07.29.15
$15.7 Billion ($91.2B total)
KEY EXECUTIVES:
Joe Kaeser, President & CEO, Siemens AG
Eric A. Spiegel, President & CEO, Siemens USA
Bernd Montag, CEO, Siemens Healthcare GmbH
Michael Sen, Chief Financial Officer, Siemens Healthcare GmbH
Michael Reitermann, Executive Management, Siemens Healthcare GmbH
NO. OF EMPLOYEES: 48,000 (343,000 total)
GLOBAL HEADQUARTERS: Munich, Germany
Finally, a chance to set the record straight.
“We’ll manage our healthcare business independently within Siemens—as a company within the company,” Siemens President/CEO Joe Kaeser declared in his five-page letter to shareholders within the firm’s 2014 annual report. “Healthcare is not ‘still’ at Siemens or ‘staying’ at Siemens. Healthcare is a part of Siemens.”
A big part of Siemens, actually. The division was one of the multinational conglomerate’s most profitable segments in FY14 (year ended Sept. 30), bowing only to the mighty Power and Gas sector. Kaeser’s steely comments in the annual report obviously were meant to quash rumors that he eventually plans to divest the Healthcare unit or float it on the stock market.
Such conjecture has been swirling since last spring, when Kaeser unveiled a corporate restructuring plan he had been musing about for months. Dubbed Vision 2020, the strategy involves shedding a layer of senior management, acquiring a gas turbine and compressor company to strengthen its power generation division, and spinning off its aid equipment business. Industry analysts believe the restructuring is an attempt to close the profitability gap with longtime rivals like General Electric, with whom it battled for ownership last summer of French energy firm Alstom (GE won, bidding a staggering $17 billion for the company).
The organizational overhaul reduces the number of corporate divisions from 16 to nine and places more emphasis on the company’s digital production, electrification and automation businesses—areas that help industrial companies produce goods more efficiently. The steps, when taken together, are expected to deliver 1 billion euros in productivity gains from the end of fiscal 2016.
To help boost margins in its energy technology and automation divisions, Siemens last summer purchased Rolls-Royce Holding PLC’s energy assets for $1.3 billion (950 million euros), and created a joint venture with Japan’s Mitsubishi Heavy Industries to provide plants, products and services for the iron, steel and aluminum industry.
The crux of Siemens’ makeover, however, lies in digitalization, an area primed for solid growth with the warp-speed progression of the Internet of Things. Kaeser believes the $125 billion data analytics market is key to the company’s long-term fiscal health, as the sector is projected to expand 7 percent to 9 percent over the next few years—well above the 2-3 percent growth predicted for electrification businesses and the 4-6 percent gains forecast for the automation industry.
“We’re positioning Siemens along the electrification value chain. Electrification, automation and digitalization, and the impact of these fields on all parts of our company—that’s what the new Siemens is all about,” Kaeser wrote in the annual report. “For years now, we’ve been focusing on the megatrends of urbanization, demographic change, globalization and climate change. And now a further megatrend has emerged: digitalization, which consists in capturing and analyzing data and then using it to create customer value. We want to play a key role in shaping this digital transformation.”
Kaeser wasted little time casting Siemens into a digital mold, initiating a Digital Factory (DF) division that will offer integrated hardware, software and technology-based services for manufacturers. The new segment is expected to have a 9 billion-euro ($11.5 billion) turnover and will combine factory automation and product life cycle management software, bigwigs said.
With strengths in both industrial production software and hardware, Siemens is well-positioned to link the two to ride the Industry 4.0 wave, a movement designed to digitize and network industrial production. The company’s industrial division alone employs 8,000 software engineers—five times as many as it did a decade ago.
“Vision 2020 is paving the way to the future. The direction is clear...and we have every reason to look to the future with confidence,” Kaeser assured shareholders in his letter. “Vision 2020 defines a clear strategic direction for the ‘new Siemens.’ We’re positioning our company in strategically attractive growth fields and demonstrating a clear focus as we gear our setup to these fields.”
