Siemens’ IT services unit has announced plans to cut 2,400 jobs.
Siemens Business Services (SBS), which ranks as Europe’s fifth-largest indigenous IT services vendor, has consistently been one of the biggest under-performers within the Siemens empire, struggling to make a profit despite winning a string of high-profile infrastructure outsourcing deals in recent years.
The electronics giant chose the day that the results of Germany’s parliamentary elections were announced to confirm that it would be cutting up to 2,400 jobs from its domestic business. Germany has long been SBS’s main problem area because it has failed to reduce capacity to match the lower demand caused by the country’s general economic malaise of recent years.
SBS expects to make E1.5 billion ($1.8 billion) in cost savings by 2007 through job cuts and by selling off some of its businesses. Siemens also said it is making organizational changes at its loss-making logistics and assembly systems, and enterprise networks divisions.
Despite a widespread recovery in IT services investment in the last 12 months, SBS has failed to improve its bottom line. In its third fiscal quarter ending June 30, 2005, SBS widened its pre-tax loss to E109 million ($132 million) from E2 million ($2.4 million) in the year-ago quarter.
The future of SBS is of serious concern to organizations such as the BBC, Barclays, Morgan Stanley, and the Welsh Assembly, which have all recently entered long-term deals with the supplier to manage their IT and back-office functions.
SBS has also been named as a potential takeover target for Atos Origin SA, which is looking to build up its German operation, although Atos is reportedly involved in merger talks with SBS’s great domestic rival, T-Systems.
While SBS’s relatively successful UK operation would be an attractive target for any services vendor looking to build up a solid base of high-profile outsourcing clients in the government and commercial sectors, potential suitors will be wary of approaching SBS until it gets its domestic house in order.
