Hensoldt’s €8.8 Billion Backlog Hangs on Whether the Factory Floor Can Deliver

China blacklists Hensoldt over Taiwan arms sales, but the German defense firm's bigger challenge is a record €8.8B order backlog straining its production capacity.

Beijing’s decision to blacklist Hensoldt over alleged arms sales to Taiwan has sent a jolt through the German defence contractor’s supply chain, but the real test of its resilience lies closer to home: a production system struggling to keep pace with an avalanche of orders.

The Chinese Ministry of Commerce last week added Hensoldt to a list of seven EU companies subject to immediate export controls. Chinese exporters are now barred from shipping dual-use goods — items with both civilian and military applications — to the targeted firms, and any onward sale of Chinese-origin products to the sanctioned entities is also prohibited. The Belgian arms maker FN Herstal and Czech technology group Omnipol are among the other companies caught in the crosshairs.

Hensoldt’s management has sought to downplay the fallout. The board does not expect any material impact on operations or its financial outlook, noting that the group conducts almost no direct business in China. Yet the market took a different view. The shares slid nearly seven percent over the course of a week to trade at €74.46, a far cry from the 52-week high of roughly €115.

The underlying anxiety is about raw materials. The European Union sources nearly half of its rare earths from China, and Hensoldt depends on critical inputs such as gallium and germanium for its infrared optics and high-frequency electronics — precisely the kind of specialised components now caught in the export ban.

The group has been preparing for such a scenario. Chief Financial Officer Christian Ladurner said current germanium inventories are sufficient to last until the end of 2028. In parallel, Hensoldt is working with the Fraunhofer Institute on a crystal-growing facility at its Oberkochen site, with the aim of reducing its reliance on Asian suppliers by the end of 2027. Those buffers buy time, but they do not eliminate the vulnerability for highly specialised sub-components.

The order book is bursting at the seams

Even before the China sanctions landed, Hensoldt was grappling with a structural mismatch between demand and delivery capacity. In 2025, orders surged 62 percent, but revenue grew only about ten percent to €2.46 billion. The book-to-bill ratio of 1.9 tells the story: nearly twice as many orders are coming in as the company can process. The order backlog has swelled to €8.8 billion — an impressive figure that represents potential rather than profit.

For 2026, management is targeting revenue of roughly €2.75 billion with an adjusted EBITDA margin of up to 19 percent. Whether that proves realistic depends on how quickly the ongoing capacity investments begin to pay off.

Around €1 billion is being channelled into expansion through 2027 — new production sites, the integration of Dutch subsidiary Nedinsco, and a company-wide SAP implementation. All of that ties up capital and weighs on margins in the near term.

On the supply side, Hensoldt has locked in a multi-year agreement with United Monolithic Semiconductors for 900,000 gallium-nitride semiconductor modules to be delivered by 2030. These components are used in the transmit and receive modules of modern radar systems, including the Spexer family deployed in air defence platforms such as Skyranger and IRIS-T.

The company is also taking an unconventional approach to staffing. A cooperation agreement with technology firm Aumovio aims to ease the transition for workers from the automotive industry, potentially affecting up to 600 employees at sites in Ulm, Lindau and Markdorf. After adding roughly 1,200 new hires in 2025, Hensoldt plans to recruit another 1,600 people in 2026, predominantly in Germany.

First-quarter numbers will provide the first hard data point

The macro tailwinds are real. Germany’s defence budget is expected to exceed the €108 billion mark in 2026, and the European Union’s SAFE programme encompasses €150 billion. Thales, a French peer, recently reported a 27 percent jump in first-quarter order intake, with its defence division surging 75 percent — a sign that geopolitical tensions are driving demand for air surveillance, air defence and naval mine countermeasures.

Hensoldt’s own first-quarter results are due on 6 May. Analysts expect revenue of around €493 million, an increase of nearly 25 percent year-on-year. The earnings per share forecast is a loss of roughly €0.16, an improvement from the €0.26 loss in the same period last year. Three weeks later, at the annual general meeting on 22 May, a dividend of €0.55 per share — up ten percent from the prior year — will be put to a vote.

The Q1 numbers will offer the first concrete evidence of whether the capacity investments are already translating into measurable revenue growth. For a company sitting on a €8.8 billion order book but facing simultaneous pressure from a Chinese export ban and its own production constraints, execution has never mattered more.