It remains unclear whether Kaeser considers Healthcare to be a part of those growth fields. By removing medtech from Siemens’ core hierarchy and shedding parts of the Healthcare unit, Kaeser could possibly be preparing the company to leave the business altogether.
He’d be well within his rights, of course. Siemens and its rivals (GE, Philips) all have been squeezed by reduced government healthcare spending across Europe in the wake of the Eurozone debt crisis. The companies also have faced a slowdown in equipment spending in the United States—the world’s largest healthcare market—because the Affordable Care Act has mandated new funding priorities, limiting hospital resources for apparatus upgrades.
Last summer, Siemens sold its clinical microbiology business to Danaher Corp. subsidiary Beckman Coulter for an undisclosed price, and its hospital IT venture to North Kansas City, Mo.-based Cerner Corporation for $1.3 billion in cash. Then in November, Kaeser sold its Audiology Solutions business to private equity firm EQT Partners and Santo Holding, the investment arm of Germany’s Strüngmann family, for 2.15 billion euros ($2.68 billion).
Disposing of the microbiology, hospital IT and audiology enterprises allows Siemens to focus primarily on medical imaging and diagnostics in its Healthcare division. Medical imaging, which develops products like computed tomography scanners, magnetic resonance imaging machines and ultrasound technology, is the unit’s most lucrative branch, but has been growing slowly due to weak global demand for healthcare equipment and solutions. J.P. Morgan predicts an anemic 2-3 percent overall gain in the worldwide medical equipment/solutions market this year.
When he unveiled details of the corporate restructuring last May, Kaeser insisted the Healthcare division would remain part of the company, contending an operational separation will give the segment greater freedom of action and perspectives in the future. “This means that regional organization structures can be tailored to the requirements of the healthcare market and do not have to conform to the company’s organizational matrix,” a Siemens news release stated. “This will give Healthcare greater flexibility on the medical technologies market, which is characterized by fundamental changes and paradigm shifts.”
Yet expensive technological shifts in the healthcare sector could prompt Siemens to exit the market while it is still profitable, industry analysts note. Emerging trends that likely will demand substantial investments include a greater focus on data analytics and molecular diagnostics.
Increased global competition and industry consolidation also could drive Siemens to shed its Healthcare division through a spinoff, an initial public offering (IPO) or an outright sale. A spinoff of Siemens Healthcare by 2016 might create more value for the company than an IPO, though the latter move would generate cash that could be invested in other acquisitions.
On the other hand, Healthcare is one of Siemens’ top-grossing units. Why dump something of value?
“The question mark is the medical technology business,” Christian Stadler, associate professor of strategic management at Warwick Business School in Coventry, England, told The Wall Street Journal last fall.
And it likely will remain a question mark, at least for the time being, as Kaeser monitors its financial performance. Healthcare’s balance sheet has been erratic thus far in FY15; the unit struggled in the first quarter (ended Dec. 31, 2014) but redeemed itself in Q2 (ended March 31), posting a 13 percent growth in revenue and a 14 percent gain in orders (profit, however, fell 2 percent). The gains compensated for the 13 percent decline in profits and 3.1 percent slide in profit margins the previous quarter. Though it was accompanied by a 6 percent spike in revenue (to 2.9 billion euros), the losses triggered a harsh warning from management: “Healthcare needs to step up its efforts to quickly resume its outstanding performance...” a Q1 earnings release stated.
A turnaround may take longer than expected, though. Healthcare growth sputtered and stalled in FY 2014 as volatile foreign currency rates cut into profits in the division’s imaging and therapy systems business units. A strong euro reduced diagnostics revenue 3 percent (3.83 billion euros) and overall Healthcare proceeds 1.7 percent (12.4 billion euros), annual report data show.
