Reuters

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Siemens to Slash 4,500 Jobs, Keep Unprofitable Units

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German industrial group Siemens will cut a further 4,500 jobs as it battles to cope with subdued economic growth and weak demand from energy customers.

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The cuts come on top of 7,400 job losses already announced and were unveiled on Thursday alongside a 5 percent drop in first-quarter profit at its industrial businesses.

The trains-to-turbines group currently employs around 340,000 people worldwide, including about 115,000 in Germany where it is one of the country's biggest employers.

Chief Executive Joe Kaeser did not say where the new cuts would be geographically. Siemens has to tread carefully cutting jobs in Germany, where trade unions are strong, and it has reduced previously announced job losses by a few hundred.

However Kaeser, who is trying to trim the company to help it close a profitability gap with rivals General Electric and ABB, said he would keep underperforming businesses that account for 15 billion euros ($16.9 billion) in sales and zero profit, confirming a Reuters story.

This, combined with the lacklustre quarterly results that made Siemens' full-year targets look ambitious, pushed its shares down more than 2 percent, close to the bottom of the blue-chip DAX index.

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"It might seem slow to you but I know of no other company that has effected such a fundamental change in such a small space of time," said Kaeser, who took over in 2013 after a messy boardroom coup, on a call with journalists.

Kaeser has already agreed the most expensive acquisition in Siemens' history -- that of U.S. oilfield equipment maker Dresser-Rand for $7.6 billion -- as well as beginning to hive off healthcare and firing a host of senior managers.

But he is fighting on many fronts as sluggish economic growth in major markets dampens infrastructure spending, while weak demand and a drive for more renewable power hurt the energy businesses that account for about 40 percent of Siemens' sales.

"The Power and Gas Division is having to cope, among other things, with regulatory changes, massive price erosion, aggressive competitors and regional overcapacities," Siemens said.

Siemens' key industrial profit margin, where it is targeting 10-11 percent of sales this fiscal year, fell to 9.0 percent in the quarter from 10.3 percent a year earlier.

The target is far below General Electric's 14.6 percent industrial margin in the first quarter or Swiss engineer ABB's 13.5 percent operating margin.

"What Siemens presented today is anything but inspiring numbers," said fund manager Christoph Niesel of Union Investment, a top 10 Siemens shareholder.

"The numbers ... confirm a continuing difficult business environment for capital-goods companies."

AMBITIOUS MARGIN TARGET

Siemens said it anticipated some potential market softness in China and the United States in the second half.

It said it would still reach the lower end of its 10-11 percent industrial profit margin target for the full year, helped by the new cuts.

But Barclays analysts, who rate the stock "underweight", were not convinced. "We struggle to see how the company will reach a 10-11 percent industrial margin," they wrote.

About two-thirds of the new job cuts will be in the underperforming businesses, which Siemens said employed 43-44,000 people worldwide, with most of the rest in power and gas.

Siemens declined to detail what all the underperforming businesses were, saying it preferred to deal with its problems in private and then announce the results, but said they included mechanical drives, compressors and transformers.

The drop in Siemens' quarterly industrial profit to 1.7 billion euros, including 98 million in restructuring costs, was slightly steeper than expected, according to a Reuters poll of analysts whose forecasts averaged 1.78 billion.

Power and Gas performed better than expected with a profit drop of 34 percent, as did Healthcare with a 2 percent slide.

But profits at the Digital Factory unit where Siemens hopes to gain an edge by combining its expertise in industrial software and plant automation unexpectedly fell 13 percent.

Group orders rose 7 percent on a comparable basis to a better-than-expected 20.8 billion euros, helped by large rail orders, while sales were flat at 18 billion. Both top-line results were flattered by the weak euro.

(Editing by Noah Barkin and Mark Potter)