Siemens Combining Business Units as Part of New Strategy

Siemens reported a 2% rise in industrial profit for its fiscal third quarter on August 2, topping analyst forecasts, though the German engineering giant also reported that revenue for the quarter dropped 4%. The earnings report comes as the company prepares to implement a new strategy that cuts its number of business divisions.

The company announced management changes ahead of the October 1 start of its Vision 2020+ plan, which replaces the company’s Vision 2020 outline adopted in 2014. Under the new plan, whose beginning coincides with the start of the company’s next fiscal year and is scheduled to be in place by the end of March 2019, Siemens’ five industrial divisions will be combined into three operating companies.

The company said the three operating entities—Gas and Power, Smart Infrastructure, and Digital Industries—will give its individual businesses “more entrepreneurial freedom.” The new units will work with what Siemens calls its Strategic Companies, which include Siemens Gamesa, Siemens Healthineers, and the planned Siemens Alstom train unit.

Management changes also are in the offing. Roland Busch, the company’s chief technology officer, will take the role of chief operating officer, with analysts saying the move could mean Busch would replace Joe Kaeser as chief executive officer if Kaeser steps down as planned in 2021.

Lisa Davis, who has been leading the underperforming power and gas division, has been tapped to lead the new Gas and Power unit. Davis’ group reported a 56% decline in profit during the fiscal third quarter (April-June), which Siemens said resulted from “ongoing adverse markets” as its customers move away from fossil fuel-powered generation to renewable energy. Siemens said it sold only five large gas turbines in the quarter and warned of further market declines.

Reports in June of this year said Siemens might consider selling its turbine unit. The company at the time said it would not comment on market speculation.

Kaeser in a statement about the new business strategy said, “It would be irresponsible to rest on our laurels now. The speed and power of global changes are increasing, and it’s our obligation to anticipate them. Were convinced that this is the right time to sustainably shape our future.”

Siemens said the changes would make the company “leaner” but there were no details about potential job cuts. The company in November 2017 said it would cut 6,900 jobs as it consolidates its power divisions.

The company in its earnings report said industrial profit rose 2% to $2.6 billion from April through June, while revenue dropped 4% to $23.7 billion, below analyst expectations of $24 billion. Kaeser in a statement characterized the earnings report as “a strong quarter.”

Siemens said its restructuring also includes increased investment in the Internet of Things, along with electric mobility and digitization. The company on August 1 said it is buying Mendix, a Boston, Massachusetts-based industrial software company, for $700 million. Siemens in its earnings report said its Digital Factory automation unit continues to deliver the fastest profit increase of all the company’s industrial businesses, increasing profit by 54% in the third quarter with strong revenue growth in the U.S. and China.

Siemens said it expects paring its number of business units will increase the company’s annual growth rate and profit margin for its industrial business by 2% over what it called the “medium term,” or the next three to five years.

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).