Siemens Plans Half of Job Cuts at Industry Unit to Boost Margins

Siemens AG is targeting the industry division for about half of its planned job cuts as Europe’s biggest engineering company seeks 6 billion euros ($7.9 billion) in cost savings to counter falling demand.

The division, which employs more than 100,000 people globally, will eliminate 4,000 positions to help generate 1.1 billion euros in improved productivity by the end of 2014, unit head Siegfried Russwurm told investors today in Hanover, Germany. The company identified a total of 8,000 potential job cuts, according to people familiar with the matter.

Chief Executive Officer Peter Loescher said earlier today that the company has already realized reductions in the “high hundreds of millions” of euros. Profitability at Munich-based Siemens last year dropped back to the levels when Loescher started in 2007, prompting a new program to cut costs in November after the CEO acknowledged he had been too slow to react to falling demand amid the global economic slowdown.

The industry division contributed 29 percent of the total 1.7 billion-euro profit generated by Siemens’ four divisions in the first fiscal quarter.

Siemens today dropped 0.2 percent to 81.92 euros in Frankfurt trading as of 4:55 p.m., valuing the company at 72.1 billion euros.

Higher Costs

Russwurm said the cost cuts will help the industry division to counter higher costs and lower pricing to achieve a profit margin in excess of 13.5 percent in 2014 for its existing businesses. With the integration of recently acquired Belgian software maker LMS, profitability will reach 14 percent, he said.

Siemens has said it’s divesting units which it deems to hinder its goal of a 12 percent profit margin by the next fiscal year. It’s spinning off its Osram lighting unit, while seeking buyers for businesses such as airport luggage systems, mail automation and water technology.

The company has received “significant interest” in the water technology unit, according to Russwurm.

Streamlining administrative operations means 500 jobs at the unit’s headquarters will be cut, and a further 1,700 sales positions will also disappear. Another 1,000 positions will be scrapped across the solar inverter, electronic design and manufacturing services, mechanical center and other low-margin units, Russwurm told investors today.

India, Pakistan

The number of mechanical drives factories in Germany will be reduced from four to two, eliminating 500 jobs, with a further 200 positions moving from the country to the Czech Republic. The reduction of plant capacity in India entails the elimination of 140 jobs, while the closure of a factory in Pakistan will result in 170 positions going.

While the most job cuts will come in the industry sector, the energy division will make the biggest financial contribution, with 3.2 billion euros to the total 6 billion-euro target, Siemens said last year.

Catching Up

“Our competitors earned more than we did in the past half year and gained ground on us,” Loescher said in an interview in a Siemens staff newsletter published today. “When direct competitors achieve 13 percent return on sales, while we achieve only 9.5 percent, we need to do something.”

Operating profit represented 12.2 percent of competitor General Electric Co.’s sales in the three months to the end of December, compared with Siemens’ 9.1 percent, according to data compiled by Bloomberg.

Siemens will still add jobs at its Chengdu industrial automation plant in China, which it predicts will ultimately deliver 200 million euros in additional revenue, the industry sector’s financial head, Ralf Thomas, said today. Division-wide revenue will probably decrease this year, he said.

Before it's here, it's on the Bloomberg Terminal.