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Company Analysis: Siemens AG 1
Company Analysis: Siemens AG
India Kee
BUSA 4995: Strategic Management
Company Analysis: Siemens AG 2
Executive Summary
Siemens AG is a large and diverse company with a 160-year history. It competes mainly
in industrial products, energy production, and medical solutions. It has facilities in over 140
countries in 15 divisions, providing it with an impressive market presence and plenty of
resources to support its commitment to innovation – its main core competency. Despite this, its
financial position, as measured by common ratios, is only average. To improve its position, it
needs to focus on reducing costs and increasing net income.
Siemens also has some problems it needs to overcome in its corporate environment. One
change that needs to be made is in its attitude towards ethics. Several of its key executives are
being investigated in conjunction with a bribery scandal. The new CEO, Peter Löscher, has
made progress toward changing corporate attitudes in this regard. Another change that needs to
be made is in the composition of the pool of key executives. Currently, they are almost all white
German males. Perspectives from different cultures would greatly benefit Siemens in its quest to
help define the future of its industries. All things considered, Siemens is in a relatively good
place in the market, with few exceptions.
Company Analysis: Siemens AG 3
Contents
1.0 Company Description.............................................................................................................41.1 Company History..............................................................................................................41.2 Company Ownership........................................................................................................51.3 Key Executives.................................................................................................................51.4 In the News.......................................................................................................................5
2.0 Markets & Subsidiaries...........................................................................................................52.1 Geographical Segments....................................................................................................62.2 Business Segments............................................................................................................62.3 Strategic Equity Investments............................................................................................7
3.0 SWOT Analysis......................................................................................................................83.1 Strengths...........................................................................................................................83.2 Weaknesses.......................................................................................................................83.3 Opportunities.....................................................................................................................93.4 Threats...............................................................................................................................9
4.0 Financial Analysis.................................................................................................................104.1 Income Statement Analysis.............................................................................................104.2 Balance Sheet Analysis...................................................................................................114.3 Sector Financial Analysis...............................................................................................114.4 Financial Ratio Analysis.................................................................................................12
5.0 Conclusions...........................................................................................................................13References...................................................................................................................................14Appendix A: Siemens’ Locations Worldwide...........................................................................16
Figures & Tables
Figure 1. Siemens’ Stock Price from September 15-October 13, 2008.....................................10Figure A-1. Locations of Siemens Facilities..............................................................................16Table A-1. Siemens Locations by Continent.............................................................................17
Company Analysis: Siemens AG 4
Company Analysis: Siemens AG
1.0 Company Description
Siemens AG is a global enterprise that was founded in Germany in 1847. It is comprised
of 15 divisions, from production automation to real estate. Five are in the Industry Sector. Two
are in the Energy Sector. One is in the Healthcare Sector. There are also seven other divisions
and strategic equity investments, described more fully under section 3.2 (Business Segments).
1.1 Company History. Telegraphen-Bauanstalt von Siemens & Halske was founded in
1847 by scientist Werner von Siemens and mechanical engineer Johann Georg Halske to
manufacture a new pointer telegraph. Its first expansion outside of Germany came in
1853, when it began work on a telegraph network in Russia. This led to Siemens’ presence in St.
Petersburg, Russia, in 1855, under Carl von Siemens. Operations were also established in
Britain under Wilhelm von Siemens. By 1914, one quarter of Siemens & Halske’s total
workforce was located outside of Germany (Siemens AG, 2008).
Siemens’ expansion was halted and largely reversed as a result of World War II. During
the war, Siemens lost its foreign assets and saw many of its German facilities destroyed by
Allied air raids. In total, the damage resulted in a loss of four-fifths of its total assets. Siemens
did not fully recover until the 1950s, when it regained its foreign assets and began to rebuild its
international sales. In 1966, to help strengthen Siemens’ market position, the three companies
under its umbrella – Siemens & Halske AG, Siemens-Schuckertwerke AG, and Siemens-
Reiniger-Werke AG – merged to form Siemens AG. The seven business units that resulted were
in a centralized corporate structure with combined annual sales of DM 10 billion (Siemens AG,
2008), or approximately USD 2.5 billion (Marcuse, 2005). In 1990, Siemens decentralized its
operations into 15 largely autonomous units. The company maintains this structure today.
