German companies brace for difficult 2013

Updated 12 November 2012
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German companies brace for difficult 2013

FRANKFURT: Europe is in recession, but the majority of companies in Germany, the region's top economy, are continuing to defy the crisis, with strong and often better-than-expected results in the third quarter.
Nevertheless, the clouds are gathering above Germany too, and the chill winds from the global downturn are set to blow even harder here next year, causing companies to tighten their belts for what promises to be a difficult year.
While their strong overseas presence has helped shield German companies from the worst of the downturn in Europe so far, the prospect of an economic slowdown in China and an only tepid recovery in the United States is sending shivers through export-orientated German industry.
"The decline in output and revenues is going to be substantial in the fourth quarter and German companies know this," said Heino Ruland, market strategist at Ruland Research.
Last week, industrial giant Siemens, one of Germany's biggest companies, unveiled plans to slash costs by 6.0 billion euros ($7.7 billion) over the next two years.
Chief Executive Peter Loescher warned that the austerity drive would "have an impact on the workforce," but declined to reveal any details just yet.
Other companies are also trying to reduce overhead.
At the end of October, auto giant Daimler said it would aim to slash costs in its car division by 2.0 billion euros between now and the end of 2014.
In the banking sector, which is feeling the financial freeze more than most as low interest rates and tougher banking rules eat into profits, the winds blowing through the corridors of the country's two biggest lenders, Deutsche Bank and Commerzbank, are also raw.
Deutsche Bank is planning to cut costs by an annual 4.5 billion euros by 2015 and 1,900 jobs in the investment banking division are already facing the chop.
Media reports say Commerzbank, too, which is planning to focus on its core retail banking business, could be readying to axe around 10 percent of its workforce.
Airline Lufthansa is similarly stepping up its cost-cutting after already announcing the loss of 3,500 administrative jobs.
BASF, the world's biggest chemicals maker, is looking to save 1.0 billion euros by the end of 2015. And industrial gas specialist Linde, which turned in an excellent third quarter, is likewise hoping to lop 750-900 million euros off its annual bills.
"This will help to reinforce our high level of profitability even in a challenging environment," said Chief Executive Wolfgang Reitzle.
German companies are no strangers to cost-cutting and "they know they have to continually adapt to changing economic conditions as they compete globally," and with US, Japanese and Chinese companies in particular, said analyst Heino Ruland.
Portfolio rationalization, streamlining purchasing and a more flexible workforce are the chosen options.
But boosting efficiency is not always about job cuts.
"The biggest job cuts are taking place in Germany's banking sector, not more cyclical industries, where companies want to keep hold of their specialized workforces," said Baader Bank strategist Robert Halver.
So companies such as carmaker Opel or heavy industry giant ThyssenKrupp resort to measures such as short-time work.
It is thanks to instruments such as these that there is no wide-scale blood-letting in terms of jobs in Germany at the moment, said Halver.
A survey of insolvency and restructuring experts conducted by Ernst & Young found that 77 percent of those polled are expecting the number of restructuring cases to rise in the coming 12 months, with the shipping and auto industries the most likely to be affected.
Even as growth slows, unemployment in Germany is at its lowest since unification 20 years ago, at least in raw or unadjusted terms, even if the seasonally adjusted numbers are beginning to inch upward.


Power-sucking Bitcoin ‘mines’ spark backlash

Updated 43 min 8 sec ago
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Power-sucking Bitcoin ‘mines’ spark backlash

  • Local US authorities pushing back against bitcoin miners as power prices rise
  • Firms insist they bring revenue, investment and talent to mining locations

