Dive Brief:
- Siemens announced last week that it will cut 6,900 jobs in its power and fossil fuel division in response to falling worldwide demand for large gas turbines.
- Globally, production capacity for the units stands at around 400 turbines but only about 120 were sold last year and in Europe, the market is quickly disappearing.
- About half of the job cuts will be in Germany, where the market is reportedly "hardly exits," company officials said during a conference call. Job cuts in the United States are still being planned, but could reach 1,800 by 2020.
Dive Insight:
The rise of renewable power, smart energy solutions and flagging demand, has already been taking a toll on older, existing power plants. Now, the impacts are being seen in the gas turbine market.
In a conference call last week, Siemens officials said the market for turbines 100 MW or larger has fallen precipitously to about 25% of the global production capacity.
"The power generation industry is experiencing disruption of unprecedented scope and speed," Lisa Davis, member of the managing board of Siemens AG, said in a statement. "With their innovative strength and rapidly expanding generation capacity, renewables are putting other forms of power generation under increasing pressure."
The decision to slash jobs—amounting to roughly 2% of the company's global workforce—follows an effort that stretched almost three years to "right-size the business for this changing marketplace," Davis said. Officials said the cuts are necessary to ensure the company remains competitive, but cautioned that it must find answers to the turbine oversupply and resulting price pressure. The company has developed a consolidation plan for its Power and Gas Division, Power Generation Services Division, and the Process Industries and Drives Division.
Siemens announcement follows a similar decision made by General Electric earlier this month.
GE CEO John Flannery, in the company’s investor update, described a strategy that includes $20 billion of divestitures, a dividend cut and refocusing on three core businesses. The plan includes the paring of several businesses, including the company’s transportation sector and oil field services company Baker Hughes.
The company said its power sector is not the only problem, but the unit had about $39 billion in 2016 revenues and accounts for nearly one-third of overall revenues. GE’s 2015 acquisition of Alstom, a major manufacturer of equipment for coal plants, has also been a trouble spot. The business is showing a “single-digit return right now, disappointing, below expectations," Flannery said.
