Weak Performance

Siemens to Cut More Jobs

Dreaming of America? Source: DPA
Dreaming of America?
  • Why it matters

    Why it matters

    Siemens chief executive Joe Kaeser may need to shift jobs and resources away from Germany to improve the company’s bottom line.

  • Facts

    Facts

    • Siemens plans to eliminate thousands of jobs in its energy division.
    • Demand for large gas turbines is weak in Europe.
    • Mr. Kaeser likes doing business in the United States.
  • Audio

    Audio

  • Pdf

Joe Kaeser, chief executive of Siemens, has long had an affinity for the United States and isn’t affraid to admit it publicly.

“Forget Mexico or China,” he said at a recent meeting of the Export-Import Bank of the United States. “When the U.S. gets just 60 percent right, it’s the most powerful country in the world.”

His enthusiastic assessment bowled over U.S. Commerce Secretary Penny Pritzker, who was sitting next to him. “I should resign right now and give you the job,” she joked.

But back in Germany, Mr. Kaeser might have wished she had been serious. Just one year after announcing his “Vision 2020” strategy, he has failed to make any significant improvements to Siemens’ bottome line. The quarterly figures he will present on Thursday are mediocre, according to information Handelsblatt has obtained from company sources.

“The initial enthusiasm Kaeser caused is gone,” said a Siemens executive who asked to remain anonymous. “The shine isn’t quite what it was.”

Analysts see the yearly projections in danger, and Handelsblatt has also learned that Mr. Kaeser plans to announce thousands of further job cuts in company’s energy division.

Mr. Kaeser has already tried to lower expectations for the quarter. In a meeting with analysts earliers this year, he said that he viewed 2015 as a year of transition and that his radical restructuring would begin showing results in 2016 and 2017.

One of his decisions was to remove a layer of hierarchy above the group’s four divisions. Shareholders, however, are still waiting to see if that strategy will pay off.

Turnover dipped slightly and operating margins were “soft” this quarter, according to Mr. Kaeser

After taking the helm some two years ago, Mr. Kaeser received vote of confidence from investors in form of a healthy increase in Siemens’ share price. But the stock has stagnated over the past 12 months, while Germany’s leading DAX index booked sizeable gains.

Mr. Kaeser warned analysts in March not to expect a breakthrough for the quarter. Sales dipped slightly and operating margins were “soft,” he said.

Those developments could have repercussions for the entire year. UBS warned in a report of the market seeing “a risk that management could lower margin forecasts.”

Analyst consensus for the return on sales for the industrial business is just under 10 percent. Morgan Stanley is forecasting only 9 percent, but a correction of that figure would still be surprising, given that Mr. Kaeser recently confirmed his target of 10 to 11 percent.

One reason for the weak performance is the energy division. With is “PG 2020” program, Mr. Kaeser aims to solve the power and gas unit’s problems and has hinted of  relocating resources. Currently, demand is weak for large gas turbines in Europe, where many employees are located. The situation, however, is different in the United States, Asia and Middle East.

Employees are nervous, especially those in the troubled energy division.

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“We on the works council are demanding that there be no further cuts in the production and engineering competencies at German locations,” labor representatives said in a statement, adding that short-term forecasts and outlooks shouldn’t lead to the “temptation for a decentralized business strategy far away from Germany.”

But that’s exactly what Mr. Kaeser has in mind. The billion-dollar takeover of the U.S. compressor maker Dresser-Rand will soon be finalized and considerably increase Siemens’ presence in a country he views as important to the group’s long-term growth.

 

Axel Höpner and Thomas Jahn report from Munich and New York for Handelsblatt. To contact them: hoepner@handelsblatt.com and jahn@handelsblatt.com

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