Siemens Is Starting To Look Like A Chipmaker

Credit Heinrich von Pierer with facing up to the truth. At a mid-January press conference, the chief executive of Siemens fielded questions about the company's massive losses in computers and semiconductors. The problem, he said, was simple: "We spend too much money on technology, and we don't earn enough from it."

Now, von Pierer, who took command in late 1992, is betting he can turn around both operations in two years (table). It's far from a sure thing. While the semiconductor division has made huge strides in high-performance chips, the computer business--Siemens Nixdorf Information Services--is lagging in technology and losing market share. In fiscal 1993, the two units together saddled Siemens with some $500 million in losses, forcing operating profits down 9%, to $1.8 billion, on sales of $48 billion. Siemens has fortunately churned out profits in such areas as telecommunications and medical equipment. Yet margins are thinning in these robust divisions, making it critical to stem the red ink in semiconductors and computers.

At least von Pierer has a good start in semiconductors, which provide the electronic guts used in other Siemens products and are sold to outside customers. Last year, the sizzling European chip market pushed Siemens' semiconductor sales up 21%, to $1.5 billion. That's below the industry's average gain of 27% worldwide, but the company expects to start winning market share this year and turn a slim profit in 1995.

Siemens is now parlaying its hard-won strength in standard memory chips to excel in more customized memories and application-specific integrated circuits. Experts such as Dataquest give Siemens high marks for the chips it has custom-designed for communications, vi-deo and television, auto electronics, and fiber optics. To finance new products, the company is cutting high research and development costs by cooperating with IBM and Toshiba Corp. It couldn't have clinched those alliances without top-flight technology. "They've shown they have considerable design capability," says Toshiba board member and semiconductor chief Masanobu Ohyama.

If only prospects were as strong in computers. Instead, the $7 billion Siemens Nixdorf division is floundering. It has one of the broadest product lineups in the business, including PCs, mainframes, software, and services. Yet by offering so much, it has weakened its ability to succeed in any single market. No wonder the division's market share outside Germany is negligible.

Finally, despite the soup-to-nuts strategy, the Munich company still thinks like a mainframe maker. It has acquired few of the skills needed to succeed in the hot markets of personal computers, downsized client-server systems, and notebooks. "They need a major marketing strategy and new partners to eliminate the smell of having been on the edge of death," says Gerhard Sundt, vice-president and director of European Network Services for the Gartner Group Inc. the U.S.-based market researcher.

Von Pierer has had enough of near-death experiences. In January, he took charge of Siemens Nixdorf's supervisory board. Next, he replaced top manager Hans-Dieter Wiedig with an outsider--a rare move at the inbred company. Taking over officially in September is ABB Asea Brown Boveri (Holding) Ltd.'s top U.S. manager, Gerhard Schulmeyer. Schulmeyer is expected to play the tough guy in the makeover.

Some isolated bright spots do await him. The new midrange Unix computers are well regarded by analysts, and a new laser printer is considered the world's fastest.

But Siemens Nixdorf's prospects seem so dismal that Schulmeyer's best efforts may only minimize the losses. Analysts say an effective cure would involve a drop in staff levels from 43,000 to about 25,000. That kind of self-inflicted pain is unknown at Siemens. If losses continue, as many expect, von Pierer may cut a deal, selling out, perhaps to a Japanese company. "1994 will be a watershed year for Siemens Nixdorf," says Chuck White, vice-president for information systems at Gartner Group. The industry is watching to see if von Pierer will face up to that truth, too.

                               Sales in billions
       SIEMENS NIXDORF               $7
      Losses at the computer maker since 1991, when Nixdorf was acquired. Slow to develop products and strategy for fast-changing computer market.
      SEMICONDUCTORS               $1.5
      Huge losses since 1984, when Siemens set out to catch the Japanese and the U.S., starting with the 1-megabit chip program. Late to market with 4-megabit technology, hurt by falling prices and weak demand.
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