Siemens AG

founded: 1966

Contact Information:

headquarters: wittelsbacherplatz 2, d-80333
munich, germany phone: 49-89-234-0000 fax: 49-89-234-4242 url: http://www.siemens.com

OVERVIEW

Siemens AG, headquartered in Munich, Germany, is a large and diversified company with a network of more than 400 companies and over 450,000 employees located in 190 countries. Specializing in electronics and electrical engineering, the company is organized into 14 business groups within 7 business segments: Information and Communication, Automation and Control, Power, Transportation, Medical, Lighting, and Financial and Real Estate. Information and Communications is comprised of three groups: Information and Communications Networks (ICN), Information and Communications Mobile (ICM), and Siemens Business Services (SBS). Automation and Control contains four groups: Automation and Drives (A&D), Industrial Solutions and Services (I&S), Siemens Dematic (SD), and Siemens Building Technologies (SBT). The Power business segment contains two groups: Power Generation (PG) and Power Transmission and Distribution (PTD). The Transportation segment is comprised of Transportation Systems (TS) and Siemens VDO Automotive (SV). Other segments are Medical Solutions; Lighting, which does business as Osram; and Siemens Financial Services.

After a banner year in 2000 in which Siemens rode the wave of an explosion in the mobile telecommunications market, the company was roughed up during 2001 as the mobile phone and semiconductor business suddenly dried up. Siemens, who had invested in the U.S. market heavily since 1997, was hit hard by the dissolution of the U.S. economy after the terrorist attacks on New York and Washington, D.C. in September of 2001.

COMPANY FINANCES

In fiscal 2001, ending September 31, 2001, Siemens posted a net income of 2.1 billion euro on 87 billion euro in net sales, down from a net income of 8.9 billion euro on 77.5 billion euro in fiscal 2000. (Average currency exchange rate for fiscal 2001: 1.09 euro = $1.) However, the fiscal 2000 profits were significantly inflated due to substantial divestments made during the year. Siemens' bottom line in 2001 was adversely affected by its 50 percent interest in the computer chip company Infineon, which recorded a profit of 1.2 billion euro in 2000 but posted a loss of 591 million euro in 2001. Additionally, the company incurred 1.9 billion euro in restructuring charges and asset write-downs during the year. Siemens' Operations (i.e., core business segments of Information and Communication, Automation and Control, Power, Transportation, Medical, and Lighting) posted earnings before interest, taxes, and amortization (EBITA) of 1.3 billion euro in fiscal 2001. In fiscal 2000 EBITA was 2.8 billion euro; however, if the 1.9 billion euro in restructuring and write-down of assets is removed from the equation, EBITA from Operations in fiscal 2001 jumps to 3.2 billion euro, an increase of 400 million euro over the previous fiscal year.

During fiscal 2001, Siemens' stock posted a high per share price of $80 on the New York Stock Exchange on May 2, and low per share price of $32.52 on September 21, closing the fiscal year at $38.40. Prices began to rebound during the first two quarters of fiscal 2002, posting a high of $70.48 per share on January 9, closing the second quarter on March 28 at $65.85.

During the first quarter of 2002, ending December 31, 2001, Siemens generated sales of 21 billion euro, up slightly from 20.5 billion euro posted during the same period in fiscal 2001. However, year-on-year net income was down almost half from 1 billion euro in fiscal 2001 to 538 million euro in 2001 due to increased cost of sales and over 100 percent increase in contract orders in the Transportation group.

ANALYSTS' OPINIONS

Because Siemens is such a large conglomeration of companies and interests, analysts tend to use a sumof-the-part methodology. Examining each of the 14 business groups separately, analysts then total the overall positive or negative impact of all the units combined. In fiscal 2002 most advisors remained neutral toward Siemen's prospects for upcoming performance as positive and negative factors tended to cancel out each other. The most commonly expressed concern focused on Information and Communications. As a result of the sluggish economy especially in the United States, ICN posted a year-on-year decline in sales of 13 percent for the first quarter of fiscal 2002, and analysts suggest a need for further restructuring in this segment.

