Siemens AG will cut about 74 jobs in its North American mobile-phone business, moves that come as the company ponders what to do with its loss-making global handset operations.
Siemens would not say how many workers will remain in its North American mobile-phone business after the layoffs. Berndt Baumgartl, president of Siemens Communications Inc.’s U.S. mobile division, said the company does plan to stay in the mobile-phone business in North America. However, a reduction of 74 positions could signal a major withdrawal from the market, as well as the possibility that Siemens ultimately could leave the U.S. handset business altogether.
However, leaving the U.S. handset market won’t necessarily improve Siemens’ mobile-phone business on a global scale.
“Eliminating the U.S. market will save them some costs, but they will still need to improve their handset portfolio in the mid-range, feature-rich handset category,” said Chris Ambrosio, director of the wireless device strategies service for research and consulting firm Strategy Analytics.
According to Strategy Analytics, Siemens has suffered a steady decline in its U.S. mobile-phone market share, although it enjoyed a bump up in the third quarter. For the full-year 2003, Siemens scored a 3-percent market share in the United States. That number declined in the first quarter of 2004 to 2.2 percent, and to 1.4 percent in the second quarter. Siemens’ share increased in the third quarter of 2004 to 3.66 percent. Numbers for the fourth quarter were not immediately available. Siemens today sells five different handsets through Cingular Wireless L.L.C. and T-Mobile USA Inc.
Baumgartl said Siemens Communications-which comprises the company’s mobile phone, infrastructure, wireline and enterprise operations-plans to increase its total number of U.S. employees this year. Although the company is cutting jobs from its mobile-phone business, it plans to add workers to its infrastructure business in order to support Cingular Wireless’ UMTS/HSDPA network buildout. Siemens Communications currently employs about 3,700 workers in North America. Baumgartl wouldn’t give specifics on the layoffs in the company’s mobile-phone business, including when they will take effect, but he did say they will mostly come from the company’s San Diego office.
“This happens in the normal course of business,” Baumgartl said. “You have to react quickly, and this is that reaction.”
Siemens’ mobile phone layoffs come as the worldwide handset industry enjoys a record fourth-quarter cycle. The world’s handset makers sold a staggering 200 million phones globally, according to Strategy Analytics-but not everyone came out a winner. Nokia Corp., Motorola Inc., LG Electronics Co. Ltd. and Sony Ericsson Mobile Communications all posted stellar gains during the crucial holiday season, but Samsung Electronics Co. Ltd. and Siemens largely failed to take advantage of the expansion.
For Samsung, the Korean vendor has consistently posted major market share gains over the past several years, but in the fourth quarter its handset shipments slipped 7 percent sequentially. Strategy Analytics pointed out that Samsung traditionally has weak fourth quarters as the company generally floods its inventory channels over the course of the first three quarters of the year.
For Siemens, the company is still working on its global mobile-phone strategy. Although the company was scheduled to make an announcement about its loss-making phone business Thursday, Siemens’ departing chief Heinrich von Pierer said he had not yet reached a “concrete solution” on the matter. Baumgartl said the layoffs in the United States were not related to Siemens’ global handset plans.
Globally, Siemens’ mobile-phone business has been bleeding red ink for almost a year, and the losses are painfully visible in its market-share declines. In the fourth quarter of 2003, Siemens enjoyed a market share of 9.5 percent, results that capped a year of share gains. However, as 2004 dawned Siemens’ share rapidly began slipping. By the third quarter, Siemens had a 7.6-percent share and in the fourth quarter it dropped to 6.8 percent.
Siemens’ declines have paved the way for Korean upstart LG to surpass the company’s market-share ranking and claim the worldwide No. 4 handset-maker position. Over the past several years LG has managed to emerge from the back of the pack on strong sales of clamshell-style CDMA phones, surpassing both Sony Ericsson and Siemens.
Siemens recorded an overall net income of $1.3 billion in its first quarter, up 38 percent from the same period a year ago. In Siemens’ Communications division, which houses its network and handset operations, the company posted $5.5 billion in sales in the first quarter, a decline from the same quarter a year earlier. In the mobile-phone business specifically, Siemens reported a loss of $186 million in the quarter compared with a profit in the same quarter a year ago.
In exceeding Siemens’ handset sales, LG overall posted solid earnings thanks to strong sales of its TVs and mobile phones. For the full year, LG posted sales up 22 percent from the previous year and a record operating margin of 5.1 percent. In the company’s mobile-phone business, LG reported a drop in its Korean sales due to a slow economy and decreased demand, but the company said its overseas business increased due to “steady sales” of CDMA and W-CDMA phones in Europe and North America. LG expects to ship 62 million handsets this year, while its rival Samsung hopes to sell 100 million handsets this year.
As Siemens anguishes with its mobile-phone business, Nokia relished its fourth-quarter resurgence. The company sold a record 66.1 million phones in the quarter, giving it a market share of 33 percent. Nokia had taken a hit earlier this year due to a scarcity of mid-range phones featuring clamshell designs and integrated cameras. Over the course of the year Nokia engaged in a massive price-cutting campaign in order to regain its lost market share, and its financials emphasize its focus on market share over profit.
In its mobile-phones business, Nokia recorded an operating profit of $1.3 billion, a 38-percent drop from the year-ago period of $2.2 billion. It also had a 6-percent net sales decrease to $7.2 billion for the quarter compared with the same quarter the previous year of $8 billion. Overall Nokia reported a net profit of $1.31 billion, down from the year-ago $1.51 billion in profit.
As the industry comes off a record fourth quarter, all estimates show that 2005 will bring the market back to earth. In 2004, handset manufacturers sold 684 million units, according to Strategy Analytics. But the firm forecasts growth of just 8 percent this year on industry shipments of 735 million units.
“Looking ahead, our concerns over the near-term outlook for the mobile device market have not changed either, as we continue to believe that the industry is in a period of declining differentiation,” wrote UBS. “This, in our view, is likely to lead to increased volatility in the market with respect to vendor market shares, pricing and profitability. In addition, during this phase of reduced product differentiation, we believe the balance of power in the industry has shifted more to the operators (vs. the vendors), and this is contributing to the volatility in market shares, and likely weighing on profitability as the demand for product customization increases and vendors’ pricing power declines.”
