Sat, Nov 24, 2001 page21

• Siemens' phone unit may get axe

  SCREENING The German company is aiming to reorganize the division after big losses and that means even more jobs may go on top of 10,000 that have already been cut

  • BLOOMBERG
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  Siemens AG may sell or close parts of its phone network business and eliminate more jobs as it reorganizes the unprofitable division, said Thomas Ganswindt, the unit's new chief executive officer.

  "We're screening the entire operation," Ganswindt said.

  Siemens lost 861 million euros (US$755 million) before interest, taxes and amortization at its networks unit in the fiscal year ended Sept. 30, making it the company's most unprofitable division. One of the largest non-government employers in Germany, Siemens makes products ranging from light bulbs to high-speed trains.

  Like rivals such as Nortel Networks Corp and Alcatel SA, Siemens has seen sales slump as phone companies cut spending.

  It has eliminated 10,000 jobs at the network business, or almost a fifth of the workforce, as part of a plan to cut 2 billion euros in costs next year.

  "The competition is very big and the margins are too small" in the phone network business, said Karsten Mergen, who manages DM1 billion deutsche marks (US$449 million), including Siemens shares, at Gerling Investment in Cologne.

  Siemens stock rose as much as 1.84 euros, or 2.8 percent, to 68.12 euros, valuing the company at 59.8 billion euros. It rose 16 percent since the company reported earnings on Nov. 14.

  Ganswindt was speaking to journalists for the first time since being installed in July, after Siemens Chief Executive Heinrich von Pierer ousted the former unit head Roland Koch. The 41-year-old manager had a reputation as a cost-cutter in his previous position as head of Siemens transport unit.

  Ganswindt said he's still working on a reorganization plan for the unit after setting up a 50-member task force dubbed Group Strategy two months ago to find out which businesses should be terminated. Details will be presented at Siemens' annual press conference Dec. 6. He will also say when the networks division will meet operating margin targets once earmarked for 2003.

  "We have to be ready to react very quickly" to changes in demand, he said. He added that he can't tell whether more jobs will have to go. "The market is our guideline . Looking at their losses it's not surprising that they may slim down parts of the operation,'' said Oliver Wojahn, an analyst at Berenberg Bank in Hamburg.

  "They don't want to be in the red forever and have to make some progress soon."

  Ganswindt reiterated plans to sell shares in Unisphere Solutions, a US switch-making unit. The plan to go public will be revived once the stock market bounces back and Siemens "will get the most money" for it, he said.

  Efficient Networks Unisphere has become the No. 2 behind Cisco Systems Inc in the market for so-called edge routers, switches that route Internet and computer network traffic, Ganswindt said. Cisco has 80 percent of the market and Siemens 12 percent, he said.

  Siemens also wants to keep Efficient Networks Inc, a US maker of equipment for high-speed Internet networks, even though it took a charge of 532 million euros in the fourth quarter as it wrote down the value of this and other acquisitions. Efficient is the No. 1 maker of broadband Internet modems.

  Siemens has so far announced a total of 17,000 job cuts to stem losses at the mobile-phone and networks units. The company has 450,000 workers worldwide and 182,000 in Germany.

  A year after reporting record earnings of 7.5 billion euros in the last fiscal year, Siemens said it lost 1.1 billion euros in the three months through Sept. 30 this year. In both the third and fourth quarters, five of the 13 business units were in the red.
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