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Author: Dan Bieler
Siemens reported its financial results for its Q3, 1 April to 30 June of fiscal 2006. Revenues increased by 14% to €21.2bn and EBIT by 31% to €1.3bn. EBIT margin increased by 0.8 percentage points to 6%, whilst revenues per employee grew by €4,000 to €44,000. About 34% of its total staff of 475,000 reside in Germany, and this ratio is declining as headcount reductions focus on its domestic market.
The Com division reported an adjusted revenue decline of 1% to €2.9bn, but managed to improve its EBIT margin to a positive 0.1% from -2.7% a year ago. Siemens Business Services (SBS) also experienced an adjusted revenue decline of 1% to €1.1bn, but saw its EBIT margin go down further to reach -9.2% after -8.2% last year.
Comment: The fate of the Com division was signed in June this year by agreeing to merge the network divisions with Nokia (see EuroView Daily, 19 June). The deal is expected to close by the end of the year. Hence, this set of results is arguably the last 'old-Com' set of results. During the conference call, few words were lost on Com. No doubt, big changes at Siemens will make themselves felt over the next few months.
The sobering Com results underline why a merger of the network activities with Nokia makes sense. Siemens on its own just is not capable of turning the division around in a credible manner. Scale, a fresh look at R&D and the formation of convergent offers are crucial to positioning the network division for the years ahead. These challenges are addressed more effectively by combining forces with Nokia.
Not being great believers in the existence of "mergers of equals", we would expect the decision-making processes with all the strategic implications to shift towards Helsinki over the months ahead - assuming the merger progresses. In this sense, we say "goodbye" rather than "Auf Wiedersehn" to the Com division.
The focus will now shift to the ailing Enterprise and SBS divisions. Whilst we could envisage a Nokia-like merger solution for Enterprise, the answer for SBS is likely to look somewhat differently, possibly bringing it back into some form of "headquarters" or "other" operation. By "selling" the mobile handsets division, spinning off PRS to Fujitsu Siemens Computers, merging Com with Nokia and potentially dealing in the above-mentioned manner with Enterprise and SBS, Siemens would have solved its short-term margin challenges.
It would have done so, however, at the expense of effectively disposing of a large part of its ICT capabilities. ICT formed the roots the Siemens tree grew out of. Only the future will tell whether the dispensation of Com was a smart move. Economic history is littered with examples of full strategy reversals. Maybe it should be "Auf Wiedersehn" after all.
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