FRANKFURT – Siemens (SIEGn.DE) will cut about 6,900 jobs, or close to 2 percent of its global workforce, mainly at its power and gas division, which has been hit by the rapid growth of renewables.
Most of the cuts, about 6,100, will be made before 2020 at Siemens’s Power and Gas division, which once thrived on supplying large gas turbines for electricity generation but has been overtaken by the global surge in solar and wind capacity.
“The power generation industry is experiencing disruption of unprecedented scope and speed,” Siemens management board member Lisa Davis said. “With their innovative strength and rapidly expanding generation capacity, renewables are putting other forms of power generation under increasing pressure,” she added.
Siemens’ Process Industries and Drives division, which makes large mechanical drives for oil and gas extraction and turbines, will also be hit, Siemens said, not ruling out forced layoffs as part of the plan.
Aside from loss-making wind power venture Siemens Gamesa (SGREN.MC), Process Industries and Drives was Siemens’s least profitable business last quarter, with a profit margin of just 2.9 percent.
Siemens said roughly half of the job cuts would be made in Germany, a move likely to be unpopular with politicians currently trying to form a government. It did not specify the costs of the layoffs.
IG Metall, Germany’s largest trade union, lashed out at management, accusing Siemens of having been to late in responding to the crisis in conventional power generation and demanding no forced redundancies be implemented.
“Job cuts of this magnitude are totally unacceptable given the company is in an outstanding overall position,” said IG Metall board member Juergen Kerner, who also sits on Siemens’s supervisory board.
German Economy Minister Brigitte Zypries urged Siemens to treat employees fairly. “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.”
She said particularly sites in structurally weak regions should be preserved.
“BURNING TO THE GROUND”
In contrast to arch-rival General Electric (GE.N), Siemens was able to shield itself from a sharp downturn in demand for large turbines thanks to an 8 billion-euro ($9 billion) order for power generation in Egypt – the largest in its history – which has kept its German factories humming for the past two years.
As that order has now been fulfilled, both groups find themselves staring into a future of vast overcapacity, where supply outstrips demand by a ratio of three to one, and prices have dropped 30 percent since 2014.
Demand for powerplant sized gas turbines has tumbled and is expected to bottom out at 110 turbines a year, compared with total global manufacturing capacity of around 400 turbines, Siemens said.
“The market is burning to the ground,” Siemens board member Janina Kugel who is in charge of group human resources, told journalists in a call following the announcement.
General Electric on Monday announced a halving of both its dividend and its 2018 earnings outlook, largely due to its flailing turbines business, which it acknowledged it had mismanaged as it underestimated the scale of the problem.
It was only the third time in the group’s 125-year history that GE had lowered its dividend, with previous cuts during the Great Depression of the 1930s and last decade’s financial crisis. GE is also selling large parts of its empire to focus on power, aviation and healthcare.
Siemens employs about 16,000 people in power generation in Germany, roughly a third of its global workforce in that business, including service.