NEW YORK: Bitcoin “miners” who use rows of computers whirring at the same time to produce virtual currencies began taking root along New York’s northern border a couple of years ago to tap into some of the nation’s cheapest hydroelectric power, offering an air of Silicon Valley sophistication to this often-snowy region.
But as the once-high-flying bitcoin market has waned, so too has the enthusiasm for bitcoin miners. Mining operations with stacks of servers suck up so much electricity that they are in some cases causing power rates to spike for ordinary customers. And some officials question whether it’s all worth it for the relatively few jobs created.
“We don’t want someone coming in, taking our resources, not creating the jobs they professed to create and then disappear,” said Tim Currier, mayor of Massena, a village just south of the Canadian border, where bitcoin operator Coinmint recently announced plans to use the old aluminum plant site for a mining operation that would require 400 megawatts — roughly enough to power 300,000 homes at once.
In Plattsburgh, where two cryptocurrency operations have been blamed for spiking electricity rates, the prospect of more cryptocurrency miners plugging in spooked officials enough in March to enact an 18-month moratorium on new operations. The small border village of Rouses Point also is holding off on approving new server farms and Lake Placid is considering a moratorium.
For local officials, the power struggle has been a crash course in the esoteric bitcoin mining business in which miners earn bitcoins by making complex calculations that verify transactions on the digital currency’s public ledger.
Since it often uses hundreds of computers that throw off tremendous heat and burn a lot of power, it has tended to gravitate toward cooler places with cheap electricity, such as geothermal-rich Iceland or along the Columbia River region of Washington state.
The stretch of New York near the Canadian border similarly fits the bill. Cheap hydropower from a dam spanning the St. Lawrence River is doled out by a state authority to local businesses that promise to create jobs. Additionally, some municipalities such as Massena and Plattsburgh receive cheap electricity from a separate hydropower project near Niagara Falls.

 

In Plattsburgh, electricity is so cheap most residents use it instead of oil or wood to heat their homes. The couple of commercial cryptocurrency mines here can get an industrial rate of about 3 cents per kilowatt hour — less than half the national average.
But Plattsburgh Mayor Colin Read said its largest operator, Coinmint, which has two plants employing 20 or fewer people, can consume about 10 percent of Plattsburgh’s 104 megawatt cheap electricity quota. When the city exceeded its allocation like it did this winter, customers ended up paying $10 to $30 more a month for the extra electricity. For a major employer like Mold-Rite Plastics plant, it cost them at least $15,000 in February.
State regulators have since given municipal utilities the ability to charge higher rates to cryptocurrency miners. At least one bitcoin miner in Plattsburgh says he’s working with the city on solutions to the power worries.
Ryan Brienza, founder and CEO of the hosting company Zafra, said those could include mining on behalf of the city for an hour a day or harnessing the heat from mining computers to warm up large spaces.
While the direct number of jobs associated with mines can be small, Brienza said they can bring revenue, investments and talent to the city while employing local contractors.
“It can start snowballing,” Brienza said.
Coinmint’s plans for a new plant in Massena, for example, come with a promise of 150 jobs. That’s welcome in an area that in the past decade has suffered though the loss of aluminum-making jobs and the closure of a General Motors powertrain plant.
“J-O-Bs. Yup. What we need up here,” said Steve O’Shaughnessy, Massena town supervisor.
Coinmint had asked for a cheap power allocation from the New York Power Authority for Massena for part of its energy needs, but that request was deferred.
The power authority has separately enacted its own moratorium on allocating hydropower to cryptocurrency operations — mirroring municipalities that have effectively pushed the “pause” button on a rush of miners coming in.
Coinmint representatives said this month they hope to begin the Massena operation in the second part of this year. The company stressed that mines can be a good fit for this job-hungry area.
“They’re also going to get substantially more efficient over time,” said Coinmint spokesman Kyle Carlton. “So to the extent that Plattsburgh or Massena or anybody else can get in on that and establish themselves on the ground floor, I think that’s going to help those cities to be successful.”

Decoder

Bitcoin mining is the process used to verify transactions and add them to the currency's public ledger (blockchain). It involves compiling pending transactions and turning them into a computationally difficult, mathematical puzzle. The first computer to solve the puzzle claims a transaction fee and a newly-released bitcoin.