Is the glass half-full or half-empty? Is a 25-percent profit drop just a one-off calamity or a precursor of a bigger disaster to come? That's what investors were asking at Siemens' shareholder meeting on Tuesday.
This is not what you'd call a minor thing. Last quarter, the German engineering giant's net profit dipped by 25 percent compared with the same three-month period a year earlier. Earnings amounted to little under 1.1 billion euros ($1.25 billion), with revenue rising by 3 percent. Those figures can be interpreted in astonishingly different ways, it seems.
Chief Executive Joe Kaeser put a positive spin on the quarterly results overall. "Most of our business operations developed in line with our expectations," he said in a statement. For the whole of the year, he still intends to raise profit per share by at least 15 percent.
Alas, shareholders had a different take on recent developments. They took profits, with Siemens shares dropping to 99.6 euros apiece, marking the worst performance in Germany's blue-chip DAX-30 index. Before that, Siemens shares had gained little under 10 percent since the beginning of 2015.
Lots of internal building sites
On the stock market, investors trade the future, an old saying goes, and shareholders quite obviously can't see a rosy future for the company right now. There are many problems for which Kaeser needs to find a convincing solution. Look at the oil business, for instance. Many shareholders don't think much of the planned acquisition by Siemens of Dresser-Rand, producer of rotating equipment for the energy industry.
After all, US-based Dresser-Rand mainly produces equipment for the oil and gas sector. When Siemens made its bid of $7.6 billion last fall, a barrel of oil cost above $90 - now the price has dipped to under $50 per barrel. The integration of Dresser-Rand will not be plain sailing for the management.
At the shareholder meeting, Kaeser acknowledged that oil clients could temporarily reduce their investment levels, but he was optimistic for the long haul, saying the acquisition would pay off eventually.
Siemens finance chief Ralf Thomas said there was no need for any write-downs caused by currency exchange factors or revised business prospects. He penciled in 3 million euros in pre-tax, one-off earnings through the sale of the company's household appliances and hearing aid segments.
But there's another issue the firm needs to deal with. The restructuring of its medical technology business could become a major challenge for the company for years. Siemens' multi-million-euro CAT scanners are still highly profitable, but there's no guarantee it'll stay that way forever.
Be it Siemens in Germany, Philips in the Netherlands or Johnson & Johnson in the US - they all fear the rise of Samsung. So far, the South Koreans are no strong competitor on the medical technology market with their consumer electronics and computer chip products. But in a few years from now, things may have changed.
Medical technology a lifestyle product?
Siemens expert Christoph Giesen told the German newspaper Süddeutsche Zeitung that already today a Samsung tablet had enough computing power to be converted into a simple ultrasound unit. "You'd simply have to attach a probe and download an app, and off you go checking your kidneys before going to sleep or watch your unborn child. The rest is marketing, with medical technology being declared a lifestyle product," Giesen argued.
For established producers of medical technology this is certainly a frightening scenario. So far, Siemens had made good money with magnetic resonance imaging. But Kaeser knows that predictive diagnostics to identify people's proneness to diseases is making inroads. Expensive magnetic resonance scanners may only be used for medical checks, Christoph Giesen warns, "making them as profitable as plain office copiers," if used on the basis of mere leasing agreements.
Restructuring to cost jobs
Kaeser said in May last year he'd spin off the medical technology business to be an independent firm. He wants to leave open the option of listing the division on the stock market, if need be. Following talks with the IG Metall union and the staff council, Kaeser promised Siemens would keep a majority stake in such an independent medical technology company.
All in all, the chief executive has launched the biggest restructuring effort at Siemens in years. The new company is to focus on electrification, automation and digitalization in a bid to make bigger strides with the help of its 343,000 employees. But the reorientation drive will take time to produce results.
Kaeser has said from the start that the restructuring process involves layoffs. Just how many jobs will be cut is yet unclear. According to the German business daily Handelsblatt, a special in-house committee is to discuss possible job losses at a meeting in early February. After that, concrete figures might well leak to the press.