Company Analysis: Siemens AG 5
1.2 Company Ownership. Siemens is a publicly-held company with 876.9 million
shares outstanding (E*Trade, 2008). All shares are no par value common stock with a notional
value of €3.00, which was approximately $3.75 per share on October 28, 2008 (XE.com, 2008).
Of this, 79,133 shares were held by members of the Managing Board (Siemens, 2007, p. 97). No
figures were available for the number of shares held by members of the Supervisory Board.
1.3 Key Executives. The operations of Siemens are overseen by the Managing Board
and the Supervisory Board, in accordance with German corporate law. The Managing Board is
comprised of 11 members, while the Supervisory Board has 20 members. Shareholders elect
half of each Board. Peter Löscher, President and CEO of Siemens AG, chairs the Managing
Board, while Dr. Gerhard Cromme chairs the Supervisory Board. Each Sector has its own CEO.
Heinrich Hiesinger, Dr.-Ing., is the Industry CEO; Wolfgang Dehen, Dipl.-Kfm., is the Energy
CEO; and Jim Reid-Anderson is the Healthcare CEO (Siemens AG, 2008).
1.4 In the News. Siemens has been in the news frequently over the past year for ethical
issues: some of its key executives, including former CEO Dr. Klaus Kleinfeld, have been forced
to resign because they were involved in bribery schemes. However, its endeavors into organic
light-emitting diodes have also made the news; Siemens and two major competitors, Philips and
General Electric, have invested into this new light source (Svensson, 2008). Siemens is also
involved in repairing and restoring Iraq’s electricity grid (Associated Press, 2008).
2.0 Markets & Subsidiaries
Siemens has many divisions located throughout the globe. As mentioned earlier, it
competes in several different markets, which gives it flexibility in strategic planning and the
ability to spread its risk. This section gives a brief overview of Siemens’ worldwide operations.
Company Analysis: Siemens AG 6
2.1 Geographical Segments. Siemens has facilities in over 140 countries. They operate
in nearly all of Europe, all 50 states in the United States, and many countries in the Americas,
Africa, the Middle East, and the Asia-Pacific region. A map and a complete list of countries in
which Siemens operates is located in Appendix A. Different locations have different focuses:
for example, Siemens in Iraq is reconstructing the energy infrastructure there, while Siemens’
African operations focus on medical and communication technologies (Siemens AG, 2008).
2.2 Business Segments. Excluding strategic equity investments, Siemens has 12
business divisions. Eight of these divisions are categorized into the Industry, Energy, and
Healthcare Sectors. The remaining four are standalone units under the Siemens umbrella.
In the Industry Sector, there are five divisions. Automation and Drives offers “solutions
for the manufacturing and process industries, and electrical installation technology” (Siemens,
2007, p. 53). Industrial Solutions and Services uses other Siemens products to “operate and
maintain plants and facilities for customers” (ibid, p. 54). Transportation Systems provides
“comprehensive transportation solutions” (ibid, p. 55). Siemens Building Technologies “is a
service provider, systems integrator and product manufacturer” for automation and safety
products (ibid, p. 56). OSRAM “creates lighting solutions…[including] lamps and
optoelectronic semiconductor light sources” (ibid, p. 57). Together, these five divisions provide
five different focuses. It is likely that any adverse risk incurred in one division is offset by
positive returns in one or more of the other divisions. Also, since the Industry Sector provides
roughly 50% of Siemens’ total revenue and profit and the majority of new orders (ibid, p. 208-
209), it can absorb adverse effects from other Sectors, at least to some degree.
In the Energy Sector, there are two divisions. Power Generation “builds…power
plants…and control technologies for…air pollution control” (Siemens, 2007, p. 62). Power
Company Analysis: Siemens AG 7
Transmission and Distribution provides “innovative, efficient solutions for power transmission
and distribution” (ibid, p. 63). These two divisions provide over 25% of Siemens’ total revenue
and profit. Power Generation also had the highest number of new orders by division in fiscal
2007, meaning that it is growing in size and potential productivity gains (ibid, p. 208).
