At a recent press conference in Berlin, Germany, Siemens CEO Joe Kaeser outlined the plan, which will see the company’s four business sectors—industry, energy, healthcare and infrastructure—eliminated in favor of bundling businesses into nine divisions.
Additionally, Siemens’ hearing aid business also will be spun off and publicly listed.
“Looking at the longer run, the market technologies of healthcare [are] going to see fundamental changes,” said Kaeser. “For example, cost reimbursement systems—these are increasingly value-based and require new business models.”
The company pointed to a number of paradigm shifts in medicine that helped drive the decision to restructure healthcare, including disruptive technological changes such as big data analytics, increasing utilization of molecular diagnostics and the growth of mobile healthcare.
“To be able to adequately respond to these profound changes and to keep a hand at the helm to be able to react properly, healthcare will be set up as a separate unit within Siemens in the future,” said Kaeser.
With healthcare managed separately, regional organization structure can be tailored to the requirements of the healthcare market and don’t have to conform to Siemens’ organizational matrix, according to the company.
Siemens anticipates that the bundling of divisions and elimination of the sector level will cut costs by reducing bureaucracy. Increases in productivity are expected to be around 1 billion euro annually, fully effective by the end of fiscal 2016.
Beginning fiscal 2015, the divisions will be assigned target profit margin ranges (excluding acquisition-related amortization of intangibles). The target ranges will be oriented based on the main competitors of each division, with the healthcare division’s target profit margin set at 15-19 percent.
Morgan Stanley analyst Ben Uglow said the restructuring shows "healthcare will no longer have the same go-to-market strategy as the rest of Siemens," while Nicholas Heymann of William Blair noted the move "suggests [the unit will] be either IPO'd, spun out, sold or swapped." According to Societe Generale, the healthcare unit would be valued more highly as a standalone entity, delivering almost 5 billion euros ($7 billion) to Siemens investors. Last year, a report suggested that Kaeser received proposals from investment banks about an initial public offering or spinoff of the healthcare division.
Siemens said the public listing of its audiology unit will "give the business an opportunity to better leverage its potential," noting the division's "technology and...consumer-oriented market access limit synergy potentials with other...businesses." Siemens executives said that anticipated technological developments at the unit "differ greatly from those of...its healthcare activities...this applies particularly to growth fields like implants and the link to consumer electronics."
Siemens also announced that second-quarter profit in its healthcare unit jumped 19 percent year-over-year to 531 million euros ($739 million). Meanwhile, revenue fell 1 percent to 3.3 billion euros ($4.6 billion), with orders dropping 4 percent to 3.2 billion euros ($4.5 billion). Siemens said sales and orders came in below prior-year levels due to declines in the Americas region, while orders fell in both Asia and Australia. The company added that sales in its diagnostics unit fell 3 percent to 937 million euros ($1.3 billion), due to lower revenue in the Americas region.
Kaeser said "the second quarter showed we still have a lot to do to improve our operating performance. Nevertheless, we are on course to reach our targets for the fiscal year."