Siemens Puts Green on Fast Track

Siemens Puts Green on Fast Track

Revenue growth finally on the horizon as diversified engineering giant expands environmental solutions and global presence.

German industrial conglomerate Siemens AG has embraced the gamut of energy-efficient products. Whether it's wind turbines, solar energy, water technologies, smart-grid solutions or trains, the US$111 billion company has made the development of green products a major part of its business strategy.

In 2009, the company sold 23 billion euros worth of environmental technologies, an 11% increase over the previous year, according to the company's annual sustainability report. By 2011, the company plans to generate 25 billion euros (US$31.5 billion) in its environmental portfolio. Siemens had not grown revenue since the fourth quarter of 2008. But the company said on June 29 it expects sales growth to return in the third quarter on increased orders in the energy and health care sectors.

Returning to revenue growth also could help the company continue to rebuild its image after it was forced to pay $1.6 billion in fines in late 2008 to settle bribery charges in the United States and Europe. Siemens President and CEO Peter Loscher has said the investigations served as an incentive for the company to remain vigilant and focused. He was hired in the wake of the scandal after former CEO Klaus Kleinfeld stepped down. Under Loscher's stewardship, the company is moving forward with an industrial-growth strategy that is tailored to meet demand in specific markets.

Full-Speed Ahead

In the United States, the company has focused much of its efforts on the high-speed rail and wind-energy markets. Part of its success in these areas will depend on what happens in Washington. President Barack Obama announced in January the federal government would provide states with $8 billion in economic stimulus funds to build 13 new large-scale high-speed rail corridors across the country. But government support alone won't fuel future growth in high-speed rail, says Daryl Dulaney, CEO of Siemens Industry Inc. "To make high-speed rail happen, it needs a number of constituents to support it," says Dulaney, CEO of the company's U.S. industrial division. "Governments are one. Private investments are one."

Siemens' Velaro train has reached speeds of up to 250 mph. The company says the train would be ideal for high-speed rail plans in California and Florida, where trains would travel at a maximum speed of 220 mph.
In terms of private investment, Dulaney says local and regional developers and investors are needed to identify ideal locations for train stations and to supplement government funds. "If you take any of the corridors, there were some billions that the federal government put into it, but it was multiples of that that are required to build it," he says. "There are investors who want to invest in infrastructure around stations, but there is a lot of civil-work expense in running hundreds of miles of track, and that is more than what the current allocation from the federal government will cover."

There is no question, though, that government funding has helped Siemens move forward with high-speed rail investments in the United States. In February, the company said it spent $26 million to expand a Sacramento plant utilizing the federal funds announced a month earlier. The company expanded the plant to meet future demand for high-speed rail technology.

Siemens makes a line of trains called Velaro currently operating throughout Europe and China that can travel up to 250 mph. The company says these trains match the needs of high-speed rail systems proposed for California and Florida. Siemens also manufactures slower trains, such as the Viaggio, that would fit the requirements for other proposed corridors in the Midwest.

Siemens also expects increasing opportunities in the wind-energy market. The company expects to add about 1,100 wind-energy related jobs in the United States at facilities in Charlotte and Hutchinson, Kan., Dulaney says. Siemens broke ground on the Hutchinson facility in October 2009 where it plans to build wind-turbine equipment and expects to begin operations at the plant in December 2010. In March, Siemens said it will expand a Charlotte facility and add about 650 jobs at the plant to accommodate wind-energy growth.

Demand for wind energy has slowed recently. In the first three months of 2010, wind-energy installations dropped to their lowest first-quarter total since 2007, according to the American Wind Energy Association. The association has called on Congress for renewable energy legislation to stabilize the industry. Dulaney says market trends indicate the slowdown is a short-term phenomenon. But the company is hopeful that a national energy policy will create a long-term market for the renewables industry in the United States, Jan Kjaersgaard, vice president of Siemens' U.S. wind power business, told IW in May.

Moving closer to customers

Siemens' desalination technology is based on the separation of electrically charged sodium and chlorine ions, which make up salt. The company's Industry Solutions division considers water technologies to be a major growth driver in the future.
Outside Europe and the United States, Siemens considers the BRIC countriesBrazil, Russia, India and Chinaand the Middle East to be the prime sources of future growth. Loscher said earlier in the year that the company will have to redouble its efforts to drive product development in these markets by increasing its focus on the company's core functionalities and on reasonably priced, user-friendly products.

The company's Industry Solutions division stressed the importance of investing in Asia with a focus on pricing during the business unit's metals and mining summit in Essen, Germany, May 9-11. The division, which provides engineering services and plant technologies, will invest approximately US$43 million in China and India to expand its production, engineering and project-handling capabilities in the Asia-Pacific region. The division has committed to locating operations in the region in an effort to localize its VAI Metals Technologies offerings, says Tim Dawidowsky, senior vice president and general manager of the division's China operations.

Indeed, the two emerging markets produce more than half the world's steel and are expected to increase steel production by more than 10% annually, said Dawidowsky during the summit. The Industry Solutions division, which accounts for about 10% of the company's total revenue, is following a companywide strategy to offer products and services that are priced and designed specifically for emerging markets.

Pricing is critical in emerging markets, whereas developed countries tend to be more performance-driven and focused on lifecycle solutions, says Werner Auer, CEO of Siemens VAI, which provides engineering and technology solutions for steel mills. Establishing its own operations in Asia gives Siemens more control over its intellectual property and the opportunity to utilize local engineers who are more familiar with the needs of Asian customers, Auer says.

In India, the division will be concentrating on selected raw steel production technologies, whereas China will be responsible for new rolling developments, Auer says. Both countries also will oversee worldwide marketing of their products to meet their countries' new and specific market requirements, he says. "Siemens VAI is putting the business responsibility where it originates and where it can and should grow," Auer says. Siemens also has more control over its intellectual property by owning production in emerging markets, Auer says. "Examples from many industries in China and India show that today's local companies can be our competitors tomorrow, and that they will be offering the technologies which are currently the strengths of European plant constructors," said Auer during the May conference.

Water World

While traditional heavy manufacturing is still a growth area for the Industry Solutions division, particularly in emerging markets, the business unit is following a companywide goal to boost sales of environmentally friendly products. Water technologies is one of the more significant developments in this area, says Jens Wegmann, Industry Solutions CEO. The water market is expected to grow at a compound annual growth rate of 5% through 2015, Wegmann says. "Obviously, our intention is to grow more than the market, and the main growth regions are in Asia," he says.

The division has developed a desalinization tool that produces process water from seawater. It also is testing a process that would extract energy from municipal wastewater that could be harvested as biogas and converted to energy for use in manufacturing process plants. The process is slated for pilot testing in October and scheduled to be commercially available in early 2011.

In 2004, Siemens acquired Warrendale, Pa.-based water treatment and purification systems supplier USFilter as a base for its water technologies business. More than 30% of the water technologies revenue is generated outside the United States, Wegmann says. "That means we are driving a very strong internationalization," he says. The company also has been acquiring water technology companies that fit specific verticals that the Industry Solutions business serves. For instance, in December 2009 the company acquired Industrial Process Machinery in Manchester, N.H., to expand its dewatering solutions for the mining and process industries, Wegmann says.

"So this is what Industry Solutions isa solutions-house," Wegmann says. "We utilize technologies that we have in one area and bring it in the verticals we serve to have a new level of differentiation," he says. The water technologies business has been a stabilizer for the division during the economic crisis and continues to be a promising growth market for the company, Wegmann says.

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