There are not very many laughs at Siemens these days. Europe’s oldest and most
highly regarded engineer finds itself battered by a vicious recession just
as it recovers from a sharp judicial spanking for bribery and corruption.
Even so, Peter Löscher, its chief executive, had to struggle to prevent his
face from breaking into a grin.
“We sold it to Continental for €11.4 billion in July 2007,” he said. “It” was
VDO, the German company’s automotive components business, and if Mr Löscher
ever lies awake in the middle of night fretting about the burden on his
shoulders — the future of Europe’s biggest engineering company — he can
console himself that he managed to ditch one rotten apple before the maggots
began to wriggle.
Only weeks after Mr Löscher joined Siemens, VDO, which makes electronics for
cars, was hived off for a price that now looks extremely rich. “It was
certainly the best deal ever for the automotive supply industry,” he said.
“It was definitely the peak.”
The collapse of the car industry has since taken its toll on Continental,
which continues to struggle under the burden of the debt finance for VDO,
but it is only one headache less for the Austrian Siemens chief, who, almost
two years ago, walked into a company that was being ripped apart by one of
the biggest bribery scandals in corporate history. The venerable company,
renowned for its engineering excellence in turbines, medical scanners and
high-speed trains, was found to be riddled with networks of corruption in
which Siemens officials paid huge backhanders to secure big equipment
contracts. There were prosecutions in Germany and by the US Justice
Department, and the fines reached $1.6 billion.
The American-groomed Mr Löscher, an alumnus of Merck, the drugs company, and
GE, Siemens’s leading competitor, was hired to clean up the sullied nest. He
set about it with American energy and Teutonic precision, pulling the rug
from under the feet of managers in a mass clearout of Siemens bureaucracy
that affected 17,000 people. For that, Mr Löscher has been rewarded, not
with soaring margins and profits, but with a hideous recession from which he
sees no green shoots, much less robust signs of recovery.
“People are talking about the biggest downturn for 50 years but I think it is
unique in terms of speed and its global aspect,” he said. “For us as a
company, across our businesses, we don’t have any reliable indicators that
we see the bottom of this crisis.”
In the past quarter to the end of March, Siemens’s order intake suffered a
sudden contraction of 10 per cent, with orders from its biggest sector,
Europe, the former Soviet Union and the Middle East, shrinking by 20 per
cent. America was also down by a fifth and only Asia was positive, mainly
after a $1 billion (£607 million) order for trains in China.
If some British forecasters are celebrating the joys of spring, the view from
Munich is rather more autumnal. Mr Löscher says that there might be small
pockets of activity but that the general climate is depressed, with no
relief in sight. He points to the VDMA index, a survey of purchasing
managers among Germany’s core mid-sized industrial companies, the
Mittelstand, which forms the backbone of Siemens’s domestic business.
“In February the VDMA was pointing to a 49 per cent order decline,” he said.
“In March it was 37 per cent down, so there you could say there was a green
shoot and a trend line change. Unfortunately, the last one was 57 per cent
down, so we see we are bouncing around but not any indicators that we have
seen the bottom.”
Mr Löscher does not share the anxiety of Angela Merkel, the German Chancellor,
who recently upbraided the European Central Bank over lax monetary
discipline and the risk of stoking a future inflationary boom. He believes
that if there are opportunities for Siemens at the moment, it is because of
government intervention in shoring up the economy.
“It was a near-death experience for capitalism,” he said. “This is what
governments had to tackle. And I am extremely positive how this reaction
actually happened.”
Shorn of its automotive division, Siemens has set out its stall in energy,
transport and diagnostic healthcare. The first two, he believes, are well
placed to profit from stimulus packages, such as China’s massive rail
infrastructure programme and President Obama’s $8 billion of seed capital
for high-speed rail networks in the United States. “There is a technology
aspect, a growth aspect, but also a modernisation agenda,” Mr Löscher said,
pointing to Siemens’s push into renewable energies alongside its
conventional gas turbine business, notably wind turbines — the company is
the biggest supplier of offshore windmills in Britain — and solar power.
Siemens is planning to ramp up its investment in wind turbines in the UK in
anticipation of a big expansion in offshore wind farms after the
Government’s decision to increase subsidies for renewable energy. It wants
to build up capacity after the retreat of Vestas, a rival: in April the
Danish wind turbine manufacture said that it would close its factory at
Newport on the Isle of Wight. Vestas cited a lack orders for its decision to
shut the factory, which made turbine blades and employed 700 people.
