Layoff controversy

Siemens feels the pain of power business decline

Siemens – Hauptversammlung
Siemens CEO Joe Kaeser may envy GE's relative freedom to lay off workers. Source: DPA

With renewable energy booming and cutting deeply into the market for power generation equipment, German industrial giant Siemens reported a sharp fall in profits in its key industrial division Wednesday, but saw healthy revenue increases in its mobility and digital businesses.

At its annual general meeting, Siemens said the industrial division’s profit was down by 14 percent in the first quarter of its new fiscal year to €2.2 billion ($2.7 billion), “primarily due to a very strong decline in power and gas.”

Siemens CEO Joe Kaeser said the decline in the power turbine market “is not a temporary cloud, but represents an expected dramatic trend, which we must counter with structural measures.” By “structural measures,” Mr. Kaeser was referring to the announcement in November that the company would cut 6,900 jobs in the turbine-building business. Half the cuts are set for Germany with the planned closure of two entire plants in the former East Germany.

“Old-style conglomerates no longer have a future.”

Joe Kaeser, CEO, Siemens

Siemens’ main American rival, GE, announced last month that it was cutting 12,000 jobs in its power-generating division because of the declining market. Solar and wind power generation have become increasingly competitive in many parts of the world, reducing the demand for turbines powered by natural gas, which are the primary products Siemens and GE are offering.

Unlike in the US, where corporate executives can order layoffs relatively quickly, Germany’s so-called co-determination labor laws give workers half the seats on a company’s board of directors, which means they, too, must approve any major downsizing or plant closures.

Anger at Siemens’ announced job cuts was on display Wednesday outside the arena in Munich’s Olympiapark, which Siemens used for its annual meeting. Mr. Kaeser met with 600-700 protestors from the factory in Görlitz that is slated for closure, and admitted that negotiations on the job cuts are likely to be lengthy and complex.

Muenchen Deutschland 31 01 2018 Ordentliche Hauptversammlung der Siemens Aktiengesellschaft in de
Workers set to be laid off built a protest display showing Siemens Joe Kaeser crushing employees. Source: DeFodi

Siemens executives at the meeting said it will probably take until the summer or autumn before the company has a deal in place to close the two factories. Partly as a result, Mr. Kaeser said he could not unveil his promised strategy for turning the company around, which he has dubbed “Vision 2020,” until the power and gas division negotiations were complete.

But Mr. Kaeser also made clear that he is not retreating from his plan to move Siemens, Europe’s largest industrial company, from the traditional conglomerate model to a more agile holding company that spins off key businesses, while maintaining control and taking advantage of cost savings and other synergies.

“Old-style conglomerates no longer have a future,” he said.

Last year, Siemens merged its windpower subsidiary with Spain’s Gamesa, creating one of the world’s largest wind power companies. Siemens holds 59 percent of the shares.

Siemens also announced in November that it would bring its health products division, called Healthineers, to market in a €40 billion initial public offering on the Frankfurt stock exchange. The unit makes X-ray scanners and similar medical devices, and also competes with GE.

Apart from the disappointing news at the industrial unit, Siemens reported overall upbeat results, with revenue rising 3 percent in the first quarter and net income up 12 percent to €2.2 billion. The company booked a tax-free gain from the sale of its remaining shares in Osram, a lighting company that was spun off in a 2013 IPO, and a gain of €437 million thanks to the US tax reform.

Among the strongest performers was the company’s mobility division, which makes railroad locomotives and cars, with a 38-percent increase in profits. The digital factory division, which helps companies combine factory hardware and software, registered a 31-percent gain in orders, to €3.53 billion.

Axel Höpner is head of Handelsblatt’s office in Munich, Jakob Blume is a Handelsblatt correspondent based in Frankfurt and Charles Wallace is an editor for Handelsblatt Global in New York. To contact the author: hoepner@handelsblatt.com, blume@handelsblatt.com, c.wallace@extern.handelsblatt.com.

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