Moreover, the division’s profit flatlined at 2.02 billion euros, and orders fell 6.2 percent. Revenue was down worldwide, with Germany and Asia-Australia sustaining the largest losses (2.5 percent and 4 percent respectively). Americas proceeds slipped 1.7 percent to 4.7 billion euros, while Europe-Africa-Middle East sales remained almost identical to their FY13 levels at 4.39 billion euros.
Healthcare’s only beacons in fiscal 2014 were its diagnostics unit, which grew profits 19.1 percent to 417 million euros, and its 4 billion-euro order backlog, of which 3 billion euros worth is expected to be converted into revenue in FY15.
The division’s pecuniary woes, however, had little effect on the company’s overall performance in the last fiscal year. Although revenue fell 2 percent to 71.9 billion euros, Siemens AG posted double-digit increases in total sector profit, adjusted EBITDA, net income and basic earnings per share. Total sector profit swelled 26 percent to 7.33 billion euros, adjusted EBITDA rose 13 percent to 9.13 billion euros, net income ballooned 25 percent to 5.5 billion euros and basic EPS jumped 25 percent to 6.37 euros.
“In fiscal 2014, we worked hard, we were highly focused, and we achieved a great deal. Despite a complex geopolitical situation, our overall results for the year were very good,” Kaeser said in the annual report. “We’re proud of what we achieved so far...nevertheless, our performance could have been even better. A company like Siemens never stands still. This was the case in the past and it will remain so in the future. That’s why we intend to continue developing our portfolio with determination and the utmost prudence in order to strengthen our core businesses in the medium term.”
Healthcare reinforced its foundation with numerous product debuts in fiscal 2014, including the Artis one angiography system, the Unity 3 diagnostic and fitting system, the Prime edition of its Acuson SC2000 ultrasound, and the Somatom Scope, a 16-slice CT scanner containing some advanced features previously available only on more advanced models. The device has two models—the Scope and Scope Power, with the latter having a more powerful X-ray tube, a better generator, and a faster rotation speed.
The scanner uses Siemens’ IRIS (Iterative Reconstruction in Image Space) technology to perform the image reconstruction and reduce noise. Its Adaptive Signal Boost feature improves weak signals during high attenuation, while FAST (Fully Assisting Scanner Technology) and CARE (Combined Applications to Reduce Exposure) software help automate the imaging process and reduce the radiation dose delivered to patients. Additionally, the company’s eCockpit technology helps the scanner live longer by optimizing how various crucial parts are activated.
Siemens added to its Somatom product portfolio with the April 2014 U.S. Food and Drug Administration clearance of its Somatom Force dual source CT scanner. Unveiled at a radiological society conference the previous year, the scanner has the fastest acquisition time of any similar device, allowing chest and abdomen scans in under a second without breath holding and cardiac imaging within a heartbeat. It also features capabilities for low-dose scanning with resolutions previously unavailable, allowing for imaging of patients even with reduced renal function.
The Somatom Force conducts lung scans with up to half the radiation dose of similar systems by using two special spectral filters known as Selective Photon Shields, which optimize the X-ray spectrum to improve the air/soft-tissue contrast.
Siemens premiered two new systems for molecular imaging on the European market in FY14: Symbia Intevo and Biograph mCT Flow. Symbia Intevo is the company’s first xSPECT system, a new modality that integrates the full data sets of both single photon emission computed tomography (SPECT) and CT. The resulting level of detail helps differentiate clinical conditions more precisely, for instance distinguishing degenerative bone loss from malignant disease such as bone cancer. Symbia Intevo also allows easy, accurate and reproducible quantification, making treatment follow-up possible.
Biograph mCT Flow is a positron emission tomography/computed tomography scanner that can record PET data without interruption while the patient passes through the gantry. This eliminates the usual “stop and go” process in which the table has to stop to enable a sequence of images to be recorded. FlowMotion also reduces the CT radiation dose because the scan range can be selected precisely.
