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German firm Siemens facing tougher times ahead, cutting jobs

German tech company Siemens is reportedly cutting jobs and closing some of its offices to prevent profit losses as market demand in Europe slows down as the continent struggles against recession.

The previous plan of company Chief Executive Officer Peter Loescher to focus in infrastructure and energy saving products did not find traction. Many analysts are expecting that he will present another plan so the company can save up to $5.2 billion.

While other European countries are now feeling the effects of the continent’s economic crisis, Germany on the other hand is doing well because of its strong exports from several big and successful industrial companies.

However, an unexpected decrease in profits during the third quarter for Siemens, Germany’s largest company  in terms of market capital and number of employees, indicates that even Europe’s largest economy is not immune from the crisis as its products find fewer buyers than before.

Peter Loescher took office as chief executive in 2007 inheriting a company mired in a bribery scandal and getting away with some of its assets. In 2011, he predicted that his company’s total sales would increase from 76 billion in 2010 to 100 billion in the next few years.

But apparently, Peter Loescher’s prediction is not happening as growth has not kept up with Siemen’s investment due to longer than expected recovery of the global economy. Former customers of Siemens suddenly drop order numbers prompting Loescher to take drastic action.

Peter Loescher is the first Siemens executive recruited outside the company in its 160-year history. He believes that his currently strategy is working but needs time for the economy to recover.

Analysts watching how he’ll manage the company are expecting him to put a 2-4 billion savings plan when he will meet with the company’s 600 managers in Berlin. Some of these managers are expected to lose their jobs  in the process.

He is also expected to announce the closure of the company’s offshore offices so he can focus its resources and eliminate the underperforming offices.

The German media expects Siemens to cut thousands of jobs in Loescher’s announcement of the company’s financial results in November 8.

As of June this year, the company had 410,000 employees throughout the world. About 129,000 of them are based in Germany, making Siemens one of the major employers in the country following Volkswagen and Deutsche Post DHL.

Although Siemens still has the lead in some of its big products like software that automates factory production or MRI technology that scans the human body, the company’s competitors like Switzerland’s ABB and General Electric are actively doing cost-reduction efforts to maintain profit margin.

The France-based Schneider Electric and Switzerland’s ABB have already finished their cost-cutting programs while Philips Electronics said it is cutting more jobs to restructure its business.

Siemen’s response to its rivals cost-cutting measures involved investing renewable energy as it anticipated faster economic recovery. The company spent around 3.13 billion euros within 9 months for research and development, taking away almost 6 percent of Siemen’s revenues.

But the projects were not able to gain momentum as it saw a 40 percent drop in new orders due to decreasing demand in Germany as well as the financial challenge that slowed down construction for more offshore wind projects.

source: reuters