Siemens head Loscher to create new unit and sell Osram

Peter Loscher, the head of Europe's largest engineering company, is fast gaining a reputation as a perennial reorganiser.

He has been restructuring Siemens since taking over as chief executive in 2007, and there was relief among investors and employees late last year when he announced the revamp, which cut costs and bundled all activities in three divisions - industry, energy and health care - had been completed.

But now, just six months later, he has embarked on another major shake-up, even though the German company is in good shape - profits hit a record last year, and it has finally managed to put its long-running bribery scandal behind it.

Siemens announced last week it planned to create a new division focusing on green technology, and to sell a majority stake in Osram, its lighting unit.

The move has sparked criticism that Siemens is too preoccupied with navel-gazing and should instead be concentrating on growth.

In the midst of the current boom in global demand for its wide range of products, including high-speed trains and dishwashers, Siemens has better things to do than change its management structures again, and force many employees to move and learn new skills, critics say.

But Mr Loscher's latest reorganisation makes sense. He is chasing long-term growth by putting parts of the company's industry and energy divisions into a new "infrastructure and cities" division catering for major conurbations striving to reduce their carbon footprints.

The new division is intended to comprise products and services as diverse as public transport management and hardware, intelligent power grids and automation systems for buildings.

Siemens wants to set up a one-stop shop to boost its business with the world's 600 biggest cities, which it says account for half the world's economic output.

In itself, the revamp will not create new income streams. But it addresses a weakness that Siemens has in common with other German engineering companies: a lack of focus on the lucrative industrial services business, including maintenance and systems planning.

Currently, the company's many individual businesses are too segregated from each other, and have concentrated just on selling their own products rather than taking a big-picture view: approaching customers with a broader range of products and services.

The new reorganisation could therefore raise synergies by enabling Siemens to offer tailor-made solutions on "smart" power grids, public transport and energy-saving systems.

Siemens may be subjecting its employees to yet more restructuring, but nobody can accuse Mr Loscher of not having a plan. He has pledged to boost group revenues to €100 billion (Dh525bn) in the coming three to five years, up 30 per cent from last year's level of €76bn.

The other big announcement, the sale of Osram, is similarly positive news for Siemens shareholders, even though the company is earning good money, having enjoyed a sixfold profit surge to €569 million last year thanks to strong demand from car makers. With sales of €4.7bn last year, Osram is number two behind Philips in the global lighting market, and was founded more than a century ago. But long-term prospects are uncertain.

Around the world, the traditional light bulb is being phased out and replaced by light-emitting diodes (LEDs), confronting Osram with the triple headaches of mounting competition from Asian rivals, ever-shorter product cycles, and the need to make major investments in research and development.

Those investments will not yield significant benefits for other parts of the group, so selling a majority stake in an initial public offering this autumn, and thereby effectively transferring Osram's growing business risks from Siemens to the stock market, looks a good idea.

Osram is estimated to be worth between €5bn and €6bn, and the stake sale could yield €2bn to €3bn for the Siemens coffers. It already has cash reserves of €15bn.

Siemens will need a substantial amount of that for acquisitions to meet its ambitious sales growth target. But the latest reorganisation puts it on the right track.

business@thenational.ae