Siemens has had some hard luck in recent times. Its friends have watched sadly as one re-organisation programme after another failed to yield the desired bottom line results. The conglomerate’s markets have been cruel: telecom equipment was hammered as Europe’s newly privatised telcos slashed investment, defence markets vanished as NATO surrendered to peace. And of course the mid 1990s volume surge in power equipment markets outside the US looked good at first, but sparked a vicious price war, and ended in some technical problems.
The situation hasn’t improved much. In early November, Siemens capped one of its bleakest periods in recent memory with the announcement that businesses worth DM17 billion ($10 billion) in sales, 14.4 per cent of the top line in the year to 30 September 1998, were going to be disposed of. No wonder: group net profits for the year of DM2.66 billion ($1.56 billion) were barely changed, despite a 10 per cent rise in sales. In other words, margins fell, and from already low single-digit levels. And those figures are for “continuing operations”. Add in DM4 billion ($2.3 billion) of restructuring charges, and Siemens lost DM1.74 billion ($1 billion) in 1997/98.
So is energy on the block? Absolutely not, if you take Siemens at its word. The worst-hit businesses, like semiconductors (and you thought equipment business was nasty), are going. T&D was profitable in the year, and Power Generation (KWU) lost money largely due to new generation gas turbine start-up problems, not a semiconductor-style market apocalypse. The businesses that remain under the Siemens roof will be developed, and what would the point be anyway of flogging energy just months after completing the Westinghouse acquisition? Corporate embarrassment at the least should keep that option on the shelf.
And Westinghouse may be the key word: it could do rather well over the next couple of years. US volumes are soaring, for structural reasons (capacity is low), confidence is high, and there are a lot of juicy utility targets out there to eliminate with mind-bogglingly cheap gas-fired power, controlled not by a charmingly reliable engineer, but reliably savage traders. That most amazing rare beast – a turbine price increase – has been sighted in the midst of the frenzy.
The rest of the world, admittedly, is a bit of a mess. Europe, the last hope if emerging markets don’t bounce back, may in fact be dipping into the low volume realm of regulatory uncertainty, as the US did in the mid-1990s. It could take two years to pull out. Milwaukee parties, Munich cries.
But the guardians of the share price at the very top of Siemens may not be very sentimental. The price had settled at a depressing low of around DM80 this October, and crept higher only as international financial markets recovered. Yet on the news that swathes of the Siemens empire would go, the shares soared 11per cent in a day, and hardly looked back up to late November, when they traded at DM116. Would a deal with ABB, which could point to Alstom, GE, and Mitsubishi as credible competition when pesky Brussels objected, be worth another 5 per cent, or more? In the age of BP–Amoco and Exxon–Mobil, and, yes, Siemens–Westinghouse, go ahead, have a bet on it.