Siemens Restructures ICN
Siemens AG (NYSE: SI; Frankfurt: SIE) announced today that its Information and Communications Networks group is consolidating its carrier business in an effort to reduce costs (see Siemens ICN Bundles Carrier Biz). The company also started the ball rolling on announced job cuts, but analysts are disappointed that Siemens’ restructuring hasn’t gone far enough.
The plan calls for IC Networks to combine its Access Solution, Wireline Network Communications, and Optical Networks divisions into a single group, leaving the enterprise portion of the business as is.
The restructuring of the carrier business will result in a loss of 2,300 jobs at the unit's Munich headquarters. These jobs are part of an already announced plan to reduce the IC Networks workforce by about 35 percent or 20,500 jobs. Restructuring will begin November 1, 2002.
“My initial take on this is that it’s less dramatic than we anticipated,” says Stuart Jeffrey, European telecommunications equipment analyst for Lehman Brothers. “It’s pretty clear that they think this is all they need to do. We’d all love to think that this is all that’s needed, but the truth is that market conditions will likely deteriorate even more.”
The company itself wouldn’t comment on how much the consolidation will help the bottom line, but Siemens’ overall restructuring plan is expected to reduce costs by €3.5 billion (US$3.42 billion) by the end of the next fiscal year.
So what does the consolidation of this sort actually mean for the company and its products?
“This is a horizontal integration,” says Andreas Fischer, an press spokesperson for Siemens IC Networks. “We’re combining sales, marketing, and R&D efforts. We still think we have the right products and solution. There will be some minor adjustments in R&D. But we are not really looking to shed products.”
But clearly the company will have to cut from somewhere. IC Networks had a net loss of €84 million for its third quarter ended June 30 (see Siemens Reports Q3). Wider losses are expected at IC Networks in the fiscal fourth quarter, which ends Sept. 30, when Siemens is expected to take hefty restructuring charges in the unit.
Siemens' overall restructuring plan has been going on for almost a year (see Siemens To Cut People and Plants). It has already dissolved its U.S.-based optical subsidiary, Optisphere Networks. Most of those products were shifted over to the Optical Division in Europe, while partnerships with companies like ADVA AG Optical Networking (Frankfurt: ADV) and Sycamore Networks Inc. (Nasdaq: SCMR) have helped fill gaps in metro optical transport and optical switching (see ADVA and Siemens Team Up and Sycamore Switches Focus). The company has already sold of its interest in Unisphere Networks, which was bought by Juniper Networks Inc. (Nasdaq: JNPR) earlier this year (see Juniper Nabs Unisphere for $740M).
Still, some question whether the company will have to follow the lead of other large telecom equipment vendors based in North America. Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) have also been forced to reduce their headcounts dramatically, but the companies have also had to sell off parts of their businesses.
Analysts like Jeffrey say they hadn’t expected Siemens to announce product cancellations or a sale of a particular business today. Even though the company has traditionally been weaker in the optical networking market, which is struggling worldwide, Jeffrey doesn’t believe the company will cancel products there or sell off any of its business units, because it is too strategic for the future.
“They have taken a number of steps already," he says. “But more will be inevitable, especially when business next year will likely to be down 10 to 15 percent or worse.”
Siemens was trading up $0.93 (2.60%) to $36.64 on the New York Stock Exchange today.
— Marguerite Reardon, Senior Editor, Light Reading