Siemens AG (SIE), Europe’s largest engineering company, said its industry division will cut about 3,000 jobs as part of the company’s 6 billion-euro ($7.9 billion) savings program to counter falling demand.
The division, which employs more than 100,000 people globally, is targeting 1.1 billion euros in increased productivity by the end of 2014, unit head Siegfried Russwurm told investors and analysts today in Hanover, Germany.
Chief Executive Officer Peter Loescher said earlier today that the company has already realized reductions in the “high hundreds of millions” of euros. Profitability at Munich-based Siemens last year dropped back to the levels when Loescher started in 2007, prompting a new program to cut costs in November after the CEO acknowledged he had been too slow to react to falling demand amid the global economic slowdown.
A quarter of the cuts will come through savings this year in procurement. The industry sector contributed 29 percent of the total 1.7 billion-euro profit generated by Siemens’ four divisions in the first fiscal quarter.
Russwurm said the cost cuts will help the industry division to counter higher costs and lower pricing to achieve a profit margin in excess of 13.5 percent in 2014 for its existing businesses. With the integration of recently acquired Belgian software maker LMS, profitability will reach 14 percent, he said.
Siemens has said it’s divesting units which it deems to hinder its goal of a 12 percent profit margin by the next fiscal year. It’s spinning off its Osram lighting unit, while seeking buyers for businesses such as airport luggage systems, mail automation and water technology.
The number of mechanical drives factories in Germany will be reduced from four to two, eliminating 500 jobs, with a further 200 positions moving from the country to the Czech Republic, Russwurm said in a presentation posted online today. The reduction of plant capacity in India entails the scrapping of 140 jobs, while the closure of a factory in Pakistan will result in 170 positions going.
Streamlining administrative operations means 500 jobs at the unit’s headquarters will be cut, and a further 1,700 sales positions will also disappear.
Siemens said last year that the energy division will contribute 3.2 billion euros of savings to the total 6 billion- euro target.
“Our competitors earned more than we did in the past half year and gained ground on us,” Loescher said in an interview in a Siemens staff newsletter published today. “When direct competitors achieve 13 percent return on sales, while we achieve only 9.5 percent, we need to do something.”
Operating profit represented 12.2 percent of competitor General Electric Co. (GE:US)’s sales in the three months to the end of December, compared with Siemens’ 9.1 percent, according to data compiled by Bloomberg.
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