Profitability in PG was well ahead of analysts' predictions for fiscal 2001, and PTD greatly increased its number of orders, which will eventually translate into increased revenues as long-term orders are filled. However, analysts warn that the power generation market is at a peak and will likely fall off in the foreseeable future. Segments of Automation and Control also performed well in fiscal 2001, and analysts expect the divisions to continue post positive numbers. Medical Solutions is the group seen as having the most potential for significant growth in the future.

HISTORY

In 1847 Warner Siemens and J. G. Halske formed Siemens & Halske in Berlin to produce and install telegraph systems. By 1853 the company was prospering as it benefited from a burst of activity in the communications industry. In 1867 Siemens & Halske received a contract to build a telegraph line between London and Calcutta, totaling 11,000 miles. Three years later the job was complete and the first telegraph message was relayed between London and Calcutta. Through the remainder of the 1800s, innovation followed innovation. In 1875 the company laid the first transatlantic cable, connecting Ireland and the United States. The following year it built the first electric power transmission system in Europe. The next year Siemens patented an improved version of Alexander Graham Bell's telephone. The company built one of the world's first electric elevators in 1880 and produced its first electric trolley car in 1882.

Into the early twentieth century Siemens & Halske remained busy; however at the onset of World War I, orders for the organization's various products and services dropped off and the company retooled to manufacture war-related items, such as military communication devices as well as explosives and airplane engines. The company also provided the German Navy with an advanced fire control system that was instrumental in the sinking of at least two British ships. After the war Siemens & Halske continued to build its influence in electrical engineering. By 1930 the company supplied one third of Germany's electrical manufacturing industry.

Having survived the Great Depression by cutting costs and laying off significant numbers of employees, Siemens & Halske was revitalized by the onset of World War II. Once again the company turned its attention to military products, including the design and production of an automatic pilot system for airplanes and the V 2 rocket. Siemens & Halske's involvement in the Nazi's activities is somewhat unclear. Although Carl Friedrich von Siemens, then head of the company, was quoted as being disgusted by the Nazi's anti-Semitism, without a doubt Siemens & Halske benefited from the war due to increased business and the use of slave labor, a practice employed by many German manufacturers at the time. The company was also accused of importing slave labor from occupied territories and providing the Nazis with gas chamber equipment. The charges, which were never substantiated, were denied by Siemens & Halske.

FAST FACTS: About Siemens AG

Ownership: Siemens AG is an international publicly traded company that is listed on numerous stock exchanges including Amsterdam, Brussels, Dusseldorf, Frankfurt, Geneva, New York, Paris, Vienna, and Zurich.

Ticker Symbol: SI

Officers: Karl-Hermann Baumann, M.D., Chmn., 66; Heinrich von Pierer, M.D., Pres. and CEO, 60; Heins-Joachim Neuburger, CFO, 48

Employees: 477,100

Principal Subsidiary Companies: As Europe's largest electrical and electronics company, Siemens AG has more than 400 production sites in 40 countries. Its wide array of subsidiaries are located around the globe, including Paris, London, New York, Tokyo, Bombay, Madrid, Zurich, Athens, and Brussels.

Chief Competitors: Siemens generates the third highest revenues worldwide in its industry, behind General Electric and IBM, respectively. Two Japanese companies, Matsushita and Hitachi occupy the fourth and fifth spots on the revenue ladder. Other lesser competitors include Hewlett Packard, Toshiba, and Fujitsu.

After recouping from damages and losses suffered during the war, Siemens & Halske refocused on its railroad, medical, telephone, and power generation businesses. With offices already in the United Kingdom, Russia, and Japan, in 1954 Siemens & Halske opened an office in New York. At the same time, the company expanded into the new field of computers, producing its first mainframe in 1955. Growing rapidly in numerous fields and markets, the company decided to reorganize in 1966. All businesses entities became subsidiaries of the new parent company, Siemens AG. During the 1970s the newly restructured company continued to expand its businesses and increase its revenues. During the late 1970s an unsuccessful and costly attempt was made to enter the microchip business. Despite an influx of $1 billion for research and development, Siemens fell behind in both research and production and had to buy chips from another vendor to fill its orders.

