The rapid growth in the use of renewables has dealt a strong blow to Siemen’s power and gas division, which has prompted the company to announce that it would be cutting almost 6,900 jobs. This is approximately 2 percent of the firm’s global workforce. The Power and Gas division of the company was once thriving as it supplied large gas turbines for generating electricity, but the global surge seen in wind and solar capacity has overtaken this division. Therefore, the gas and power division is where most of the cuts, which would be approximately 6,100, would be made and they would be implemented by 2020.
Lisa Davis, a management board member at Siemens, said that the power generation industry is facing unprecedented disruption in terms of speed and scope. She added that other forms of generating power were under pressure because renewables were gaining popularity due to their strength as well as capacity for expansion. However, it is not just power and gas that will take a hit. According to Siemens, its Process Industries and Drives division will also cut some jobs. This division is concerned with making large mechanical drives for gas and oil extraction and turbines. Around 800 jobs will be cut here and the company said that forced layoffs couldn’t be ruled out.
Last quarter, Siemens Gamesa, their wind power venture made a loss, but it was not the only one. The Process Industries and Drives division was also their least-profitable as its profit margin had only been 2.9 percent. The company stated that almost 50 percent of the job cuts would be made in Germany. This move is not going to be welcomed by politicians who are trying to establish a government. Moreover, Siemens didn’t disclose the costs involved in the layoffs. After the announcement, the largest trade union in Germany, IG Metall, lashed out at Siemens.
They accused the company of being too late in responding to the risk to conventional methods of power generation and demanded that no forced redundancies should be made. A board member of the trade union said that job cuts of this size were simply not justifiable because the company’s position was strong enough. Brigitte Zypries, the German Economy Minister, asked the company to treat its workers fairly. She said that the employees were concerned and unsure about their future and the company should work with trade unions to sort it out. In addition, she said that sites located in structurally weak regions also need to be preserved.
As compared to its biggest competitor, General Electric, Siemens was able to protect itself from a sudden reduction in the demand for large turbines because of a huge order of power generation in Egypt, which was worth $9 billion dollars. This is perhaps the largest in its history and kept the company’s German factories running for the last two years. However, the order has now been completed, which means that both companies are now at overcapacity because there has been a 30 percent drop in prices since 2014 and supply is greater than demand in a ratio of 3:1.