Siemens Restructuring Power And Gas

Siemens announced it will cut about 6900 jobs, mainly at its power and gas division, as the company tries to cope with a rapidly changing global power market.

“The power generation industry is experiencing disruption of unprecedented scope and speed,” Siemens management board member Lisa Davis said. “With their innovative strength and rapidly expanding generation capacity, renewables are putting other forms of power generation under increasing pressure.”

According to Siemens, the worldwide production capacity for large gas turbines is about 400 units. This year, only a bit more than 120 units were ordered, the company said. In Europe, particularly in Germany, the market for large gas turbines “hardly exits,” said Siemens board member Janina Kugel, during a conference call with reporters after the announcement.

The cuts amount to about 2% of the company’s global workforce of about 370 000. About 1800 jobs in the US will be shed before 2020, the company said. Details of those cuts are still being worked out.

Most of the cuts, about 6100, will be made before 2020 at Siemens’s Power and Gas division with the rest coming before 2023 or so, the company said.

“The cuts are necessary to ensure that our expertise in power-plant technology, generators and large electrical motors stays competitive over the long term,” Kugel said. “That’s the goal behind the measures we’re taking. However, we can reach this goal only if we find answers to the worldwide overcapacities and the resulting price pressure.“

Siemens’ Process Industries and Drives division, which makes large mechanical drives for oil and gas extraction and turbines, will also be hit.

“The situation is particularly difficult in the commodity market because our customers still hesitate to invest, whether in oil & gas, mining, steel production or shipbuilding, the demand for large electric motors, the so-called large drives, clearly declined in past years and the recuperation is not in sight,” Kugel said.

Aside from money-losing wind power venture Siemens Gamesa, Process Industries and Drives was Siemens’s least profitable business last quarter, with a profit margin of 2.9%.

Jüergen Brandes, CEO of Process Industries and Drives Division, said Siemens has adjusted to the changes in the power generation market, but the pace of that change outstripped the company’s ability to keep up. He noted that power generation costs for renewables are falling and the company has dealt with that challenge well in places like Europe and Asia. But the “dynamism” of the renewable market “really caught us by surprise,” Brandes said.

“Only two years ago, nobody would have thought a country like Saudi Arabia, as one of the biggest fossil fuel exporters, within the space of two years would choose not to build another power plant and place 10 GW of renewable power plants,” Brandes said.

Brandes mentioned the recently announced megacity plan in Saudi Arabia. The city project, to be called “NEOM,” will be backed by more than $500 billion from the Saudi government, its sovereign wealth fund and local and international investors, will run entirely on alternative energy.

“There are global trends coming that really indicate that this is a structural shift, a paradigm shift,” Brandes said.

Klaus Kleinfeld, the former chairman and chief executive officer of Siemens AG and Alcoa Inc., was appointed to lead the development of NEOM.

The Siemens announcement follows General Electric’s decision to halve both its dividend and its 2018 earnings outlook, largely due to its turbines business, which the company acknowledged it had mismanaged as it underestimated the scale of the industry’s problem.