During the 1980s the company dedicated massive amounts of money to acquisitions and research, spending $24 billion between 1983 and 1988. A new era for Siemens was marked in 1992 when Dr. Heinrich von Pierer was named as head of the company. Von Pierer brought a new mentality of global vision, and he set out to upend the slow, methodical, and process-laden system of manufacturing traditional to German culture. He cut costs, pushed into new markets including Asia and an increased presence in the United States, and encouraged his management team to be innovative and aggressive. The strategy paid off; by 1994 Siemens AG was Germany's third-largest public corporation and the third-largest manufacturer of electrical products and power generation systems. The company continued to post positive numbers until an already slow economy in 2001 was decimated by the events of September 11.

STRATEGY

Siemens set its strategy by assigning goals for growth in profitability to each of its operational groups through steady and measurable progress. Siemens' pri-mary method of tracking success is by looking at its economic value added (EVA). EVA measures the difference between return and cost. To motivate management leaders to achieve goals, incentive pay is tied directly to EVA. Impacted by a sharp decline in the telecommunication industry, as well as the overall economy, Siemens developed "Operation 2003," a plan that will drive the company toward its medium-range goals in spite of a hostile economic environment. Because significant growth is not expected to come from increase revenues from sales, the fundamental strategy for Operation 2003 is to reduce costs in a variety of areas. Operations will be targeted for streamlining, employee numbers will be cut by up to 17,000, and corporate spending will be reduced by 15 percent. U.S. operations, which were deeply affected by the downturn in the economy in the second half of 2001, are specifically targeted for increased profit return.

In the continually evolving process of diversifying and acquiring new business interests, Siemens made a significant transaction in 2001 when it began to divest itself of Infineon. In fiscal 2000 the Munich-based chip-maker posted a net income of 1.1 billion euro; in fiscal 2001 the company posted a net loss of 591 million euro as the semiconductor market fell off drastically. Although Infineon was spun off as a separate company in 2000, Siemens retained just over 50 percent. By the end of 2001 Siemens had reduced its interest in the company to 41.4 percent, and stated intentions to continue to divest of the floundering company. In addition, in March of 2002 Siemens announced that it would divest itself of approximately 50 low-performing companies.

CHRONOLOGY: Key Dates for Siemens

1847:

Werner Siemens and J. G. Halske found Siemens & Halske in Berlin to manufacture and install telegraphy systems

1857:

Receives a major contract to establish a telegraph system in Russia

1867:

Lays 11,000 miles of telegraph line, connecting London and Calcutta, India

1875:

Lays the first transatlantic cable from Ireland to the United States

1909:

Develops and installs first automatic telephone exchange

1914:

Shifts focus to military contracts during World War I

1930:

Provides one-third of all Germany's electrical manufacturing capacity

1941:

Focuses once again on military contract during the war years

1954:

Establishes a U.S.-based subsidiary to manufacture electron microscopes

1966:

Reorganizes as Siemens AG, bringing all its subsidiaries under its umbrella

1978:

Becomes second largest manufacturer of electrical equipment in the world

1992:

Establishes a $16 million research and development laboratory in New Jersey

2000:

Announces plans to invest $1.5 billion by 2003 to expand its operations in Asia; annual sales top $67.5 billion with a world-wide workforce of 447,000

INFLUENCES

Numerous factors influence the performance of Siemens as a whole and the profitability of individual business areas. The Information and Communications segment is primarily affected by two factors. First, it operates in a highly competitive market of electronics and communications and is thereby subject to the trends in pricing and volatile markets. During fiscal 2001, price pressure and a depressed market were apparent in semiconductors, telecommunications, and automobile production. Second, because Siemens works on the cutting edge of highly advance technology, the company must invest heavily in research and design. Some research may not evolve into a viable product, or the product may not prove to be marketable.

