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Siemens soars on spin-off plan
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November 4, 1998: 9:44 a.m. ET
$2.4B restructuring charge sends German conglomerate spinning $1B into the red
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LONDON (CNNfn) - German conglomerate Siemens said Wednesday it plans to divest businesses with 17 billion deutsche marks ($10.2 billion) in sales, and may float its semiconductor businesses.
Analysts applauded the move and the stock soared 13 percent, or 12.7 marks to 114.2.
"It was a bold but necessary move...but now they have to execute," said Doug Smith, analyst from Salomon Smith Barney in London.
Siemens said net profit from operations for the 12 months ending in September rose two percent to 2.66 billion marks.
However, restructuring charges of 4 billion marks ($2.4 billion) wiped out the company's 2.66 billion marks net income on continuing operations and plunged Siemens into the red by 1.74 billion marks ($1.05 billion).
News of the massive restructuring comes just a day after Dutch electronics group Philips said it would close a third of its factories worldwide.
Siemens chief financial officer Heinz-Joachim Neubuerger told CNN the company hoped to concentrate on its core "information-communication related business".
The group's semiconductors, passive components and electron tubes and electromechanical components divisions will be divested and it hopes to list all three as separate companies. Other division will also be sold off.
"We do not currently expect any job losses from these spin-offs," Neubuerger said. "I think for us the main objective is to address strategic and financial issues."
The company blamed the Asia crisis and heavy losses in its semiconductors and transportation divisions for the restructuring. Siemens' worldwide sales climbed 10 percent to 117.8 billion marks over the year.
The downturn in the worldwide semiconductors market led to a 1.2 billion pre-tax loss in that division, compared with a profit of 109 million last year.
Profits in the group's transportation division also plunged while the company increased its risk provision by 900 million, principally because of the fallout from the Asia crisis.
Credit Lyonnais Securities analyst Susan Anthony said the company's earnings figures were "pretty much as expected".
"But in one sense, who cares? It's not about what Siemens did last year, it's about what they can do in the future and in that sense it's encouraging.
"A 4 billion mark restructuring charge is a pretty significant amount and it suggests they are serious about doing something sensible and radical".
But Anthony said the company's disposal program was a little disappointing.
"The company wants to float semiconductors but it won't be able to do that given the supply/demand balance for the DRAM market", she said.
"(The restructuring) is not as focused on certain businesses as we would want to see, but it is early days. They are taking decisions that a year or 18 months ago they would not have done.
"They have clearly understood they can't wait for things to get better in economic terms but have to do things internally to restructure."
The company proposes an unchanged dividend of 1.5 marks per share.
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Siemens
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