Siemens, Mitsubishi Discuss Merger of Turbine Units

A German business magazine reports that Siemens is exploring options for its struggling gas turbine business, and could look to form a joint venture with Japan’s Mitsubishi Heavy Industries (MHI). Manager Magazin on March 21 said Siemens “wants to accommodate the large turbine business of the Japanese Mitsubishi Group and in the future hold only a minority.”

Reuters, citing two sources, on Thursday reported that Siemens wants a plan in place by its capital markets day for investors on May 8. The sources reportedly told Reuters that talks between Siemens and MHI “had intensified recently,” although Siemens reportedly is looking at other options for the business, including keeping it.

Manager Magazin on Thursday reiterated, as it has reported previously, that Siemens and MHI could combine their large gas and steam generators’ businesses. The magazine said Siemens CEO Joe Kaeser began talks with MHI in 2017 about a joint venture, with the intention to merge the companies’ turbine operations, with Siemens holding a minority stake. That would allow Kaeser to deconsolidate the business from Siemens’ financial results, according to the magazine.

Kaeser last June dismissed reports that Siemens was looking for a buyer for its turbine business.

Neither company has commented specifically on the potential merger. A Siemens spokesman told Manager Magazin: “The global fossil fuel technology market remains unchanged and Siemens has already begun to adapt to these challenges in the spring of 2015. Please understand that we cannot comment on speculation and rumors.”

Siemens’ Revenues, Profits Down

Siemens’ Power and Gas business reported a 19% drop in revenue for its fiscal year ended Sept. 30. Profit dropped from about $1.8 billion in 2017 to about $428 million in 2018. Profits have fallen another 50% year-over-year in the first quarter of 2019, according to Reuters.

Turbine manufacturers including Siemens, Mitsubishi, and General Electric (GE) all have struggled in recent years as growth in renewable energy generation takes market share from fossil fuel-powered generation. Overcapacity in the turbine industry has led to strong price competition.

GE was the top producer of gas turbines in 2018, with about 33% of global orders by capacity, according to Barclays Plc. Mitsubishi Hitachi Power Systems, a subsidiary of MHI, was next at 30%, with Siemens at 26%.

Restructuring Continues

Siemens’ Power and Gas division will be renamed Gas and Power on April 1, as part of the company’s restructuring. Siemens last year said it would shrink its number of operating divisions from five to three, and said it would focus on factory software and energy distribution, among the technologies that have disrupted its core business with the growth of renewables.

Siemens in its restructuring has been focusing on servicing its existing turbine fleet. The restructuring is designed to achieve more than $580 million in cost savings. The company in September 2018 said it would cut 2,900 jobs in Germany over the next two years, part of the layoffs included in its 2017 announcement of 6,900 job cuts.

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

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