Siemens Seeking Partners for Communications Division but no Plans to Sell

Following reports in the German press last week that Siemens was rumoured to be in discussion with both Nokia and Avaya with a view to offloading their communications division their CEO, Klaus Kleinfeld, met with employees and told them he is seeking partners for a range of businesses within the Communications (COM) unit, but that has no current plans to sell it outright.

The German union IG Metall reported on its website that Kleinfeld told the workers Siemens is ‘negotiating from a position of strength’ in the partnership talks.

Kleinfeld did not name any companies with which Siemens is currently in negotiations, and he did not provide a timeframe for forming the partnerships.

According to an internal company target, COM must achieve an operating profit margin of 8-10 pct by April, 2007. In the 2005 fiscal year COM’s operating profit margin was 3.5 pct.

Kleinfeld told the workers the company remains committed to this profit margin target.

Reports appeared earlier this month in the German press stating Kleinfeld intended to break up COM, and that it has already held sale and partnership talks with Nokia Corp, Avaya and other industry rivals.

Kleinfeld told works council members that Siemens was clearly committed to the COM unit. As proof he cited the fact that the conglomerate continues to spend almost a third of its total R&D budget there.

But he noted that Siemens management has been trying to turn COM around for a long time.

‘Now, it is time to do it,’ Kleinfeld told the workers.

Since taking over as chief executive in 2005, Kleinfeld has taken significant steps to improve the COM unit’s overall performance, including divesting the loss-making mobile handset unit. However, the unit continues to struggle despite these measures.

In the 2006 fiscal first quarter through end-December, COM’s operating profit fell to 323 million Euros, down 13 pct from 372 million Euros the previous year.

However, analysts noted that excluding a one-time gain from the sale of Juniper Networks shares, the COM unit was in the red.

COM is Siemens largest unit in terms of sales. Its 2005 revenue totalled 13 billion Euros.