Siemens has reported a sharp fall in profit for the fourth quarter of its fiscal year. It made steep losses in its computer services subsidiary and mobile phone manufacturing unit, which it has now sold.
Net income for Siemens' fourth quarter plunged to Euro 77 million ($US93 million as of September 30, the last day in the period being reported) from Euro 654 million in the same period the year before. The figures include discontinued operations such as the mobile phone manufacturing business.
For Siemens' full fiscal year, net income dipped to Euro 2.2 billion from Euro 3.4 billion the year before.
Strong sales in the quarter and for the year were not enough to offset the losses. Sales for the quarter increased to Euro 22.1 billion from Euro 19.6 billion a year earlier, while full-year revenue rose to Euro 75.4 billion from Euro 70.2 billion.
Siemens Business Services (SBS) posted a loss of Euro 427 million for the quarter, compared to a loss of Euro 28 million in the same period a year earlier. The subsidiary ended the fiscal year with a loss of Euro 690 million, compared to a profit of Euro 40 million the year before.
Siemens plans to cut 2400 jobs in the German operations of SBS by 2007. The cuts were part of a program aimed at reducing costs in the IT services unit by Euro 1.5 billion,Siemens CEO, Klaus Kleinfeld, said. The program includes buying services and consolidating back-office operations.
Despite the huge cost cuts, Siemens said it aims to ensure that SBS continues to provide quality services. "It's in our own interest," Kleinfeld said. "Siemens is the largest customer of SBS. Our entire IT infrastructure is managed by this unit."
The Communications (Com) group, which includes all of Siemens' manufacturing activities in the IT and telecommunications areas, saw group profit plummet 81 per cent to Euro 53 million in the quarter from Euro 286 million a year earlier. For the year, group profit slipped 36 per cent to Euro 454 million from Euro 707 million.
Sales in the Com group rose slightly to Euro 3.7 billion in the quarter from Euro 3.6 billion. For the year, sales were up 3 per cent to Euro 13.1 billion from Euro 12.7 billion.
The Com group had, in a sense, become a victim of its own success, after convincing many enterprises to move their communication networks to systems based on the Internet Protocol (IP), he said. While these systems benefit customers by helping them lower their purchasing, installation, maintenance and operating costs, they also bite into revenue streams that the Com group has traditionally generated from providing these services.
Siemens aims to offset some of this lost revenue by offering enterprises the opportunity to outsource their complete communication networks and focus on their core business.
Research and development (R&D) remains a top priority at Siemens, according to Kleinfeld. "We need permanent innovation to stay ahead," he said.
In 2005, Siemens invested Euro 5.1 billion in R&D, Kleinfeld said. The company achieved 75 per cent of its sales with products less than five years old, he said.
Speaking about trends of the future, Kleinfeld mentioned a growing demand for water, energy, security and traffic systems, all of which it manufacturers. Missing from that list were information technology and telecommunications.
In June, Taiwanese electronics maker, BenQ, agreed to take over Siemens' loss-making handset division in return for a payment from Siemens of Euro 250 million. To solidify the deal, Siemens also agreed to purchase a Euro 50 million stake in BenQ. The deal was closed in the fourth quarter.