Siemens is responding to what it sees as rapidly accelerating structural changes in the fossil power generation market and the commodity sector with a consolidation plan aimed at resizing the business.
Siemens is responding to what it sees as rapidly accelerating structural changes in the fossil power generation market and the commodity sector with a consolidation plan aimed at resizing the business in a way that stabilises its global competitiveness.
The plan, which takes in its Power and Gas Division (PG), its Power Generation Services Division (PS) and the Process Industries and Drives Division (PD), aims to increase capacity utilisation at production facilities, drive efficiency and enhance expertise by bundling resources.
"The power generation industry is experiencing disruption of unprecedented scope and speed. With their innovative strength and rapidly expanding generation capacity, renewables are putting other forms of power generation under increasing pressure. Today's action follows a nearly three-year effort to right-size the business for this changing marketplace," stated Lisa Davis of the managing board of Siemens AG. "Our plan is to execute these changes in a fast and prudent manner while also investing in future-oriented technologies”.
"The cuts are necessary to ensure that our expertise in power-plant technology, generators and large electrical motors stays competitive over the long term. That's the goal behind the measures we're taking. However, we can reach this goal only if we find answers to the worldwide overcapacities and the resulting price pressure," said Janina Kugel, chief human resources officer and member of the managing board of Siemens AG.
According to the plans presented to the employee representatives, a total of around 6900 jobs worldwide are to be cut in the affected divisions over a period of several years. Roughly half of these jobs are in Germany. The measures involve adapting the global capacities of PG and PS to the expected market volume, bundling key expertise in centres of excellence and consolidating manufacturing volumes at locations with competitive costs. Consultations with employee representatives are to begin soon, the aim is to implement measures in a way that is as socially responsible as possible.
GT demand has collapsed
Global demand for large gas turbines (>100 MM) has fallen dramatically and is expected to level out at around 110 turbines a year. By contrast, the technical manufacturing capacity of all producers worldwide is estimated at around 400 turbines.
PG began responding to the changed market conditions three years ago. Under its PG2020 programme, says Siemens, it has made considerable progress in the action areas of customer proximity, innovation, costs and organisational efficiency. Examples include an extensive regionalisation of business responsibility, a considerable reduction of product costs, innovations such as the new mobile gas turbine for the growing market for quick power generation, and the medium-term market launch of new HL class gas turbines with a planned efficiency of 65%. Siemens intends to continue with significant investments in developing efficiency-enhancing technologies. But the PG2020 measures implemented to date have to be further intensified because the scope and speed of market changes have increased significantly.
Specifically for PG, a total of about 6100 jobs will be affected worldwide. In Germany, plans call for an adjustment of around 2600 jobs and the closure of the Görlitz location (currently about 720 jobs) and the Leipzig location (around 200 jobs). In addition, the solutions businesses at the Offenbach and Erlangen locations will be combined. These three measures will lead to the elimination of 1600 jobs in total. For the location in Erfurt, several options are under review, including, for instance, a sale. Around 640 jobs are to be cut in Mülheim an der Ruhr and about 300 in Berlin.
To more effectively protect and utilise expertise in the construction, operation and servicing of power plants, the creation of centres of excellence is planned, to be implemented at locations that offer core expertise in R&D, manufacturing, testing and logistics and can enable long-term, competitive development.
Outside Germany, the restructuring measures will eliminate a total of just over 1100 jobs in European countries and another 2500 elsewhere,jobs will be affected, including 1800 jobs in the consolidation of production and administration in the USA.
The situation in the commodities industry is especially problematic for PD and competition is intensifying substantially owing to the arrival of low-cost producers. Demand for large electrical motors and generators has fallen considerably due a lack of capacity increases by process industry customers. A recovery in these fields is not expected in the foreseeable future. This situation has resulted in substantial overcapacities in the existing manufacturing landscape for these technologies. For this reason, further adjustments are necessary here and will impact just over 760 jobs in Germany, with the focus on the Berlin generator factory, whose manufacturing capacities will be bundled at PG facilities in Mülheim and Erfurt.
Siemens will continue to invest in growth markets and is expanding its workforce in the related businesses. In fiscal 2017, the company hired nearly 39 000 people worldwide, including about 5200 in Germany. As a result, the number of employees in Germany rose slightly to 115 000. For 2018, investments in R&D and production facilities are to be increased significantly. At the last count, Siemens had 3200 job vacancies and hopes to transfer as many of the people affected by the restructuring measures as possible to these positions.