KEY EXECUTIVES:
Joe Kaeser, President & CEO, Siemens AG
Eric A. Spiegel, President & CEO, Siemens USA
Bernd Montag, CEO, Siemens Healthcare GmbH
Michael Sen, Chief Financial Officer, Siemens Healthcare GmbH
Michael Reitermann, Executive Management, Siemens Healthcare GmbH
NO. OF EMPLOYEES: 48,000 (343,000 total)
GLOBAL HEADQUARTERS: Munich, Germany
Finally, a chance to set the record straight.
“We’ll manage our healthcare business independently within Siemens—as a company within the company,” Siemens President/CEO Joe Kaeser declared in his five-page letter to shareholders within the firm’s 2014 annual report. “Healthcare is not ‘still’ at Siemens or ‘staying’ at Siemens. Healthcare is a part of Siemens.”
A big part of Siemens, actually. The division was one of the multinational conglomerate’s most profitable segments in FY14 (year ended Sept. 30), bowing only to the mighty Power and Gas sector. Kaeser’s steely comments in the annual report obviously were meant to quash rumors that he eventually plans to divest the Healthcare unit or float it on the stock market.
Such conjecture has been swirling since last spring, when Kaeser unveiled a corporate restructuring plan he had been musing about for months. Dubbed Vision 2020, the strategy involves shedding a layer of senior management, acquiring a gas turbine and compressor company to strengthen its power generation division, and spinning off its aid equipment business. Industry analysts believe the restructuring is an attempt to close the profitability gap with longtime rivals like General Electric, with whom it battled for ownership last summer of French energy firm Alstom (GE won, bidding a staggering $17 billion for the company).
The organizational overhaul reduces the number of corporate divisions from 16 to nine and places more emphasis on the company’s digital production, electrification and automation businesses—areas that help industrial companies produce goods more efficiently. The steps, when taken together, are expected to deliver 1 billion euros in productivity gains from the end of fiscal 2016.
To help boost margins in its energy technology and automation divisions, Siemens last summer purchased Rolls-Royce Holding PLC’s energy assets for $1.3 billion (950 million euros), and created a joint venture with Japan’s Mitsubishi Heavy Industries to provide plants, products and services for the iron, steel and aluminum industry.
The crux of Siemens’ makeover, however, lies in digitalization, an area primed for solid growth with the warp-speed progression of the Internet of Things. Kaeser believes the $125 billion data analytics market is key to the company’s long-term fiscal health, as the sector is projected to expand 7 percent to 9 percent over the next few years—well above the 2-3 percent growth predicted for electrification businesses and the 4-6 percent gains forecast for the automation industry.
“We’re positioning Siemens along the electrification value chain. Electrification, automation and digitalization, and the impact of these fields on all parts of our company—that’s what the new Siemens is all about,” Kaeser wrote in the annual report. “For years now, we’ve been focusing on the megatrends of urbanization, demographic change, globalization and climate change. And now a further megatrend has emerged: digitalization, which consists in capturing and analyzing data and then using it to create customer value. We want to play a key role in shaping this digital transformation.”
Kaeser wasted little time casting Siemens into a digital mold, initiating a Digital Factory (DF) division that will offer integrated hardware, software and technology-based services for manufacturers. The new segment is expected to have a 9 billion-euro ($11.5 billion) turnover and will combine factory automation and product life cycle management software, bigwigs said.
With strengths in both industrial production software and hardware, Siemens is well-positioned to link the two to ride the Industry 4.0 wave, a movement designed to digitize and network industrial production. The company’s industrial division alone employs 8,000 software engineers—five times as many as it did a decade ago.
“Vision 2020 is paving the way to the future. The direction is clear...and we have every reason to look to the future with confidence,” Kaeser assured shareholders in his letter. “Vision 2020 defines a clear strategic direction for the ‘new Siemens.’ We’re positioning our company in strategically attractive growth fields and demonstrating a clear focus as we gear our setup to these fields.”
