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October 12, 2012

Siemens AG Looks to Lower Costs to Remain Competitive in Current Economy

Siemens AG (News - Alert) will be cutting production costs and possibly jobs to remain competitive.

The German-based company wants to excel among its rivals – in spite of current economic conditions.

“We aren't satisfied since we didn't reach our goal of being better than the market and competitors,” CEO Peter Loescher said in a recent statement.

To improve, Siemens will lower its production costs, review businesses which are not generating sufficient profit, and simplify internal business processes, according to the CEO’s statement.

Loescher did say that research and development, administration and sales costs were too high.

Siemens adds that it will achieve one of the best operating results ever during the 2012 year. “Nevertheless, Siemens will likely not meet the ambitious goals it defined for itself within the framework of the One Siemens target system,” the company said in a statement. “By implementing this new program, which will be in effect for two years, the company intends to focus on cutting its costs, boosting its competitiveness and becoming faster and less bureaucratic.”

Siemens will concentrate on five areas: cost reduction, go-to-market issues, simplified company governance, optimizing infrastructure, and strengthening core activities

The company’s four existing sectors – energy, healthcare, industry, and infrastructure and cities – remain in place.

A specific amount the company hopes to save by the changes was not released. Nor were details on the steps. More information may be released when the company releases its quarterly financial results on Nov. 8.

“In 2011 we achieved record results – in a very good market environment,” the CEO added in the statement. “2012 was a more difficult year. The level we are at now, however, is still quite respectable. … As a leading company, we want to be better than the competitors. We don't want to bob along somewhere in the broad masses of the middle field.”

He also blamed the lower 2012 results on the company not “adjusting” to the wider economic conditions in Europe and elsewhere.

In addition, he cited the company’s connecting wind farms in the North Sea and “insufficient profitability in some businesses.” Current company costs are too high and the company needs to respond to changes quicker, he added.

In response to the company’s latest statements, HSBC analyst Michael Hagmann told Reuters (News - Alert) that improving operational efficiency and making acquisitions to improve businesses may not be sufficient since prior similar programs “failed to deliver the desired results," he said.

In other recent news, Siemens was downgraded from Buy to Hold at Societe Generale on Oct. 12, according to TMCnet.

Edited by Brooke Neuman

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