In the Healthcare Sector, there is only one division. Medical Solutions has “a broad and
innovative portfolio of diagnostic and therapeutic solutions, clinical IT and audiology
technologies” (Siemens, 2007, p. 69). It accounts for approximately 13% of Siemens’ total
revenues and profits and almost 12% of new orders (ibid, p. 208-209).
The other four divisions are not categorized. Siemens IT Solutions and Services offers
“consulting, systems integration and IT infrastructure management” (Siemens, 2007, p. 70).
Siemens Home and Office Communication Devices “develops and produces high-quality
products for home communications” (ibid, p. 71). Siemens Financial Services provides
“business-to-business financial solutions” (ibid, p. 72). Siemens Real Estate “plans, builds,
finances, develops and operates Siemens facilities” (ibid, p. 73). These divisions make up almost
11% of revenue, but less than 1% of profit (ibid, p. 208-209). The results from these divisions
are likely negligible within the scale of Siemens’ total financials, but the fact that Siemens still
invests in them illustrates that they have a large enough pool of resources to be able to sustain
operations with less than optimal profits.
2.3 Strategic Equity Investments. Siemens has entered into three joint ventures with
other companies. All of these joint ventures are classified as non-consolidated subsidiaries under
IAS 27, and as such are not included in Siemens’ financial statements. Bosch und Siemens
Hausgeräte GmbH (BSH) is a 50/50 joint venture with Bosch that is “the world’s third-largest
manufacturer of household appliances” (Siemens, 2007, p. 74). Fujitsu Siemens Computers is
Company Analysis: Siemens AG 8
“Europe’s leading IT manufacturer” (ibid, p. 75). Nokia Siemens Networks is “one of the top
three players in today’s telecommunications industry” (ibid, p. 76).
3.0 SWOT Analysis
Siemens is a very large and complex company; therefore, a comprehensive SWOT
analysis is beyond the scope of this report. A brief snapshot of the company’s strategic position
is presented in this section.
3.1 Strengths. Siemens is a large company with a formidable market presence. It has
operations in 147 different countries throughout Europe, Asia, Africa, Oceania, North America,
Central America, and South America (Siemens AG, 2008). This extensive worldwide presence,
coupled with its three separate Sectors, ensures that it has many diverse markets throughout
which to spread its risks. Additionally, one of its core competencies is innovation. Creating new
products requires a large amount of resources, including capital, human workers, facilities, and
managerial willingness to take on risk. Because of Siemens’ size, both physically and
financially, it can commit the time and resources necessary to provide new products to the
market and ensure future growth. To illustrate this point, during fiscal year 2007, Siemens spent
€3,399 million on research and development – its largest expense after selling, general, and
administrative expenses, and 21.5% of total expenses before income tax (Siemens, 2007, p. 201).
3.2 Weaknesses. The most obvious weakness that Siemens has to overcome is a
corporate environment that does not discourage bribery. As of July 31, 2008, “prosecutors are
investigating almost 300 former and current Siemens executives” connected with alleged corrupt
practices (Schafer & Williamson, 2008, p. 17). Among those targeted are former CEOs Dr.
Klaus Kleinfeld, who served from early 2005 until his resignation on June 30, 2007, and his
immediate predecessor, Dr. Heinrich von Pierer, who served from 1992 until 2005 (Siemens AG,
Company Analysis: Siemens AG 9
2008). Siemens is taking steps to remedy its ethical problems, including increasing its
transparency and prosecuting the managers involved, so within a relatively short period of time,
this should no longer be an issue. Another weakness of Siemens, however, is lack of diversity in
management. After Peter Löscher took over from Dr. Kleinfeld, he stated in an interview that
“the management board are all white males. Our top 600 managers are predominantly white
German males. We are too one-dimensional” (Milne, 2008, p. 18). To remedy this, Löscher has
instituted a mentor program, allowing young minority managers the opportunity to be mentored
by senior managers in an effort to increase diversity (ibid).