It remains unclear whether Kaeser considers Healthcare to be a part of those growth fields. By removing medtech from Siemens’ core hierarchy and shedding parts of the Healthcare unit, Kaeser could possibly be preparing the company to leave the business altogether.
He’d be well within his rights, of course. Siemens and its rivals (GE, Philips) all have been squeezed by reduced government healthcare spending across Europe in the wake of the Eurozone debt crisis. The companies also have faced a slowdown in equipment spending in the United States—the world’s largest healthcare market—because the Affordable Care Act has mandated new funding priorities, limiting hospital resources for apparatus upgrades.
Last summer, Siemens sold its clinical microbiology business to Danaher Corp. subsidiary Beckman Coulter for an undisclosed price, and its hospital IT venture to North Kansas City, Mo.-based Cerner Corporation for $1.3 billion in cash. Then in November, Kaeser sold its Audiology Solutions business to private equity firm EQT Partners and Santo Holding, the investment arm of Germany’s Strüngmann family, for 2.15 billion euros ($2.68 billion).
Disposing of the microbiology, hospital IT and audiology enterprises allows Siemens to focus primarily on medical imaging and diagnostics in its Healthcare division. Medical imaging, which develops products like computed tomography scanners, magnetic resonance imaging machines and ultrasound technology, is the unit’s most lucrative branch, but has been growing slowly due to weak global demand for healthcare equipment and solutions. J.P. Morgan predicts an anemic 2-3 percent overall gain in the worldwide medical equipment/solutions market this year.
When he unveiled details of the corporate restructuring last May, Kaeser insisted the Healthcare division would remain part of the company, contending an operational separation will give the segment greater freedom of action and perspectives in the future. “This means that regional organization structures can be tailored to the requirements of the healthcare market and do not have to conform to the company’s organizational matrix,” a Siemens news release stated. “This will give Healthcare greater flexibility on the medical technologies market, which is characterized by fundamental changes and paradigm shifts.”
Yet expensive technological shifts in the healthcare sector could prompt Siemens to exit the market while it is still profitable, industry analysts note. Emerging trends that likely will demand substantial investments include a greater focus on data analytics and molecular diagnostics.
Increased global competition and industry consolidation also could drive Siemens to shed its Healthcare division through a spinoff, an initial public offering (IPO) or an outright sale. A spinoff of Siemens Healthcare by 2016 might create more value for the company than an IPO, though the latter move would generate cash that could be invested in other acquisitions.
On the other hand, Healthcare is one of Siemens’ top-grossing units. Why dump something of value?
“The question mark is the medical technology business,” Christian Stadler, associate professor of strategic management at Warwick Business School in Coventry, England, told The Wall Street Journal last fall.
And it likely will remain a question mark, at least for the time being, as Kaeser monitors its financial performance. Healthcare’s balance sheet has been erratic thus far in FY15; the unit struggled in the first quarter (ended Dec. 31, 2014) but redeemed itself in Q2 (ended March 31), posting a 13 percent growth in revenue and a 14 percent gain in orders (profit, however, fell 2 percent). The gains compensated for the 13 percent decline in profits and 3.1 percent slide in profit margins the previous quarter. Though it was accompanied by a 6 percent spike in revenue (to 2.9 billion euros), the losses triggered a harsh warning from management: “Healthcare needs to step up its efforts to quickly resume its outstanding performance...” a Q1 earnings release stated.
A turnaround may take longer than expected, though. Healthcare growth sputtered and stalled in FY 2014 as volatile foreign currency rates cut into profits in the division’s imaging and therapy systems business units. A strong euro reduced diagnostics revenue 3 percent (3.83 billion euros) and overall Healthcare proceeds 1.7 percent (12.4 billion euros), annual report data show.