Because a significant portion of Siemens' business is tied to long-term fixed price contracts, the company may be either positively or negatively affected by actual productivity and production costs. Cost overruns can negate profitability, and coming in under expected costs can increase estimated profits. Also, Siemens often relies heavily on third parties to supply parts or assemble products. If a third party fails to meet its obligations, Siemens may be unable to meet its own commitments. Also because the company operates around the world, it is subject to trends in currency exchange, which can result in either expanded or decreased value.

CURRENT TRENDS

To survive and prosper in a highly competitive industry, Siemens has moved to distinguish itself from its competitors by moving beyond simply offering products and services to providing comprehensive solutions to its customers' problems. By combining products, systems, and services into an integrated package, Siemens hopes to offer what its competitors cannot: a total package that provides customers with a complete and integrated answer to their needs, from design to installation to management. For example, Medical Solutions not only provides cutting edge technology in state of the art medical systems used in diagnosis and therapy, but also includes options for professional consulting services, technology systems for clinical and administration use, and remote processing services.

Another trend has been the significant increase in Siemens' presence in the United States. Between 1997 and 2002, Siemens invested $9 billion in U.S.-based acquisitions, making the United States Siemens' largest single market. In March of 2001 Siemens cross-listed 12 percent of its shares on the New York Stock Exchange and established a headquarters in New York. The company also invested in an advertising campaign and sponsored the U.S. Open in order to gain exposure in the United States.

PRODUCTS

Siemens' Information and Communications segment focuses on next-generation Internet, wireless communications, and advanced electronics. One of the largest producers in the world of mobile phone handsets, Siemens provides a wide range of products, services, and solutions in innovative voice, data, and video communications devices. ICN develops and markets communication systems to the public and private sectors; ICM designs, manufactures, and markets mobile network devices, such as mobile and cordless phones and radio base stations; and SBS designs, builds, and sells information and communications systems to business in sectors such as industry, transport, and utilities.

Automation and Control focuses on products and services that optimize production, cost efficiency, and productivity. A&D products and services include low voltage control and installation technology, manufacturing automation, drive systems, and process automation; I&S provides advanced electronic products and services designed to improve infrastructure facilities throughout the entire life cycle of the facilities; SD designs, produces, and markets factory automation and logistics automation equipment; and SBT provides products and services related to monitoring and maintenance of temperature, safety, electricity, lighting, and security for commercial and industrial properties.

SAY CHEESE

Siemens has developed a real-time 3D and color face-recognition camera that provides advances in the accuracy, speed, and lower cost. The device used cutting edge technology to generate 3D images by determining coordinates of scene points by intersecting lines of view of a standard color camera which combines with planes of light generated by a slide projector. Image acquisition rate is up to 12 images per second and a distance accuracy of 1 millimeter to 1 meter. Siemens expects that the new camera will revolutionize face-recognition technology, making it decisively accurate (up to 100 percent) and widely used for such applications as airport security.

Siemens' Power segment provides a full range of power generation, transmission, and distribution. PG offers power plant technology, including production of key components and power plant design and construction; PTD provides equipment, systems, and services that assist in moving electrical power from generation point to consumer destination, including power system controls, transformers, and high voltage products. Within Transportation, STS specializes in the rail industry, producing heavy rails, locomotives, and trains as well as associated services; SV manufactures and sells electrical and electronic systems and devices used in automobiles, including powertrain safety, chassis communication, multimedia, and cockpit controls.

Siemens' Medical Solution researches, designs, and develops high-tech medical products and services related to diagnosis and treatment. Products include medical imaging systems and electromedical systems such as patient monitoring equipment and life support systems. Osram develops and markets lighting sources and controls, including general lighting products, automobile lighting, special photo-optic lamps, and display lighting. The Financial and Real Estate group operates as Siemens Financial Services GmbH, which specializes in corporate financing, risk management, investment financing, fund management and insurance services.

