Wires

CORRECTED-Siemens CEO to cut jobs, close offices as margins shrink

Share

(In headline, corrects to "margins" not "profits; in 4thparagraph, corrects to slowing Q4 revenue growth, not Q3 profitfall)

By Maria Sheahan

FRANKFURT, Oct 11 (Reuters) - Germany's Siemens may outlinejob cuts and office closures on Thursday to stop profits slidingas customers put off ordering engineering equipment because ofEurope's economic crisis.

Chief Executive Peter Loescher's strategy of boosting growthwith energy-saving and infrastructure products has not workedand analysts expect him to present managers with a plan of up to4 billion euros ($5.2 billion) in savings.

Germany, Europe's largest economy, has been resilient to theeuro zone crisis, with exports from successful industrialcompanies driving growth.

But an expected slowing of revenue growth in the fiscalfourth quarter at Siemens, the country's biggest firm by marketcapital and a major employer, shows the crisis is hurting demandfor German goods.

"It has become obvious that the margin gap between Siemensand its competitors has opened again," HSBC analyst MichaelHagmann said.

Loescher took office in 2007 when the company was embroiledin a bribery scandal, shed some assets and invested in growthareas. Last year, he said annual sales would rise to 100 billioneuros in a few years, up from about 76 billion in 2010.

But growth has not kept up with the pace of investment asthe global economy has taken longer than expected to recover.Siemens reported a big drop in new orders in July, puttingpressure on Loescher to take action.

The first company outsider to take the helm in Siemens'160-year history, Loescher says his strategy is not wrong but itwill just take some more time for the economy to recover.

Analysts expect him to announce between 2 billion and 4billion euros in savings when he speaks to 600 managers inBerlin, some of whom may lose their jobs in the programme.

He may tackle a gap between Siemens' handful ofmarket-leading businesses and its underperforming units - windand solar power as well as the new Infrastructures & Cities unit- possibly by divesting some assets.

He may also shut offices in some of the 190 countries whereSiemens operates to focus on the few that make the most profits.

Details of the savings plan, which German media said mayinclude thousands of job cuts, will be published when Siemensreleases financial results on Nov. 8.

They are expected to show its quarterly gross profit margineased to 27.6 percent, the lowest level in two years as revenuegrowth slowed to 4 percent.

At the end of June, Siemens had 410,000 employees, of whom129,000 were based in Germany, making it one of Germany'sbiggest employers after Volkswagen and Deutsche PostDHL .

FALLING BEHIND

Siemens still leads the market in some of its majorproducts, such as software that helps automate factoryproduction or technology for MRI scans of the human body, whereit competes with rivals such as General Electric orSwitzerland's ABB .

"But Siemens' competitors have been much more active inofficially targeting cost-reduction measures," Credit Suisseanalysts said.

France's Schneider Electric and Switzerland's ABBhave already completed big cost-cutting programmes, and PhilipsElectronics said last month it would cut more jobs aspart of a drastic overhaul of its business, and French engineerhas cut costs and increased prices.

Siemens meanwhile invested in areas such as renewable energyin anticipation of a long-term boom. Group spending on researchand development rose 13 percent to 3.14 billion euros, or almost6 percent of revenues, in the nine months through June.

Siemens' solar, wind and hydro power businesses saw a 40percent drop in new orders, hurt by a slump in German demand dueto regulatory and financial hurdles that have slowed theexpansion of offshore wind projects.

Also, Siemens set up the Infrastructure & Cities businesslast year as it expected cities strained by growing populationsto seek a one-stop-shop for transportation and energy issues.

The unit, which includes security systems and train-buildingbusinesses, has so far failed to deliver.

In the nine months through June, the profit margin atInfrastructure & Cities shrank to 5.5 percent from 6.3 percent,well below Siemens' three other core businesses - Industry,Healthcare and Energy.

"We see the formation of Infrastructure & Cities as astrategic error and a waste of management time," Redburn analystJames Moore said.

BUYING AND SELLING

Loescher's move to slim down the company could also lead tofurther divestments. Siemens has already shed a number of assetssuch as automotive business VDO and IT unit SIS.

It plans to spin off lighting business Osram next year, andanalysts said it could put its hearing aid business back on themarket after its last attempt to sell it failed in 2010.

At the same time, it will continue to invest in growthsectors such as gas turbines by making acquisitions. Sourcesrecently said that Siemens was the front runner to buyFinmeccanica unit AnsaldoEnergia, for instance.

Loescher has been tight-lipped on what he could do tosafeguard margins but has mollified anxious investors with thepromise of shares in Osram once the business has been spun offand with a 3 billion euro share buyback.

($1 = 0.7711 euros)(Editing by Anna Willard)

((maria.sheahan@thomsonreuters.com)(+49 69 7565 1286)(ReutersMessaging: maria.sheahan.thomsonreuters.com@reuters.net))

Keywords: SIEMENS SAVINGS/