Moreover, the division’s profit flatlined at 2.02 billion euros, and orders fell 6.2 percent. Revenue was down worldwide, with Germany and Asia-Australia sustaining the largest losses (2.5 percent and 4 percent respectively). Americas proceeds slipped 1.7 percent to 4.7 billion euros, while Europe-Africa-Middle East sales remained almost identical to their FY13 levels at 4.39 billion euros.
Healthcare’s only beacons in fiscal 2014 were its diagnostics unit, which grew profits 19.1 percent to 417 million euros, and its 4 billion-euro order backlog, of which 3 billion euros worth is expected to be converted into revenue in FY15.
The division’s pecuniary woes, however, had little effect on the company’s overall performance in the last fiscal year. Although revenue fell 2 percent to 71.9 billion euros, Siemens AG posted double-digit increases in total sector profit, adjusted EBITDA, net income and basic earnings per share. Total sector profit swelled 26 percent to 7.33 billion euros, adjusted EBITDA rose 13 percent to 9.13 billion euros, net income ballooned 25 percent to 5.5 billion euros and basic EPS jumped 25 percent to 6.37 euros.
“In fiscal 2014, we worked hard, we were highly focused, and we achieved a great deal. Despite a complex geopolitical situation, our overall results for the year were very good,” Kaeser said in the annual report. “We’re proud of what we achieved so far...nevertheless, our performance could have been even better. A company like Siemens never stands still. This was the case in the past and it will remain so in the future. That’s why we intend to continue developing our portfolio with determination and the utmost prudence in order to strengthen our core businesses in the medium term.”
Healthcare reinforced its foundation with numerous product debuts in fiscal 2014, including the Artis one angiography system, the Unity 3 diagnostic and fitting system, the Prime edition of its Acuson SC2000 ultrasound, and the Somatom Scope, a 16-slice CT scanner containing some advanced features previously available only on more advanced models. The device has two models—the Scope and Scope Power, with the latter having a more powerful X-ray tube, a better generator, and a faster rotation speed.
The scanner uses Siemens’ IRIS (Iterative Reconstruction in Image Space) technology to perform the image reconstruction and reduce noise. Its Adaptive Signal Boost feature improves weak signals during high attenuation, while FAST (Fully Assisting Scanner Technology) and CARE (Combined Applications to Reduce Exposure) software help automate the imaging process and reduce the radiation dose delivered to patients. Additionally, the company’s eCockpit technology helps the scanner live longer by optimizing how various crucial parts are activated.
Siemens added to its Somatom product portfolio with the April 2014 U.S. Food and Drug Administration clearance of its Somatom Force dual source CT scanner. Unveiled at a radiological society conference the previous year, the scanner has the fastest acquisition time of any similar device, allowing chest and abdomen scans in under a second without breath holding and cardiac imaging within a heartbeat. It also features capabilities for low-dose scanning with resolutions previously unavailable, allowing for imaging of patients even with reduced renal function.
The Somatom Force conducts lung scans with up to half the radiation dose of similar systems by using two special spectral filters known as Selective Photon Shields, which optimize the X-ray spectrum to improve the air/soft-tissue contrast.
Siemens premiered two new systems for molecular imaging on the European market in FY14: Symbia Intevo and Biograph mCT Flow. Symbia Intevo is the company’s first xSPECT system, a new modality that integrates the full data sets of both single photon emission computed tomography (SPECT) and CT. The resulting level of detail helps differentiate clinical conditions more precisely, for instance distinguishing degenerative bone loss from malignant disease such as bone cancer. Symbia Intevo also allows easy, accurate and reproducible quantification, making treatment follow-up possible.
Biograph mCT Flow is a positron emission tomography/computed tomography scanner that can record PET data without interruption while the patient passes through the gantry. This eliminates the usual “stop and go” process in which the table has to stop to enable a sequence of images to be recorded. FlowMotion also reduces the CT radiation dose because the scan range can be selected precisely.