Vendor to reduce its workforce by a further 1,000 staff as stiffening international competition continues to eat margins

May 2, 2006

2 Min Read
Siemens Cuts Another 1,000 Jobs

Siemens Communications Group is cutting a further 1,000 jobs as competition continues to bite and the vendor's financials fail to improve.

The vendor had already reduced its workforce by about 1,500 in the six months to the end of March, taking its total staff level down to about 54,500 worldwide. Com's parent, Siemens AG (NYSE: SI; Frankfurt: SIE), employs around 470,000 people globally.

In a company statement emailed to Light Reading, Siemens says that "the continuing technological change in recent years led to the elimination of production, assembly and maintenance jobs. This process is continuing in 2006 and will do so in the foreseeable future. While business growth in the network and enterprise customer segments has been satisfactory, it has not been enough to compensate for the shortfall in activity."

As a result, "Com is now forced to make further personnel cutbacks in administration, sales and development. These job reductions are unavoidable since Siemens must achieve cost positions that are in line with international competition. After carefully deliberating the necessary personnel measures, management and labor representatives decided to appoint a delegation whose job will be to draw up a plan to reconcile the interests of approximately 1,000 employees."

The impact of changes in the telecom market, including the presence of new competitors such as Huawei Technologies Co. Ltd. , have been causing Siemens problems for some time now. (See Siemens Spawns a Problem Child.)

Just how hard the competition is hitting Siemens was shown again in last week's quarterly financial report from Siemens AG (NYSE: SI; Frankfurt: SIE). The Communications Group business unit made just €27 million operating profit from revenues of €3.4 billion. That gave it an operating margin of less than 1 percent in the second quarter of fiscal 2006, a long way short of its target for the end of fiscal 2007 of between 8 percent and 11 percent. (See Siemens Reports Q2.)

Dealing with the job cuts, and finding a way to boost margins, is now the responsibility of the Com Group's new president Eduardo Montes Pérez, who took over yesterday (May 1). (See Siemens Shuffles Top Deck.)

News of the job cuts will add fuel to the speculation that Siemens is preparing to offload the Communications Group and exit the tough telecom sector, though finding a buyer that will take more than 50,000 staff and the fixed and enterprise product lines, as well as the profitable mobile networks business, might be tough. (See Siemens Comm Has M&A Callers and Sources: Lucent, Nokia in Play for Siemens.)

The industry, though, is expecting further vendor consolidation following the proposed marriage between Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU), with the Siemens unit regarded as a key player in that process. (See Poll: Merging Is Surging, Nortel CEO: We're Ready to Deal, and Alcatel/Lucent: The Domino Factor.)

— Ray Le Maistre, International News Editor, Light Reading

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