Siemens and General Electric, two rivals battling financial problems due to fewer orders for their flagship energy products and services, could each announce major restructuring moves in the coming weeks, according to media reports.
Reuters on June 21, citing a person familiar with the matter, said Siemens plans to merge or trim some of its industrial units, which could include its power operations. Reuters said it was told the Munich, Germany-based company would reduce its core industrial divisions from five to three, effective October 1—the start of the company’s next fiscal year. It reported that sources said details of the company’s “Vision 2020+” plan would be known in August.
Bloomberg earlier this month said the company was considering the sale of its gas turbines manufacturing unit.
Germany’s Manager Magazinalso reported the changes on Thursday. The magazine said the new divisions would have higher margin targets. It reported that part of the plan is to merge the company’s “so-called Digital Factory unit with operations designed to automate process industries, and to combine overland high-voltage networks with the power plant business.” The magazine said its sources said the restructuring would also include power plant engineering, energy management, and building technologies.
The magazine, citing company sources, said the changes are part of CEO Joe Kaeser’s strategy “to loosen central control [of business units] to enable subsidiaries to thrive.”
Reuters quoted its source as saying: “This will be an evolution rather than a revolution.”
Siemens in an emailed statement said, “Currently, we are developing our corporate strategy further—in a calm and diligent way. Wherever adjustments are needed, we will act. When doing so, we will always focus on customer proximity, competitiveness and the ability to innovate.”
Kaeser, who earlier this week characterized reports that the company was looking to sell its gas turbine manufacturing unit as “media speculation,” has said moves to reorganize and simplify the company’s structure are underway when asked about it at a New York conference in May. He suggested a company reorganization would focus on better performance for each business unit so they could stand on their own.
Siemens already is in the midst of a downsizing as it continues with job cuts announced in November of last year.
GE, meanwhile, is in the midst of its own restructuring under CEO John Flannery, who took over the company in August 2017. GE, an original member of the Dow Jones Industrial Average (DJIA) in 1896, and continuously a member since November 1907, was kicked out of the Dow on June 19. The company’s stock has lost about half its value over the past year—notably the worst-performing stock in the DJIA—and is down about 25% from the start of 2018.
The company in a statement after its ouster from the Dow said: “We are focused on executing against the plan we’ve laid out to improve GE’s performance. Today’s announcement does nothing to change those commitments or our focus in creating a stronger, simpler GE.”
Bloomberg this week said GE has lost almost $140 billion of market value in the past year, one of the reasons Flannery said the company needed to shed $20 billion of assets, realign its businesses, and cut costs as it battles high debt and falling demand for products such as its gas turbines. Flannery recently acknowledged he has been “deliberate” about making changes; in May, he told investors there is no “quick fix” to the company’s woes.
GE in December 2017 announced it would cut 12,000 jobs in its power division, a process it is continuing. The company earlier this month said it would end manufacturing at a plant in Virginia, with more than 260 workers losing their jobs. It had laid off 42 workers at that facility in March.
CNBC financial commentator David Faber on Thursday, speaking on the network’s Squawk on the Street, said, “I think we can expect to see GE make some kind of significant statement about the future of the company by the end of the second quarter, as they said they would.” Faber said the company may not break up “as some had anticipated,” but he said the move will be “a significant announcement around reorganization of the company, including potentially something being spun [off].”
Flannery in GE’s annual report in February said, “There will be a GE in the future, but it will look different from how it does today.”
Under Flannery’s watch the company has sold its Water & Process Technologies business to SUEZ; sold its Industrial Solutions (electrification) unit to ABB; and bought Alstom’s stakes in three energy joint ventures formed when GE acquired Alstom’s energy business a few years ago, a deal finalized in November 2015. The acquisition of Alstom has weighed heavily on GE’s finances. It was Flannery who brokered the Alstom acquisition when he led the company’s mergers and acquisitions efforts during that period.
The French government this past week said it might fine GE for not creating as many jobs as promised when it took over Alstom. Reuters reported that GE agreed to create 1,000 net new jobs by the end of April 2018 but had created only 323. The 2015 deal said GE would be fined €50,000 ($58,000) for each job it failed to create.
—Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).