3.3 Opportunities. Thanks to its commitment to innovation, Siemens is in an excellent
position to compete in its chosen fields as technology evolves. Its OSRAM division, for
example, has recently developed “extremely efficient, long-life light emitting diodes,” for which
it won the German Future Prize (Siemens, 2008). As Siemens continues to create innovative
new products, it will enter into new markets that have not even been thought of today, providing
growth opportunities for the company. Siemens has many goals that it believes it can achieve
during the next decade. For example, by 2020, Siemens hopes to provide electricity to the
world’s current emerging markets, such as China, and is committed to reducing CO2 emissions to
the lowest level possible. It also strives to produce complex, yet individualized, products for
clients while minimizing costs (ibid).
3.4 Threats. Because Siemens is mostly in high-tech industries, it is somewhat more
susceptible to adverse economic conditions than a company that provides products that are
considered more necessary to customers. Its Medical Solutions division is especially vulnerable,
and company CEO Peter Löscher has “predicted market conditions will continue to be ‘difficult’
for the next six to 12 months” (Esterl, 2008, p. B.2). The recent economic crisis has also had a
Company Analysis: Siemens AG 10
negative effect on Siemens’ stock price
over the past month, as shown in Figure
1. Siemens stock dropped to a low
point of $59.35 on October 10. This
was about 63% lower than its 52-week
high of $160.37 on December 28, 2007
(NYSE, 2008).
Though Siemens’ large size is an advantage in many ways, it is also a potential liability.
It is not economically feasible for it to be completely focused in one or more particular areas.
Therefore, that opens the door for a competitor with a focused strategy to come into the market
in a specific area and undercut Siemens’ market share, either by charging a lower price or by
offering a differentiated product. To mitigate this threat, Siemens must constantly monitor the
activities of its competitors and maintain its core competency of innovation.
4.0 Financial Analysis
Much information can be gleaned from looking at Siemens’ financial statements. For the
sake of comparability, this discussion will rely on statements that have been common-sized per
the procedures outlined by Stice, Stice, and Skousen (2007, p. 1272-1274).
4.1 Income Statement Analysis. Horizontal analysis of the comparative income
statement for fiscal years 2007 and 2006 shows first and foremost that net income increased from
5.0% of revenue to 5.6%. This resulted from a decrease in cost of goods sold (from 73.9% in
2006 to 71.2% in 2007) along with selling and general administrative expenses (from 17.9% in
2006 to 16.7% in 2007). Research and development expenses, the cornerstone of Siemens’ main
core competency, stayed constant at 4.6% of revenue (Siemens, 2007, p. 200).
Figure 1. Siemens’ Stock Price from September 15-October 13, 2008
(NYSE, 2008).
Company Analysis: Siemens AG 11
At this point, it is instructive to draw comparisons with General Electric (GE), one of
Siemens’ top competitors. While GE has a gross profit margin of 57.7%, Siemens’ margin is
only 28.8%. GE also has a higher percentage of net income, at 12.9% of revenues for fiscal 2007
(GE, 2007, p. 64); Siemens’ net income is only 5.6% of revenues. While this is not a completely
fair comparison, it shows that Siemens might consider implementing cost-cutting measures to
decrease its expenses and therefore increase its net income.
4.2 Balance Sheet Analysis. Siemens’ consolidated balance sheets for fiscal years 2007
and 2006 show first a drastic decrease in cash, from 15.4% of revenue to just 5.5%, meaning that
Siemens reduced its excess cash reserves. Trade receivables decreased slightly as well, from
22.8% to 20.2%, indicating that customers are paying more quickly this year. Inventories also
decreased from 19.2% to 17.8%, which would also reduce inventory carrying costs. Property,
plant, and equipment (PPE) decreased from 18.2% to 14.6%, meaning that it took only 14.6 cents
of PPE to generate one dollar of sales this year. Total assets were 126.4% of sales, meaning that
each dollar of sales requires about $1.26 in assets (Siemens, 2007, p. 202).
