The new CEO of Siemens (SI) wants margins more like those at GE (GE), which is in many of the same businesses. Oddly enough, over the last year, Siemens shares are up almost 50% while GE’s are less than 20% higher.
But, that is not preventing the new man, Peter Löscher, from planning to reduce head count like a crazy man. According to the FT Siemens is "preparing a series of aggressive earnings targets for senior managers, along with thousands of job cuts." In the first nine months of this year, the operating margin for Siemens’ industrial businesses was 8.5 per cent, against 14.7 per cent for the equivalent activities at GE.
There is no reason that Siemens cannot improve its margins. By all accounts management at the company has not been aggressive at driving down costs. It will now adopt the philosophy of Jack Welch and chop jobs until it is clear that the revenue potential of the company may be hurt. It would not be surprising to see several hundred million dollars of expenses gone by the end of 2008.
That is a lot of jobless people. And, probably another big gain in the SI share price.
Douglas A. McIntyre