Siemens to merge service, software units to cut costs
Siemens, Europe’s largest engineering company, will combine its unprofitable computer-services division with software development subsidiaries in the second major overhaul of the unit in less than a year.
Combining the units will create a new subsidiary called Siemens IT Solutions and Services, Munich-Siemens said in a statement today. The new division, which will start January ’07 and go by SIS, will have annual sales of about E5bn and employ about 43,000 people.
“It’s not the big bang that suddenly solves all problems at SBS,” said Michael Busse, an analyst at Helaba Trust in Frankfurt, who rates Siemens “hold.” The plan is “a sound decision, as Siemens has to slash costs.”
The unit’s rising losses became CEO Klaus Kleinfeld’s biggest obstacle in his quest to bring all 11 main divisions within the profitability ranges he set for April.
Siemens wants to wring E1.5bn in savings from the overhaul, which includes longer working hours at no extra pay for workers and an lets Siemens reach into low-wage regions such as Easter Europe. Shares of Siemens rose as much as E1, or 1.5%, to E67.91 after the announcement. The stock is up 8.2% in the past year, trailing the 23% gain of the benchmark DAX index.
The new setup ends years of uncertainty regarding a possible sale of SBS. Mr Kleinfeld on a call with reporters said a sale of SBS is now “certainly off the table.” Siemens may dissolve the new division as a separate unit, Mr Kleinfeld said, making it the fourth unit that’s either been combined or eliminated under his watch.
Siemens is already in the process of eliminating 5,400 jobs at SBS, and the new structure will improve Siemens’s access to workers in low-wage areas such as Eastern Europe and India. About 20% of the workers are today in low-cost countries, Mr Kleinfeld said.
Mr Kleinfeld, who joined at the beginning of last year, is breaking up the main telecommunications division by moving parts into a joint venture with Nokia. He has also dissolved an industrial division and bolstered the medical unit with purchases. The planned changes are the second major overhaul for SBS in less than a year.
Siemens in December said it will sell the so-called product related services subsidiary to a personal-computer venture it co-owns, moving 5,000 out of SBS. Mr Kleinfeld has also sought to strengthen SBS by putting the unit in charge of Siemens’ in-house computer services.
Siemens will maintain the profit target for the SBS division, which aims for operating profit in proportion to sales of 5-6%. In the most recent quarter for which Siemens reported earnings, SBS lost E99m on sales of E1.1bn. “SIS will enable us to serve both our external customers and Siemens units even better,” Mr Kleinfeld said in a statement. “IT know-how is a key to Siemens’ success.”
Christoph Kallitz, on the job for a year, will stay head of the new division, Siemens said. The company has burnt through three division heads since ’01 and amassed E690m in losses last year alone, forcing Kleinfeld to speed an overhaul.
The company first announced in June that measures to increase profitability at SBS will help save E1.5bn. Siemens said it’s entered talks with employee representatives about its plans for SBS. One aim of the talks will be to extend a supplement labour contract that Siemens hammered out for its German region to SBS.
The company aims to merge the businesses without cutting jobs as there are almost no overlaps, SBS spokesman Joern Roggenbuck said by phone today. The talks with the unions will centre on working hours and salaries, he said.
Siemens aims to get an agreement with the unions on costs savings of about E100m, Kleinfeld said on Thursday. The overhaul of SBS won’t lead to additional reorganisation costs, he said. There won’t be additional costs related to the new setup.
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