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Business

Commentary: The clueless Mr Kaeser

The future is a CEO's most important investment. But apparently no one's told Joe Kaeser. The Siemens chief's quest to save profits at any price could cost the German engineering giant dearly, argues DW's Rolf Wenkel.

At first glance, the news couldn't be better: Siemens earned 3.9 billion euros ($4.4 billion), or over a billion a month, from January through March (Q2 according to the company's fiscal calendar). Seems like a reason to celebrate for shareholders and employees alike, no?

Then there was the big announcement: After nearly a full year of restructuring, the company was now crisis-proof, CEO Joe Kaeser declared, ushering in a new era of calm for the German industrial giant. Mission completed. Next stop: Moneyville.

Sounds too good to be true? That's because it is.

In reality, Siemens' actual second-quarter earnings amounted to just 700 million euros. That's less than a fifth of the nearly 4-billion figure it boasted, and some 400 million euros shy of the three months before. The lion's share, 3.2 billion euros, came from the sale of the company's hearing aid segment as well as its 50-percent stake in the BSH Home Appliances Group to Bosch. Call it selling off the family silver, if you like - the point is, it's one-off.

In fact, it's been pretty much downhill for Europe's largest engineering group. Revenue has all but flat-lined, while return on sales (ROS), one of the key indicators of a company's health, appear to have gone into free-fall. For every 100 euros sold, Siemens only keeps 9. The Munich-based business had aimed for 10 to 11.

Cutting corners

Slumping revenue and shrinking profit margins. What's a CEO to do? The uninspired fall back into old ways. Like tough-on-crime conservatives crying wolf over a broken nail, so managers too often cut payrolls when profits begin to drop. No wonder then that Joe Kaeser's big announcement came with an asterisk: the "need" to lose 4,500 additional jobs - to get Siemens down to fighting weight, so to speak.

Tough challenges ahead

The latest cut takes the total number of jobs lost to Kaeser's global restructuring effort to more than 13,000 - 5,000 alone right here in Germany. That's a 4-percent bite out of Siemen's combined workforce of 342,000.

Porträt - Rolf Wenkel

Rolf Wenkel, DW Busines

The biggest problem is that there's no guarantee that Kaeser's diet will actually work, that calm will return to Munich or that the cutbacks will end. In fact, there's plenty of reason to believe it won't. The road ahead is simply too bumpy, and several of Siemens' core segments too fragile.

Let's begin with its weakest spot: energy. Plunging electricity prices and falling demand for its gas turbines have left a big dent in the coffers of the company's power generating business, while tumbling oil prices are threatening to turn the takeover of US oil and gas supplier Dresser-Rand into a 7.6-billion-dollar headache. As if that weren't enough, the former top dog of medical engineering is up against a new pack of young and innovative rivals, threatening to leave it in the dust.

Fateful flaws

And that's not the end of it. The company's upper echelons have been plagued by a series of bad publicity.

In the Brazilian metropolis São Paulo, Siemens has been caught up in the so-called Train Cartel scandal, accused of colluding with 17 other companies to fix prices for the construction and upkeep of train networks.

And in the battle over France's energy giant, Alstom, even Siemens' Munich-based top brass couldn't fend off their rivals from overseas, General Electric.

Many of Siemens' biggest problems could have easily been avoided. Time and again, the company seems to have missed the train on important developments, watching the competition race by.

For instance, it should hardly have come as a surprise that Germany's shift to renewable energy would shake up the market. Still, Siemens chose to take a backseat and didn't react till it was already too late.

Where management didn't hesitate, however, was when it came to cutting payrolls - a move that's symptomatic of their lack of inspiration and fresh ideas. Instead of passing the buck to the rank-and-file, it's time Joe Kaeser and his board members face up to Siemens' biggest weakness: their own shortcomings.