Solar and wind electricity production cut demand for turbines
The division once thrived as a it supplied large gas turbines used to generate electricity. The global surge in solar and wind power production has dampened demand.
Lisa Davis, a member of the Siemens management board said: “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.”
The Process and Drives division that makes large drives for oil and gas extraction as well as turbines will also suffer a hit and could face forced layoffs.
The division had a low profit ratio last quarter of just 2.9 percent.
About half of the jobs cuts will be in Germany
The company did not specify the costs of the layoff which will be unpopular with many German politicians busy trying to form a new government.
IG Metall, the largest trade union in Germany was critical of Siemens management for not responding earlier to the crisis in conventional power generation. The union demanded there be no forced redundancies.
Juergen Kerner, of IG Metall and also a member of Siemens’ supervisory board said: “Job cuts of this magnitude are totally unacceptable given the company is in an outstanding overall position.”
Brigitte Zypries, the German Economy Minister urged Siemens to treat workers fairly. She said that the company should ensure that sites in structurally weak areas be preserved: “The workers are very concerned and uncertain about their future. I hope that Siemens works closely with the unions to find fair solutions for the affected sites.”
Large Egyptian order kept turbine production humming up to now
As discussed in a recent Digital Journal article. Siemen’s competitor General Electric (GE) is also cutting back on staff including in its power division.
A huge order from Egypt of 8 billion Euros or $9 billion for power generation kept Siemen’s factories going for the last two years. Now that order is finished.
Demand and prices are down for turbines
There is now a huge overcapacity in the market and prices have plunged 30 percent since 2014.
Total demand for the turbines is expected to bottom at 110 turbines a year whereas there is a global manufacturing capacity of about 400 turbines according to Siemens.
Janina Kugel, in charge of group human resources at Siemens said: “The market is burning to the ground”.
A new company focus
As well as shedding some operations, Siemens appears poised to remodel itself as an industrial software company.
As well as listing its healthcare unit, Siemens is putting its wind and rail business into joint ventures.
