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Siemens grows profit, improvement plans kick in

Apr 27, 20064 mins
Computers and PeripheralsNetworkingTechnology Industry

German electronics giant posts gain for second quarter of its fiscal year.

German electronics giant Siemens AG posted a profit gain Thursday for the second quarter of its fiscal year. It follows four consecutive quarters of lower earnings, showing signs that restructuring efforts introduced by the group’s new chief executive officer (CEO) are taking effect.

German electronics giant Siemens AG posted a profit gain Thursday for the second quarter of its fiscal year. It follows four consecutive quarters of lower earnings, suggesting that restructuring efforts introduced by the group’s new CEO are taking effect.

Net income rose 14% to $1.07 billion as of March 31, the last day in the quarter being reported), the company said.

Siemens is in the middle of a two-year program headed by CEO Klaus Kleinfeld to bring the group’s main operating units within set profitability targets. Since taking over the helm of the German company in 2005, Kleinfeld has been slashing thousands of jobs and either selling, dissolving or giving away unprofitable units.

Last year, Siemens paid Taiwan’s BenQ Corp. to take control of its loss-making mobile-phone manufacturing business. Earlier this year, it agreed to transfer its research-and-development team for its circuit-switched telephone systems to TietoEnator Corp., in Helsinki, Finland.

In a conference call, Kleinfeld called the telecommunications market “challenging,” citing the shift to systems based entirely on IP and a trend toward consolidation in the industry, such as the planned merger between Alcatel and Lucent Technologies.

The CEO refused to answer repeated questions on whether Siemens plans to sell or merge its telecommunications business, or possibly even acquire a competitor to strengthen its position. Rumors have tied Siemens to several rivals, including Motorola and Nortel in North America, Telefonaktiebolaget LM Ericsson in Sweden and Huawei Technologies Co. in China.

The company is holding internal talks Friday about the strategy for its information and communications group, called Comm, Kleinfeld said. He declined to comment further.

Siemens makes telephone-switching equipment, mobile phone infrastructure systems and DSL modems, among many other telecoms products. It is a key supplier of equipment to Deutsche Telekom AG, Europe’s largest telecoms operator.

The Comm group continued to underperform during the second quarter. Group profit dipped to €27 million from €108 million the year before. Sales were up 7% to €3.4 billion, compared with €3.2 billion a year earlier.

The group’s carrier networks business delivered most of the sales growth year-on-year, Siemens said. Sales in its enterprise networks business remained flat, and those in its devices business dropped.

Although sales in Siemens Business Services, which provides IT services to internal Siemens units and external customers, rose 8% to €1.4 billion, from €1.3 billion, group profit plunged 50% to a loss of €194 million, compared with a loss of €129 million the year before.

Siemens attributed the loss to higher severance charges, totaling €155 million compared with €63 million a year earlier.

At the end of the second quarter, Siemens sold the product-related services business of SBS to Fujitsu Siemens Computers (Holding) BV.

“We’re in the middle of restructuring SBS,” Kleinfeld said, suggesting that more jobs cuts are likely.

As part of its restructuring, SBS will focus its outsourcing and “solutions” services on business areas in which the parent company is operating, such as automotive manufacturing, transportation and utilities, The IT services arm can benefit from the experience and know-how that Siemens has in its core business areas, according to Kleinfeld. “We can achieve a turnaround at SBS if we focus on our strengths,” he said.

China remains an important market for Siemens, both for its products and for technology partnerships, Kleinfeld said.

The Chinese government has declared innovation leadership as a top priority in its latest five-year plan. Innovation has “lots to do with patents” and, as such, with protecting Intellectual property rights, Kleinfeld said. “We’re now seeing that China is taking more notice of this,” he added.

The Munich company, Europe’s largest maker of medical equipment, agreed on Thursday to acquire Diagnostic Products Corp. for about $1.7 billion.