Wind, Trains Power Siemens' Future in the U.S.

Public and private partnerships could be the wind that pushes the company forward in the race for high-speed rail and alternative energy in the United States.

German industrial conglomerate Siemens AG is betting that the United States will become a prime market for high-speed rail and renewable energy as the nation tries to lessen its dependence on fossil fuels. Part of the company's success in these areas will depend on what happens in Washington.

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, who was appointed on Oct. 1, 2009, CEO of the division that oversees production, transportation and building technology solutions in the United States.

"Governments are one. Private investments are one. I wouldn't say it's one or the other. It certainly requires manufacturers, contractors, government, investors all working together to make this happen."

IndustryWeek spoke with Dulaney about Siemens' manufacturing future in the United States as part of IW's coverage of its annual list of the world's 1,000 largest publicly held manufacturers, which will appear in the publication's August issue. Siemens ranked No. 24 on last year's IW 1000 list and has moved into the top 20 for 2010. Here's what Dulaney had to say:

IW: What are the major R&D focus areas for Siemens' industrial arm right now?

DD: Certainly our investment in transportation relative to high-speed rail. This is a robust and active program for us directed specifically at the United States, so we're putting a lot of money in that. We have production in Sacramento, Calif., for our train business, and we're making investments for expansion there. We're also investing quite a bit in supporting the smart grid, and there are many emerging technologies inside that, which I think are going to have a big impact in time here in the U.S. Certainly energy efficiency and renewables are important for us. For example, in wind we've made further investments in our drives business to support wind, and we're focused on solar. As that becomes economically viable over time, that will continue to grow. In our automation business, we continue to invest in development there. There are a lot of manufacturers in different sectors that are starting to revive. Certainly automotive is an example where there has been some pent up demand, so we see that business picking up for us.

IW: Are there certain industrial areas where you've had to cut back or reallocate investment?

DD: Throughout the downturn I can say on a global basis for our industry we're proud we have not reduced spending in R&D at all. We believe strongly when markets downturn that's the time to gain share. And you don't do that without investment -- even in our businesses that are slowing. It kind of reminds me of when I was a young lad running cross country our coach would always advise us to pass people on the uphill because that's when the going gets tough and your competition slows. That's when you double your efforts, so we really haven't lost heart in any of our portfolio that might be slowing. I think everyone slowed during the downturn. I don't know any industry that escaped that. But that's the time to look to how you gain share and grow. Many companies have enjoyed, even in difficult times, increased productivity because it sharpened their eye to cost and being more efficient and they want to keep those gains.

IW: When you talk about efforts to increase productivity and efficiency, can you talk about anything at the plant level you're doing?

DD: An exciting example in our customer base was BMW Spartanburg in South Carolina. And what they were trying to do was provide what the market wants, but they wanted and needed to be more productive and flexible to do that. So Siemens here in the U.S. engaged with them. We were able to help them take out one of their lines and go from two production lines, one for the X-4 and one for the Z-4, down to single line where they can now produce both models, and do it in a flexible way. It's reduced their assets in terms of only supporting one production line and has made them tremendously more productive while being able to better meet market demand, so it's an example where a customer is looking to be more productive by being more efficient in their processes, and the key to that really is automation.

IW: What about within Siemens' own production facilities? Is there anything the company is doing within its own plants to improve productivity and efficiency?

DD: We never stop that. That is very front and center for us in terms of always reviewing our processes, our own automation, our supply chain. We have undergone significant consolidation in our logistics, and we continuously look to consolidate in our production and different business units here within in Siemens Industry. We've centralized a large logistics distribution center right outside of Memphis that has really helped us take out cost in our supply chain.

IW: What are some of the major challenges you face with high-speed rail? How much will government policy play into the company's growth in this industry?

DD: I think the biggest challenge is very simple -- cost. We know that the economic impact to cities and regions is very, very high. We know economic benefits are high and very impactful, and there's funding. But we need partnerships, public and private, to bring the level of funding that's needed to get these projects going. The federal government is, and willing to continue, to invest billions in this, but there is still a very large gap to bring this into reality. So private investment is important. I don't think regulation is the big issue. Certainly there are certain safety standards that have to be addressed. Safety standards for rail in the U.S. are based primarily on mass -- meaning big, heavy vehicles make things safe. High-speed rail has to go fast and it can't take big, heavy rolling stock and go fast. It's lighter; it weighs less. So safety is based on automation -- rail automation where every train knows where every other train is all the time. That's a very important business for Siemens Industry, and that's a very important issue for high-speed rail around the world. So there are some regulatory issues that have to be addressed, but those are not insurmountable. I think the biggest challenge is the initial investment in order to get to a very high economic benefit eventually.

IW: In terms of growth opportunities in high-speed rail, do you anticipate more manufacturing facilities being built to support those activities?

DD: Yes, there are [more facilities being built in the U.S.]. There are two perspectives to that: It will drive manufacturing in the U.S. for the supply of what is needed to build rail. Certainly, we build trains here in the U.S., and we are making investments now. We just bought more land to construct a manufacturing facility adjacent to our current facility in Sacramento. There will be many manufacturing facilities that will be built to support this. Secondly, having rail also grows manufacturing in areas where they don't have it because it then supplies labor to manufacturing facilities. This is a very important concept relative to manufacturing here in the U.S.

IW: Would the majority of production be based in the U.S.?

DD: In my estimation, to be a successful supplier of high-speed rail in America, you manufacture in America, and Siemens is committed to that.

IW: Demand for wind-energy installations is down. How do you anticipate these declines impacting Siemens, and how big of a player is wind energy in Siemens future?

DD: It's a big player. From Siemens Industry perspective, we make the drives for wind turbines and we have a 60% global market share, so it's very important to us and very impactful. And we have production here in the U.S. in a LEED-certified manufacturing plant in Elgin, Ill., where we assemble drives. And certainly the gears are also produced by Siemens, so it's a very important business to us. Wind has slowed, but we do not see that as a long-term trend. Wind will continue to be very important and certainly our success in Massachusetts is the beginning of offshore wind for Siemens, and certainly we expect that this will continue to grow over time here. Wind is also producing a lot of jobs, and we have added about 1,100 jobs recently related to wind -- both are from the energy sector as well as industry. We added about 650 jobs in Charlotte and 450 jobs in Hutchinson, Kansas.

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