Again drawing comparisons to GE, one can see that Siemens holds less cash than GE,
which has cash of 9.1% of revenue. GE holds less in inventory at 7.5%, which indicates that it
spends less on carrying costs. GE uses PPE at 45.1 cents per dollar of sales. Most striking,
though, is GE’s total assets, expressed as a percentage of revenue. GE requires $4.60 to generate
$1.00 in sales (GE, 2007, p. 66). Siemens is using its assets much more efficiently.
4.3 Sector Financial Analysis. Siemens competes in multiple markets and industries.
This analysis will consider only the three core industries: Industry, Energy, and Healthcare.
The main Industry products are customized motors, Sinteso fire safety systems,
wastewater treatment products, and high-speed trains (Siemens AG, 2008). Total Industry
Company Analysis: Siemens AG 12
revenues amounted to €38,487 million – 50.3% of total revenue (Siemens, 2007, p. 208). Total
Industry profits amounted to €3,542 million – 54% of total profit (ibid, p. 209).
The main Energy products are industrial gas turbines, wind turbines, HVDC long-
distance transmission systems, and power measurement devices (Siemens AG, 2008). Total
Energy revenues amounted to €19,883 million – 26% of total revenue (Siemens, 2007, p. 208).
Total Energy profits amounted to €1,797 million – 27.4% of total profit (ibid, p. 209).
The main Healthcare products are single-source CT scanners, laboratory automation
products, syngo workflow optimization suite, and hearing aids (Siemens AG, 2008). Total
Healthcare revenues amounted to €9,851 million – 12.9% of total revenues (Siemens, 2007, p.
208). Total Healthcare profits amounted to €1,323 million – 20.2% of total profit (ibid, p. 209).
4.4 Financial Ratio Analysis. Analyzing a firm’s financial ratios help “identify
deficiencies and…evaluate [its] financial position” (Brigham & Houston, 2007, p. 102).
Accordingly, this section will show analyses of four of the most common financial ratios. All
ratios come from E*Trade’s analysis (2008).
The most important ratio is return on equity (ROE), which is net income divided by
common equity. This tells stockholders “the rate they are earning” on their invested capital
(Brigham & Houston, 2007, p. 102). Siemens’ ROE is 13.06%. This is average for its industry
and below competitor GE’s ROE of 18.69%. This reinforces the point in section 4.1 that
Siemens should attempt to increase its net income.
The current ratio shows the ability of a company to cover its current liabilities (CL) with
current assets (CA). Siemens could pay its current liabilities 1.17 times, which is significantly
below average. If Siemens were forced to pay all of its CL, it could do so, but it would have to
liquidate CA at close to their book value. A similar measure is the quick ratio, which shows the
Company Analysis: Siemens AG 13
ability to pay CL with CA less inventories (the least liquid of CA). Siemens’ quick ratio is
0.78x, which means it could not pay its CL without liquidating part of its inventory.
The price/earnings (P/E) ratio “shows how much investors are willing to pay per dollar of
reported profits” (Brigham & Houston, 2007, p. 102). Siemens’ P/E ratio is 11.91x, average for
its industry. That means that investors view Siemens as no riskier than its competitors, with
average growth prospects.
5.0 Conclusions
Siemens is a strong competitor with a large market presence in Industry, Energy, and
Healthcare. Its earnings are solid and it is managing its risk well. Its main financial issue is
controlling costs and increasing net income. In its business planning, it needs to maintain a focus
on research and development to maintain competitiveness. Its personnel in top management
would benefit from increased diversity and points of view from natives of countries besides
Germany, along with a corporate culture that emphasizes ethical behavior. Siemens is on the
path to continued success, and if it persists in this direction, it will remain an excellent company
and a good investment for shareholders.
Company Analysis: Siemens AG 14
References
Associated Press (2008, September 28). Iraqi Christians protest new election law. Retrieved on
October 14, 2008, from http://www.msnbc.msn.com/id/26929108/.
Brigham, E. F., & Houston, J. F. (2007). Fundamentals of Financial Management. Mason, OH:
Thomson Higher Education.
