Siemens says must drive down costs to succeed

FRANKFURT: Germany’s Siemens said it needed to slash production costs and could cut jobs to compete with its rivals after 2012 proved to be tougher so far than it had expected.
“As a leading company, we want to be better than the competitors. We don’t want to bob along somewhere in the broad masses of the middle field,” the engineering conglomerate’s Chief Executive Peter Loescher said in a statement.
The comments came after Loescher outlined a new savings program for Siemens, Germany’s biggest company by market value and a major employer, in a closed meeting with about 600 of the company’s managers in Berlin.
He is expected to present details of the plan, which German media has speculated will include thousands of job cuts, when Siemens publishes its financial results on Nov. 8.
When Loescher took office in 2007, he aimed to turn Siemens from a lumbering conglomerate dogged in recent years by a complex structure and a headline-grabbing bribery scandal into a growth story, aiming to boost annual revenues to 100 billion euros ($129 billion) in a few years from 76 billion in 2010.
But the economic crisis became worse rather than better over the past few quarters, prompting governments and companies to cut their spending on infrastructure and new equipment and weighing on Siemens’ orders and margins.
In the three months through June, Siemens’ gross margin — what is left of revenues after the cost of production — was at 28.4 percent. It is expected to have slipped to 27.6 percent in the quarter just ended, according to estimates by Thomson Reuters StarMine.
That is below the 35.2 percent which Switzerland’s ABB, a major competitor to Siemens in power systems and industry automation, posted in the quarter through June.
US-based General Electric — which rivals Siemens on gas and steam turbines, wind power and equipment for MRI scans -of the human body, was at 37.9 percent.
Loescher said that among the new program’s goals would be to tackle high production costs, review underperforming businesses and simplify internal processes. He did not say how much money Siemens aimed to save or how many jobs might be cut as part of the program.
Analysts have said they expect Loescher to target cost savings of 2-4 billion euros and have said he may seek to divest or restructure some businesses that lag in terms of profitability, such as its Infrastructure & Cities unit or the renewable energy business.