New Siemens Chief Sees Weakness in China
FRANKFURT — The newly named chief executive of Siemens has promised to restore stability to the company that symbolizes German engineering and electronics prowess. But he also issued a warning that could bode ill for the euro zone economy: Don’t count on China.
Only hours after his predecessor was toppled because of operational problems and declining profit at the German industrial giant, Joe Kaeser, a Siemens insider promoted to the top job on Wednesday, warned that China could take longer than expected to resume its rapid growth. China is a crucial market for Siemens and hundreds of other European companies, and a continued slowdown there could delay recovery of the euro zone.
“The economic reorientation of China will take time,” Mr. Kaeser said at a news conference at Siemens headquarters in Munich.
The comments by Mr. Kaeser, who has worked at Siemens since 1980 and previously was chief financial officer, came only hours after the Siemens supervisory board named him to replace Peter Löscher, who took the blame for the mixed financial results also announced Wednesday.
The faltering Chinese economy has become a major concern for Europe and especially Germany. While Germany’s most important trading partners remain the United States and other European countries, demand from China and other developing nations has in recent years grown much faster and has compensated for weakness in the traditional markets.
“Given Germany’s higher dependence on the emerging markets in recent years,” Ralph Solveen, an economist at Commerzbank, said in a note to clients, “much lower growth of the economy there would have a marked impact on Germany and could push the long-awaited upswing further into the future.”
The appointment of Mr. Kaeser, 56, is a return to the Siemens’s tradition of naming insiders to head the company. He promised to restore the company’s reputation for reliability and top-flight engineering, which has suffered recently because of a number of well-publicized fiascos.
Siemens has been late to deliver high-speed trains for the German railroad and had problems connecting a huge offshore wind generation project to the power grid. Those problems contributed to a profit warning last week, and a decline in sales and operating profit that Siemens reported on Wednesday. Those problems led to Mr. Löscher’s departure.
Mr. Löscher, 55, who had previously worked in top management at the American drug maker Merck and at General Electric, was brought aboard in 2007 to lead the company, one of Germany’s largest employers, during a corruption scandal.
The appointment of an outsider made sense at time when many existing Siemens managers were under a cloud, said Christian Stadler, an associate professor at Warwick Business School in Coventry, England, who has studied Siemens.
But over the long run it is difficult for an outsider lacking extensive internal connections to manage a company as diverse and far-flung as Siemens, Mr. Stadler said. Siemens products include trains, medical scanners and equipment for generating and transmitting electricity, and it operates in almost every country in the world.
“It is really hard for an outsider to get a grip on an organization as large and complex as Siemens,” Mr. Stadler said. “Without having the necessary networks, it’s almost impossible.”
Mr. Löscher’s departure was a foregone conclusion after Siemens said on Saturday that the supervisory board planned to vote on his dismissal at a meeting on Wednesday. In a statement on Wednesday, Siemens said Mr. Löscher was leaving by mutual consent.
“During the past week I came to the conclusion that the foundation of trust necessary for me to remain was lacking,” Mr. Löscher said in a statement.
An earnings report by Siemens on Wednesday showed an improvement in net profit and new orders during the three months through June, Siemens’s fiscal third quarter. But sales declined. In addition, third-quarter operating profit fell at the company’s most important divisions, and Siemens said it expected profit for the full year to fall to 4 billion euros, or $5.3 billion, from 4.6 billion in 2012.
Net profit rose 43 percent to 1.1 billion euros, Siemens said, but the gain came largely from the Osram lighting unit, which the company has spun off in an initial public offering.
Among the company’s four divisions, operating profit fell 31 percent to 1.3 billion euros, Siemens said, largely because of the cost of a restructuring program. Sales fell 2 percent to 19.25 billion euros, while new orders rose 19 percent, to 21.14 billion euros.
Much of the jump in orders came from a single contract to provide regional trains for the expansion and improvement of rail service in greater London, known as Thameslink.
Mr. Kaeser, who had been Siemens’s chief financial officer since 2006, is seen as a steady hand who will help regain the confidence of employees weary of constant restructuring plans.
“The key to success is not the strategy,” Mr. Kaeser said. “The key to success is the culture of a company and its values and what it stands for.”
“Our company is certainly not in crisis, nor is it in need of major restructuring,” Mr. Kaeser said in a statement. “However, we’ve been too preoccupied with ourselves lately and have lost some of our profit momentum vis-à-vis our competitors.”
Mr. Kaeser told reporters that Siemens had expected the Chinese economy to recover quickly after the recent turnover in leadership but now realized there were deep structural problems in that country that need to be addressed first. China country suffers from huge overcapacity in steel, mining and cement production — industries that Siemens services.
China must restructure those industries, which could fuel unemployment and cause civil unrest, Mr. Kaeser said. “China clearly needs longer than we originally thought,” he said.
Mr. Kaeser conceded that, as a close associate of Mr. Löscher throughout his predecessor’s tenure, he shared responsibility for decisions that had been made.
“The management board decided the measures,” Mr. Kaeser said. “A lot worked out; some things didn’t work out and need to be improved.”
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