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Siemens AG-ADR (SI): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

By: Zacks.com
Posted: 2/3/2014 7:00:00 AM
Referenced Stocks: IT;PG;SBS;SI;TS

Summary:
Siemens reported modest first quarter fiscal 2014 results with a year-over-year decrease in revenues and increase in earnings. Siemens is a global leader in most of its key businesses, including industrial automation, power generation, medical equipment and transportation. In fiscal 2013, Siemens executed its "Siemens 2014" program targeted at sustainable value creation. Through this program, the company primarily targets to raise its Total Sectors profit to at least 12% by fiscal 2014. However, global macroeconomic and financing conditions and a highly competitive landscape are concerns for the company. We are changing our long-term recommendation for Siemens from Underperform to Neutral as we anticipate it to perform in-line with the broader market.

Overview:

Siemens AG is a German industrial conglomerate with interests in information services, automation and controls, medical equipment, power generation, transportation systems, automotive electronics, lighting, and many other areas. With a focus on electronics and electrical engineering, the company is a major multinational with over 405,000 employees in more than 190 countries. Siemens' organizational structure consists of 11 groups within three operational business areas. However, beginning fiscal 2012, the company has formed a fourth business segment titled Infrastructure & Cities, in addition to the previous three. The operating segments are as follows:

Industry (24.2% of revenues in fiscal 2013) - This segment is comprised of six different divisions: Industry Automation, Drive Technologies, Industry Solutions, Building Technologies, Osram and Mobility. Automation and Drives is a supplier of automation and installation systems, drives, and switchgear for the manufacturing and processing industries. Industry Solutions is a systems and solutions integrator for industrial plants and infrastructure projects. Building Technologies offers systems and services for building security, fire protection, and comfort control. The company's lighting group, named Osram, is one of the world's top two manufacturers of lighting products. It offers innovative lighting sources and systems, along with traditional light bulb manufacturing to clients around the world. Mobility division originally consisted of two divisions, Transportation Systems (TS) and Siemens VDO Automotive (SV). The TS division offers rail solutions and services for mass transit, regional, and main line services, which includes railway engineering, locomotive construction, servicing, maintenance, operational support, rail electrification, and turnkey rail systems for clients. VDO Automotive used to specialize in developing automotive electronics and mechatronics, such as tire pressure control systems and gasoline direct injection systems. Siemens sold off its VDO Automotive segment to Continental AG for 11.4 billion ($15.4 billion), and the transaction closed in December 2007 (i.e. in the first quarter of FY08).

Energy (34.7%) - Siemens' Energy business segment is comprised of its Power Generation (PG), Power Transmission & Distribution (PTD) divisions, Fossil Power Generation, Renewable Energy and Solutions for the Oil and Gas Industry. The PG division offers services and products, such as the planning and construction of power plants, the manufacture and installation of components and systems, power plant upgrades, energy management systems, and fuel cells. It also supplies turbines, compressors, and complete solutions for industrial plants, particularly in the oil and gas industry. The PTD Division is a manufacturer, systems integrator and provider of solutions and services for the power utilities and industry customers, which enables utilities to transport and distribute electricity.

Healthcare (17.7%) - Siemens is one of the leading solutions providers to the medical industry, with products ranging from hearing instruments, diagnostic imaging systems, therapy equipment, and entire intensive care units to clinical and administrative IT Solutions. This unit acquired the Diagnostic business of Bayer, which should help the division maintain its growth and profitability margins going forward. Siemens signed a merger agreement with Dade Behring, a leading clinical laboratory diagnostic company, for approximately $7 billion ( 5.2 billion). This merger has been completed in November 2007 (i.e. in the first quarter of FY08) and it has been merged into the Medical Solutions division.

Infrastructure & Cities (effective beginning fiscal 2012, 23.3%): This segment comprises various technologies and businesses under one roof in order to offer cities and customers innovative and sustainable solutions. The business portfolio includes transportation, logistics, building, and smart grid technologies to improve energy efficiency, infrastructure productivity and quality of life. Cities are among the most important customers, representing an area where Siemens expects strong growth potential. Sustainable urban infrastructures are just as important for rapidly growing megacities as they are for large and medium-sized cities all over the world. As an integrated technology organization, the Infrastructure & Cities Sector builds on a large portfolio of green infrastructure technologies to meet the needs of its customers.

Cross-Sector businesses

Siemens IT Solutions and Services: This segment of Siemens was created when the company merged its Siemens Business Services (SBS) unit with other IT activities within Siemens. The new SIS division specializes in information technology (IT) services consultancy and offers consulting and system integration services.

Additionally the company's Financing and Real Estate business specializes in conducting Siemens' financial business worldwide for all its divisions and offers real estate consulting, portfolio management, and real estate development around the world. It also has two affiliates, BSH Bosch, which offers a complete range of household appliances, and Fujitsu Siemens, which is one of the largest IT manufacturers in Europe that manufactures and sells everything from handheld computers, tablet PCs, notebooks, desktops, and workstations to servers, storage, and IT infrastructure solutions.


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