Siemens AG (SIE) plans to bid for all 97 billion pesos ($7.47 billion) in upcoming rail-engineering contracts in Mexico to reduce its dependence on its home European market.
The company will compete for signaling, rail car and electrification contracts on passenger routes connecting Mexico City with Toluca and Queretaro as well as a tourist train on the Yucatan peninsula and a metro system in Guadalajara, said Louise Goeser, Siemens’ head of Mexico and Central American operations.
“We’d love to participate in all of them,” Goeser said in an interview in Guadalajara. Whether the bids include rail cars “becomes more dependent on what cars they’re looking for.”
A large rail order could help allay concerns surrounding the Infrastructure and Cities sector, which is Siemens’s least profitable. Chief Executive Officer Joe Kaeser is considering disbanding the division, set up by predecessor Peter Loescher in 2011, as soon as next year, Manager Magazin reported last week.
Siemens rose 2.1 percent to 92.40 euros in Frankfurt trading today, valuing the company at 81 billion euros.
The Mexico City to Toluca project will likely cost about 35 billion pesos and the government will probably spend about 42 billion pesos on the 175-kilometer (108-mile) stretch to Queretaro, a government official told Bloomberg in June. Tenders for the projects, which should be completed by the end of 2018, will be evaluated in the first quarter of next year, he added. Siemens has around 6,090 employees in Mexico, according to its website.
Siemens makes locomotives in Sacramento, California, and delivered the first of 70 trains ordered by Amtrak, the U.S. long-distance passenger railroad, in May. It also has manufacturing sites for its rail systems unit in Krefeld, Germany and Vienna.
Charges for delayed train deliveries in Germany have weighed upon Siemens’s earnings in recent years, contributing to the five missed profit targets in six years under Loescher, who was replaced by Kaeser in August. Goeser doesn’t expect any contracts won in Mexico to be blighted by similar problems.
“The delays haven’t been anything to do with production, it’s more to do with getting the license,” she said. “The production has been just fine.”
Kaeser has identified the Munich-based company’s core business as “electrification” as he seeks to close the profitability gap on General Electric Co. (GE:US) after the share price tumbled 22 percent under his predecessor. Siemens, whose energy sector’s 28 billion euros in revenue made it the biggest sales contributor, could benefit from a proposal from Mexican President Enrique Pena Nieto to allow more private-sector investment in energy, according to Goeser.
Siemens has faced investor criticism for its failure to expand its global sales footprint as successfully as competitors. Sales to Europe, the Middle East and Africa represented 51 percent of the 78 billion-euro total in the last fiscal year. Switzerland’s ABB Ltd. (ABBN) meanwhile had 45 percent of its sales in the region.
Siemens’s healthcare unit, its most profitable sector, is also eyeing public-private partnership arrangements which would allow it to become a service provider for the proposed 40 new hospitals in Mexico, Goeser said. The division manufactures imaging and diagnostics equipment.
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