Siemens AG president and CEO Dr Klaus Kleinfeld has slapped a ‘not for sale’ sign on its beleaguered IT services subsidiary Siemens Business Services, and is merging it with the company’s other software development units.
From January 2007, SBS will be merged with four other units: Program and System Engineering; Siemens Information Systems Ltd; Development Innovation and Projects; and Business Innovation Center. The group will be renamed Siemens IT Solutions and Services or SIS for short. Its 43,000 employees are expected to generate approximately 5bn euros ($6.3bn) in revenue.
The move comes after months of speculation that loss-making SBS would be sold, with reports of a number of suitors looking at the possibility of taking it off Siemens’ hands if a suitably long-term outsourcing contract was included. The loudest rumors pointed to Atos Origin as the most likely buyer, and one industry source told Computer Business Review in August that the French company was very close to completing a deal, but that talks broke down due to the fact that SBS’s headcount was still too high despite major severance programs.
The German government’s reaction to the closure of a former Siemens subsidiary will have reminded Siemens that politically, if not legally, it cannot easily dodge its responsibility to its employees.
A year ago, Taiwan-based BenQ took over Siemens’ loss-making mobile handset operation with a 350m euros ($439m) sweetener thrown in, but pulled the plug last month, threatening 3,000 jobs. Accusations have been made, as critics have pointed out that the money paid to BenQ was far less than what it would have cost Siemens to shut it down itself. Political pressure, which included phone calls from chancellor Angela Merkel to Kleinfeld, has so far resulted in Siemens’ management putting off their own proposed 30% pay rises, instead setting up a 30m euro ($38m) hardship fund for affected employees. It is hard to imagine the UK or US governments making similar interventions, and highlights the difficulties than German companies have in attempting to embrace offshore outsourcing.
In a conference call that was curiously devoid of any detail as regarding the new group, Kleinfeld simply highlighted the fact that the merger would increase the portfolio of services to its customers, who would benefit from the group’s enhanced IT competencies, and help stabilize margins. SBS had an operating margin target of 5%-6% by April 2007.
Kleinfeld described the merger as a logical continuation of its previous restructuring of SBS which began in September 2005 and aimed to reduce costs by 1.5bn euros ($1.9bn) by the spring of 2007. When challenged as to why he hadn’t before taken what would seem like an obvious step: putting all your IT capabilities in one group, he said, [the merger had been] prepared for over a long period of time…you can’t make this public unless you are ready to do so.
Despite his protestations, the lack of detail made the announcement look like a hasty reaction to its inability to sell the group off, which is not, for now at least, an option. Selling off SBS is no longer an issue as it will form part of this new group, said Kleinfeld. We are not thinking of partial divestments. He also said it was possible that the group could be merged into Siemens rather than remain as a separate legal entity.