March 19 (Bloomberg) -- Siemens AG is preparing to eliminate 1,200 to 1,400 jobs at three sites of its energy and infrastructure businesses to bolster profitability, according to two people familiar with the matter.
Europe’s biggest engineering company is in talks with union representatives about cuts at operations in the German cities of Erlangen, Offenbach and Leipzig, said the people, who asked not to be identified as the plans aren’t public.
Chief Executive Officer Peter Loescher in October outlined a two-year efficiency plan to simplify processes, eliminate redundant functions and examine units not meeting profit expectations. While he said that redundancies are not the main focus of the plan to reduce costs by 6 billion euros ($7.8 billion) by 2014, the company has identified about 8,000 potential job cuts globally, a person familiar with the plan said at the time. Siemens has about 370,000 employees.
Siemens said today that the company talked yesterday to union representatives about its plans to reduce costs in the next two years. The company didn’t give a figure for potential job cuts.
The energy sector’s Erlangen and Offenbach operations will probably share 650 of the job cuts, while the infrastructure and cities division will potentially also reduce jobs in Munich, one of the people said. Some positions may be moved to locations such as the Czech Republic, the person added.
Siemens’s energy business said today it’s planning to reduce headcount at its energy solutions unit, which focuses on building entire power plants and has sites in Vienna as well as Erlangen and Offenbach. The euro crisis led to a collapse in new power plant investments and the cuts will be implemented by 2016, the company said. At the same time, Siemens will add a site in Asia to cope with demand for local gas power plants.
The stock gained 0.7 percent to 84.67 euros in Frankfurt today, valuing the company at 74.6 billion euros. Siemens has risen 6.5 percent in the last 12 months, while Germany’s benchmark DAX index added 11 percent. General Electric Co. increased 15 percent, while Swiss rival ABB Ltd. added 12 percent.
Loescher, on his second five-year term, has come under pressure to boost profitability and refocus Siemens after some deals that he supervised soured, and a push into more environmentally friendly energy generation led to spiraling costs. The company said in December that the energy business will contribute savings of 3.2 billion euros to the cost cutting plan.
Siemens’ profitability has lagged that of GE and ABB for six consecutive quarters. The company said in January that first-quarter profit declined on charges for delays in high-speed trains orders and a failed solar power project, adding to more than 1 billion euros in predicted restructuring costs this year.
Siemens is also planning to offload units such as airport luggage systems, mail automation and water technology after shareholders approved the spinoff of the underperforming Osram lighting unit.
Further details about the planned cuts will be presented to employee representatives in the coming weeks, the people said today.
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