Siemens will cut 4,500 positions, about 1 percent of its global workforce, the maker of gas turbines and trains said Thursday, as it reported a disappointing 5 percent profit drop in its industrial operations.
The Munich-based company had already announced layoffs in February and December. The latest figures bringing the total cuts since then to 13,100, or about 4 percent of its workforce, which was 342,000 at the end of March.
Of the redundancies, 2,200, or half, will be in Germany, where Siemens is one of the biggest private employers with 115,000 workers.
Since taking over as chief executive in August 2013, Joe Kaeser has been restructuring Germany’s largest engineering firm to increase profitability and sales to catch up with rivals General Electric and ABB. His goal is to focus Siemens more on corporate customers and energy businesses, and less on consumer products.
These measures are being taken in response to the persistently difficult environment in the global power generation market. Siemens, Germany's leading engineering firm
Last year, Mr. Kaeser decided to buy U.S. fracking equipment supplier Dresser-Rand for $6.4 billion. He also acquired Rolls-Royce's power generation operations and he shifted Siemens' energy headquarters to Houston, Texas, from Germany.
The latest layoffs, which are needed to reach €1 billion or $1.14 billion in cost savings by 2016, will affect the company's energy operations, called power and gas, and its “chronically low-profit businesses,” the firm said, without providing specifics.
“The job cuts are a bit higher than expected,” Zafer Rüzgar, an analyst at Independent Research in Frankfurt, told Handelsblatt Global Edition. “That shows the previous job cuts didn't go far enough, especially in the power and gas business which the Dresser-Rand purchase was supposed to strengthen."
When Siemens announced the Dresser-Rand deal in September, some analysts wondered whether it was too expensive and ill-timed, given the sharp fall in oil prices. In February, Dresser-Rand announced plans to cut headcount by 8 percent amid lower oil prices.
"That could also explain the depressed mood on the stock market – maybe it was the wrong time to buy,” Mr. Rüzgar said, referring to the fall in the Siemens share price on Thursday.
Siemens’s stock fell as much as 2.8 percent on Thursday morning and was down 2.3 percent at €94.58 euros in early trading in Frankfurt.
Mr. Rüzgar said Siemens’ disappointing quarterly results and the latest job cuts were no reason for Siemens to alter its course nor was it likely to affect Mr. Kaeser’s position.
Mr. Rüzgar lowered his price target to €105 from €115 and kept its rating at “hold.”
Siemens said the latest job cuts “are being taken in response to the persistently difficult environment in the global power generation market.”
“The power and gas division is having to cope, among other things, with regulatory changes, massive price erosion, aggressive competitors and regional overcapacities,'' the company said.
Siemens, which also makes power transformers, gears, medical scanners and numerous other household and industrial products, has struggled to keep up with lower demand for small gas and steam engines in Europe and the shale gas revolution in the United States.
Germany, the continent’s largest economy, is shifting away fossil energy sources to solar and wind power and will shut all nuclear power plants by 2022. Other European countries, including France and the Netherlands, are increasing their share of renewable energy sources, leading to less demand for large-scale turbines, one of Siemens’ mainstay products used in traditional coal and gas power plants.
To catch up with a booming U.S. shale gas industry, Siemens bought Dresser-Rand, a maker of shale drilling equipment, to close the gap to General Electric and ABB, which have higher profit margins.
Siemens announced a 5-percent drop in operating profit at its industrial business to €1.7 billion in its fiscal second quarter, which ended March 31. The figures missed the expectations of analysts polled by Reuters and Bloomberg.
Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the author: [email protected]