E*Trade (2008). Siemens AG Sponsored ADR. Retrieved on October 12, 2008, from
https://www.etrade.wallst.com/v1/stocks/snapshot/snapshot.asp.
Esterl, M. (2008, July 31). International Business: Siemens Posts Sharp Drop in Net; Orders
Increase, But CEO Projects ‘Flattening Growth’ [Electronic version]. Retrieved on
October 5, 2008, from ProQuest.
GE (2007). GE Annual Report 2007. Menlo Park, NY: GE.
Marcuse, H. (2005). Historical Dollar-to-Marks Currency Conversion Page. Retrieved on
October 12, 2008, from http://www.history.ucsb.edu/faculty/marcuse/projects/
currency.htm.
Milne, R. (2008, June 25). Siemens too white, German and male, says chief [Electronic version].
Retrieved on October 5, 2008, from ProQuest.
NYSE (2008). Siemens AG. Retrieved on October 14, 2008, from http://www.nyse.com/about/
listed/lcddata.html?ticker=SI&fq=D&ezd=1M&index=3.
Schafer, D., & Williamson, H. Executives feel fallout from Siemens bribery case [Electronic
version]. Retrieved on October 5, 2008, from ProQuest.
Siemens (2007). Annual Report 2007. Berlin, Germany: Siemens AG.
Siemens (2008). Pictures of the Future: Spring 2008. Berlin, Germany: Siemens AG.
Company Analysis: Siemens AG 15
Siemens AG (2008). Siemens AG – Global Web Site. Retrieved on October 12, 2008, from
http://www.siemens.com.
Stice, J. D., Stice, E. K., & Skousen, K. F. (2007). Intermediate Accounting. Mason, OH:
Thomson Higher Education.
Svensson, P. (2008, October 10). Plastic film could make house lights obsolete. Retrieved on
October 14, 2008, from http://www.msnbc.msn.com/id/27116343/.
XE.com (2008). Universal Currency Converter. Retrieved on October 28, 2008, from
http://www.xe.com/ucc/.
Company Analysis: Siemens AG 16
Appendix A: Siemens Locations Worldwide
Figure A-1. Locations of Siemens Facilities.
Company Analysis: Siemens AG 17
Table A-1. Siemens Locations by Continent.Europe:AlbaniaAustriaBelarusBelgiumBosnia/HerzegovinaBulgariaCroatiaCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIcelandIrelandItalyLatviaLithuaniaLuxembourgMacedoniaMoldovaNetherlandsNorwayPolandPortugalRomaniaRussiaSerbia & MontenegroSlovakiaSloveniaSpainSwedenSwitzerlandUkraineUnited Kingdom
Asia:AfghanistanArmeniaAzerbaijanBahrainBangladeshBruneiCambodiaChinaCyprusGeorgiaHong KongIndiaIndonesiaIsraelJapanJordanKazakhstanKoreaKuwaitKyrgyzstanLebanonMacaoMalaysiaMyanmarNepalOmanPakistanPhilippinesQatarRussiaSaudi ArabiaSingaporeSri LankaSyriaTaiwanThailandTurkeyTurkmenistanUnited Arab EmiratesUzbekistanVietnamYemen
North America:CanadaMexicoUnited States
Central America:Costa RicaEl SalvadorGuatemalaHondurasNicaraguaPanama
Caribbean:CuraçaoDominican RepublicJamaicaMartiniqueMauritiusTrinidad and Tobago
South America:ArgentinaBoliviaBrazilChileColombiaEcuadorParaguayPeruUruguayVenezuela
Oceania:AustraliaNew Zealand
Africa:AlgeriaAngolaBeninBotswanaBurkina FasoCameroonCentral African RepublicChadDR of the CongoEgyptEquatorial GuineaEthiopiaGabonGambiaGhanaGuineaGuinea-BissauIvory CoastKenyaLesothoLiberiaLibyaMalawiMaliMoroccoMozambiqueNamibiaNigerNigeriaRwandaSenegalSierra LeoneSouth AfricaSwazilandTanzaniaTogoTunisiaUgandaZambiaZimbabwe