Siemens Slashes Staff

Siemens AG (NYSE: SI; Frankfurt: SIE) is the latest network equipment manufacturer to announce a culling of its workforce in an attempt to hit financial targets for 2004 (see Siemens Slashes 2,300 Jobs).

The German vendor is set to axe 2,300 positions from its Information and Communication Mobile (ICM) infrastructure division by September next year. The 8 percent reduction in staff forms part of a €1 billion (US$1.13 billion) cost-cutting exercise aimed at generating an operating margin of between 8 and 11 percent for the next fiscal year.

Details remain sketchy, but at least 500 positions will be lost in Germany. Company spokesman Axel Schafmeister is unable to divulge which other regions will suffer a similar fate, but reveals that the “majority” of the cuts will come from the company’s mobile network business. “It is going to be a big amount,” Der Schafmeister tells Unstrung.

Rudi Lamprecht, head of mobile communications, blames the sustained weakness in the network infrastructure market for today’s cuts. “The world market for mobile communication networks had already declined by 15 percent last year. This year, the market will contract by up to 20 percent.”

Despite the vendor’s actions, analysts believe the company still has no chance of reaching its margin goals. “The targets look hopelessly optimistic,” comments Dr Richard Windsor of Nomura Holdings Inc. “While these cuts are needed to downsize the business to address the more sober business environment, management is being unrealistic. Management will be unable to cut its way to these targets, as attempts to do so will leave the division under-resourced.”

“To reach 8 percent margins is very doubtful, even if they make these cuts,” agrees Michael Busse, an analyst at Helaba Trust in Frankfurt. “I don’t believe it is possible.”

Shares in Siemens fell 0.15 percent, to $56.15.

Siemens last week announced a 14 percent fall in third-quarter sales for ICM, with an operating profit of €17 million ($19 million), down from €55 million ($62 million) the previous quarter (see Mobile Drags Down Siemens Q3).

— Justin Springham, Senior Editor, Europe, Unstrung

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