$16.1 Billion ($111.6B total)
KEY EXECUTIVES:
Peter Loscher, President and CEO, Siemens AG
Hermann Requardt, President and CEO, Siemens Healthcare
Michael Sen, CFO, Siemens Healthcare
Donal Quinn, CEO, Siemens Healthcare, Diagnostics
Bernd Montag, CEO, Siemens Healthcare, Imaging and IT
Tom Miller, CEO, Siemens Healthcare, Workflow and Solutions
NO. OF EMPLOYEES: 49,000 (427,000)
GLOBAL HEADQUARTERS: Munich, Germany
Fiscal year 2008 was a transformational one for Siemens. Not only did the global electronics and electrical engineering firm simplify its management structure, it also bundled its operations into three sectors (Industry, Energy and Healthcare), and launched a program to reduce its general, sales and administrative costs. In addition, Siemens reorganized its worldwide business activities by forming 20 regional clusters.
“In short, in fiscal 2008, we successfully implemented the most extensive company-wide restructuring
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program ever executed in the history of Siemens,” Peter Löscher, president and CEO, told shareholders in a letter published in the company’s 2008 annual report. “This achievement will enable us to continue meeting our targets for sustainable, profitable growth—even in a difficult economic environment.”
Despite the “difficult” economic environment, Siemens experienced significant growth during fiscal 2008 (ended Sept. 30). Revenue climbed 7 percent to $111.6 billion, while net income totaled $8.5 billion, a 47 percent increase compared with the $5.76 billion the company reported in fiscal 2007.
Total sectors profit—a measure of the combined profit from Siemens’ three sectors—reached $9.42 billion, a miniscule decrease of 0.84 percent compared with the $9.5 billion reported in fiscal 2007 (the decrease becomes slightly more significant—2 percent—when Euros are used instead of U.S. dollars).
Executives noted the decrease was kept to a minimum despite the incurrence of more than $1.4 billion in project charges at the Fossil Power Generation and Mobility divisions, as well as $469 million in costs related to transformation programs in the Healthcare sector and Mobility division.
Siemens’ Healthcare sector posted a profit of $1.76 billion in 2008, a 6.3 percent decrease compared with the $1.88 billion in profit the sector generated in 2007. Company officials attributed the decline to reducing costs and $251 million in transformation expenses associated with refocusing certain business activities within the Imaging & IT and Workflow & Solutions divisions. These costs reduced the Healthcare sector’s profit margin by about 150 basis points.
Revenue in the Healthcare sector totaled $16.1 billion in fiscal 2008, a 14.7 percent increase compared with the $14.059 billion generated in 2007. About half of the revenue—$7 billion—was generated in North and South America, a 7.4 percent jump compared with the $6.533 billion in revenue generated in that region in fiscal 2007. The next largest revenue source generator was Europe, the Commonwealth of Independent States (C.I.S., comprising Russia and 11 former Soviet republics) and Africa. Those regions brought in $6.28 billion in revenue to Siemens, a 22.5 percent increase compared with the $5.132 billion the areas raised in 2007. Siemens made $2.75 billion in revenue in Asia, Australia and the Middle East and $1.41 billion in Germany in 2008.
Revenue fell 2.3 percent in the Imaging & IT division, going from $10.08 billion in fiscal 2007 to $9.841 billion in 2008. The Workflow & Solutions division posted a slight gain of 1.03 percent, as revenue rose to $2.15 billion. But the sector’s most significant increase occurred within the Diagnostics division, where revenue more than doubled, going from $2.21 billion in fiscal 2007 to $4.6 billion in 2008.
Company executives attributed the surge in Diagnostics division revenue, as well as the increase in overall Healthcare sector revenue, to the $7 billion acquisition of Dade Behring Holdings Inc. in the first quarter of fiscal 2008. At the time of its purchase, the Deerfield, Ill.-based Dade Behring had operations in 35 countries and served more than 25,000 customers worldwide. The firm develops clinical lab equipment and integrated solutions for routine chemistry testing, immunodiagnostics (including infectious disease testing), hemostasis testing and microbiology.
Executives with both Siemens Healthcare and Dade Behring said the merger would help both firms become a leading provider of clinical diagnostic products and services. The acquisition was Siemens’ third in 14 months—in May 2006, the company purchased Los Angeles, Calif.-based Diagnostic Products Corp., and in January 2007, it acquired Bayer Diagnostics, a subsidiary of Bayer AG of Germany.
The addition of Dade Behring not only boosted revenue in the Diagnostics division, it pumped up profit as well. Profit more than doubled in fiscal 2008, going from $135.5 million in 2007 to $358.3 million last year. Profit in the other two divisions didn’t fare as well—both fell, with Imaging & IT dropping 14.06 percent to $1.29 billion and Workflow & Solutions plunging 58.9 percent to $95.3 million. Profit in the two latter divisions were affected by transformation costs.
In addition to revamping its businesses into three major divisions, Siemens created a new setup for its regional companies in fiscal 2008. The companies were grouped into 20 “clusters” of countries, which in turn, are organized into three world regions: Europe, C.I.S., and Africa; the Americas; and Asia, Australia and the Middle East. Regional companies in each cluster share support functions and administrative resources so they can better focus on customers, suppliers, media and other stakeholders in their respective countries.
In an effort to stay globally competitive, Siemens increased its research and development (R&D) expenses in 2008. R&D expenses climbed to $5.46 billion, a 12.5 percent jump compared with the $4.85 billion the company spent in 2007.
The average number of employees engaged in R&D rose to 32,200 from 30,900 in 2007. The company’s patent portfolio consisted of more than 55,000 patents worldwide, with researchers submitting about 8,200 inventions in fiscal 2008. Siemens filed 5,000 patent applications last year—the second highest number filed in Germany and the third highest in Europe.
A number of Siemens’ earlier patent applications and research came to fruition in fiscal 2008 in the form of new product releases. Some of the items that hit the market during the last fiscal year include the 1.5 Tesla (T) Magnetom Essenza, a magnetic resonance imaging system that is considerably less expensive than other 1.5T systems. In February 2008, the company announced U.S. Food and Drug Administration approval of its Versant 440 Molecular System, which is used for viral load testing of the human immunodeficiency virus and the hepatitis C virus. The enhanced automation of the Versant 440 provides labs with greater throughput and less hands-on time, which helps maximize productivity.
Siemens ended its fiscal year by breaking ground on a training and service facility in Cary, N.C., and completing the expansion of a manufacturing plant in Walpole, Mass.
The 143,000-square-foot, six-story office building in North Carolina is scheduled to open in early 2010. It will house more than 500 technical and administrative support personnel and include a 600-car parking deck and a separate one-floor cafeteria. Officials said the building will accommodate an additional 300 workers Siemens plans to add to its North Carolina operations over the next five years.
In Massachusetts, Siemens expanded a manufacturing plant by 115,000 square feet to accommodate the “growing demand” for its products and services. The $100 million project brought 70 new jobs to the Walpole area and nearly doubled the plant’s production capacity.