Germany’s engineering giant Siemens AG (SMAWF) is cutting another 4,500 jobs at its power and gas division, reacting to the sea change in the energy business over the last few years, both at home and in emerging markets.
The move is part of the same consolidation trend that led General Electric Co. (GE) to buy the power business of France’s Alstom SA (AOMFF) last year, as the drive to renewables in developed markets and ferocious competition in emerging ones exposed the high cost bases of the world’s most storied engineering companies.
The new job cuts come on top of the 7,800 announced earlier this year by Siemens as part of a group-wide streamlining plan (a number that was later scaled down to 7,400), the brainchild of new chief executive Joe Kaeser. Around half of the new cuts, some 2,200, will be in Germany. The company described the action as ‘completing’ its reorganization, but at the same time announced fresh targets for improving performance at its low-margin businesses by mid-2017. It wasn’t clear whether this would include more job cuts further down the road.
Siemens said the division was struggling with “among other things, regulatory changes, massive price erosion, aggressive competitors and regional overcapacities.”
The company made its announcement as it published a modest improvement in its group-wide performance in the three months to March. Adjusted for currency swings and acquisitions and disposals, new orders rose 7% from a year earlier. Revenue rose 8% to €18.0 billion ($20 billion) but profitability on the group’s core industrial businesses fell 5%, due mainly to a 34% drop in profits at the gas and power division to €392 million.
The company’s bottom line was rescued by combined gains of €3 billion on its hearing aid and household appliance businesses, which together accounted for more than three-quarters of a net profit of €3.9 billion. Siemens said it would depend again on disposals to boost per-share earnings this year, against a backdrop of flat organic revenue.
Siemens’ problems don’t end with its industrial businesses. The company is also facing huge future liabilities at its corporate pension fund, due to the prolonged spell of ultra-low interest rates in the Eurozone. Siemens said the hole in its pension fund widened to €11 billion as of the end of March from €9.6 billion at the end of 2014, as it was forced to lower assumptions about future returns on its investments.
The company’s shares fell 2% to a three-month low on the news.