billion). That compares with 1.7 billion francs in 2002, when the business faced spiraling asbestos claims. The stock dropped 3.4 percent to 15.47 francs today.

Possible Jobcuts

After holding up in the first 15 months of the credit crisis, European equipment suppliers are now flagging projects are being delayed because of financial constraints. Markets have changed “dramatically” in recent months, Heinrich Hiesinger, head of Siemens’s industrial division, said yesterday.

Today’s announcement by ABB may indicate the market slowdown is coming earlier than expected, Babka and Vidya Adala said in a note.

Some customers face the lack of affordable financing and volatile commodity prices mean customer investment decisions are being deferred, according to ABB. That prompted the cost-cutting program and details will be outlined when full-year earnings are reported on Feb. 12.

Improved component sourcing and boosting efficiency will help generate savings. A cut in the number of employees, reducing temporary workers and shorter working hours cannot be ruled out, spokesman Wolfram Eberhardt said in a telephone interview. ABB employs about 120,000 at operations in 100 countries.

“Given the uncertainty surrounding the global economy, we must be sensible and prudent from an early stage and ensure that ABB’s cost base is in line with weaker market conditions,” Hogan said.

Siemens is cutting 16,750 jobs to match the margins of rivals General Electric Co. and ABB and Chief Executive Officer Peter Loescher is combating weakening markets with a 1.2 billion- euro ($1.7 billion) savings program.

Price Fixing

The Swiss company faces more than five investigations into alleged anti-competitive practices, including bribery and fixing prices in the market for large-scale transformers used in power grids. Siemens, Areva SA, and Toshiba Corp. are also accused of acting as a cartel. Power transformers are key components in electricity transmission, reducing or increasing the voltage in an electrical circuit.

European Union regulators in February 2007 raided offices of ABB and other transformer makers in Austria, France and Germany as part of the investigation.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

Last Updated: December 19, 2008 11:45 EST