CORPORATE CITIZENSHIP

Siemens' environmental policy operations on the concept of sustainability. Through careful use of natural resources and with a constant eye for the ecological impact during the life cycle of any given product, Siemens is committed to achieving zero pollution if at all possible, and if not, then reducing the impact to the environment as much as possible. Along with regulation requirements imposed by numerous governments and agencies, Siemens maintains ongoing in-house environmental standards and objectives that are routinely assessed.

Key aspects to Siemens' citizenship goals include learning and research, public welfare, and arts and culture. Siemens works with schools, colleges, and university both in Germany and around the world to promote interaction between research and industry. The company sponsors numerous learning and scholarship programs aimed at generating interest in technology. Concerning public welfare, Siemens focuses its community initiative on education and training to help alleviate the underlying problems of poverty. The company attempts to offer assistance on a local level, specific to local needs. Siemens also promotes the arts by supporting museums and artists through private foundations as well as through the Siemens Arts Program.

GLOBAL PRESENCE

Operating through hundreds of companies in 140 countries around the world, Siemens is truly an international company. Employees are primarily located in Europe, with 199,000 in Germany and 118,000 in other European countries. The Americas has 107,000 Siemens employees; the Asia-Pacific has 53,000; and Africa and the Middle East have 7,000. The United States is Siemens' single largest market, accounting for over half of PG and Medical sales worldwide, as well as over 40 percent of SD and Osram sales. Much of Siemens' business is conducted in Europe with a strong market for ICM in the Asia-Pacific region. In all, during fiscal 2001 sales by region were as follows: Germany, 22 percent; Europe excluding Germany, 30 percent; The Americas, 30 percent; Asia-Pacific, 13 percent; and Africa/Middle East, 5 percent.

EMPLOYMENT

Of the 450,000 persons employed by Siemens during fiscal 2001, 191,900 worked in manufacturing jobs; 143,200 worked in sales and marketing; 58,800 worked in administration; and 56,100 worked in research and development. Distribution of employees worldwide is as follows: 42 percent in Germany; 25 percent in Europe excluding Germany; 22 percent in the Americas; 11 percent in the Asia-Pacific; and 1 percent in Africa/Middle East. Of all employees, 38 percent had a college degree, and of that total, 78 percent received their education in the fields of natural science or technology. In fiscal 2001, Siemens spent 500 million euro on employee training and apprenticeships. The single most important area for staff recruitment is in research and development. Because much of the company's success depends on the development of highly advanced, innovative technology, Siemens actively recruits the best and brightest prospects for its research and development positions.

SOURCES OF INFORMATION

Bibliography

aston, adam. "he's putting siemens on the american map." business week, 4 february 2002.

grant, tina, ed. international directory of company histories. vol. 14. detroit: st. james press, 1996.

karnitschnig, matthew. "siemens stages turnaround as profit beats forecasts—sale of infineon stake boosts net to $477 million; outlook is still clouded." the wall street journal, 24 january 2002.

kueppers, alfred. "siemens posts losses, shuffles management in ailing tech unit." the wall street journal, 15 november 2001.

mchugh, david. "siemens reduces stake in chip maker infi-neon to 41.4 percent, selling 40 million shares." ap newswire, 8 january 2002.

pringle, david. "spending by china mobile-phone operators will be cut as slump in demand spreads." the wall street journal, 29 march 2002.

siemens ag home page, 2002. available at http://www.siemens.

uniworld business publications, inc. directory of foreign firms operating in the united states. new york: author, 2000.

For an annual report:

on the internet at: http://www.siemens.com

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. siemens ag's primary sics are:

1731 electrical work

3511 turbines and turbine generator sets

3519 internal combustion engines, not elsewhere classified

3531 construction machinery

also investigate companies by their north american industrial classification system codes, also known as naics codes. siemens ag's primary naics codes are:

235310 electrical contractors

333120 construction machinery manufacturing

333131 mining machinery and equipment manufacturing

333298 all other industrial manufacturing