Since Vestas withdrew, the Government has increased the subsidy available to
wind energy projects by about £500 million over the next two years and the
London Array, a big, mothballed project, has come back on stream. Siemens is
supplying turbines for the 600-megawatt first phase of the Array, which will
cost €2.2 billion (£1.9 billion). being built by E.ON, of Germany, Dong
Energy, of Denmark, and Masdar, the Abu Dhabi energy fund.
Siemens employs about 5,000 people in the energy sector in the UK, of whom
about 300 are in the wind business, which is believed to have an order book
of about £2 billion. Siemens is not manufacturing turbines in the UK and has
no immediate plans to do so. The company makes turbines in Denmark and
Germany, but another plant may be needed to meet burgeoning demand for
windmills.
Although Mr Löscher can wax lyrical about windmills, smart electricity grids
and the next generation of photovoltaic cells, he remains tight-lipped about
the company’s most interesting and controversial venture. In February,
Siemens agreed to establish an alliance with Rosatom, the Russian nuclear
power engineer. The Germans had done piecemeal co-operation on nuclear
projects with Russia, but this would be a full-scale joint venture.
According to Mr Löscher, the objective was to combine Russian nuclear knowhow
with Siemens’s expertise in turbine technology and electronic control and
safety systems to become one of the world’s leading nuclear suppliers. With
400 nuclear power projects in the pipeline worldwide, Siemens cannot afford
to miss out, he believes.
However, the German company is already locked into a relationship with Areva,
the French nuclear engineer, with a 34 per cent shareholding in Areva NP,
formerly Framatome. Siemens proudly announced its Russian engagement at the
beginning of March, with a half-share in a Rosatom-Siemens joint venture —
Vladimir Putin dubbed it a commercial marriage “for the ages” — but Areva
was not amused. A day after the Rosatom engagement, the French engineer
accused Siemens of betrayal and breach of contract.
The point about all this is timing and the rapidly changing public mood about
nuclear power. When Siemens bought into the Framatome joint venture in 2001,
it was trying to find an exit strategy from a business that looked
distinctly tired. Public opinion in most of Europe, other than in France,
was pitted against fission. The German Government has declared that it will
shut down all its nuclear power stations by 2022, so Siemens was happy to
park its nuclear interests with the French in an arrangement that envisaged
that, from January 2009, Areva would have the option of buying out Siemens’s
shareholding and a continuing option would trigger each January in
subsequent years.
“It was purely financial,” Mr Löscher said. “In the meantime
we have reassessed the growth potential for the nuclear business and, under
today’s assessment, we strongly believe that nuclear is a long-term growth
opportunity.”
So does Mr Putin: “We are ready to switch from single-piece projects to the
realisation of full-scale co-operation between Siemens and Rosatom, so that
the companies could actively work in Russia, Germany and on the market of
Third World countries.”
If the Russian Prime Minister seems not to have noticed that Germany is
committed to shutting down its nukes, Mr Löscher is well aware of the
closure date. He said: “This is a political decision that depends on the
German Government. Their position is clear, there is a date and that is the
position. I would not want to speculate on the potential position of a
future government.”
He insists that under no circumstances will Siemens violate its contractual
obligations to Areva.
Nudging Berlin towards a different mindset is a subtle business, but changing
the culture at Siemens was swift and brutal — and about more than mere
headcount and overheads. Few will have been surprised that in his clear-out,
this American-trained manager wanted to impose a top-down
command-and-control US management style on a European world of committees,
hierarchies and personal empires. Two layers of management were swept away
and a cadre of lieutenants appointed to run Siemens with direct
responsibility to Mr Löscher.
For his part, Mr Goss is delighted with his new authority. He adds the telling
comment that the new management clarity and directness has its good and bad
sides. You don’t always get the answer you want to hear: “It’s clarity with
a ‘yes’ and clarity with a ‘no’. It’s not always pleasant but very simple —
and it’s refreshing.”
CV
Born September 17, 1957, in Villach, Austria
Education Studied economics at Vienna University and at Chinese
University of Hong Kong. Advanced Management Programme, Harvard Business
School
Career First job was in management consulting with Kienbaum Consulting
Group, after which he joined Hoechst, spending 14 years with the chemical
group. In 2002 he became chief executive of Amersham, later acquired by
General Electric. In 2006 he joined Merck as president of human health
division. He became president and chief executive of Siemens in July 2007
Family Married with three children, he enjoys tennis, sailing and
skiing and collects contemporary art, mainly large sculptures
