Siemens: Big Value in Big Technology
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Is Siemens (NYSE: SI) increasing its value, or starting a downhill slide? The German technology giant is making some huge cuts and selling off unprofitable divisions in an attempt to retain value. Among other things, Siemens is making job cuts and other cuts that are supposed to amount to $7.7 million in savings, and pulling out of questionable areas like solar power and water purification.
The idea behind these cuts is to help Siemens retain its value and remain competitive in a shaky economy. The cuts don't seem to have impressed the market much because Siemens' share price has fallen slightly despite the announcement.
Yet the drastic cuts are impressing analysts, if news reports can be believed. Bloomberg reported that analysts at Citi think the budget cutting might raise Siemens' earnings per share by 13% by 2014. That sounds like hype, but if it can be done, it pushes Siemens into the value buy category. Siemens' earnings per share ratio is pretty good right now, but it is nowhere near the 19% level predicted by the optimists.
Siemens is still doing pretty well despite the drastic cuts. Its diluted EPS was much higher than General Electric's (NYSE: GE), which was 1.26% on Sept. 30. Siemens has managed to get some of its numbers up in recent years despite the global downturn.
The best thing about Siemens, though, is its management's willingness to take drastic action to preserve value. The company has decided to get out of nuclear power and the questionable solar electric business. Instead, it plans to concentrate on proven renewable energy technologies, such as wind and hydro power. Siemens plans to sell Solel, the solar business it spent $418 million to buy in 2009.
Siemen's Solar Exit Raises Questions About Sector
Siemens' exit from solar power raises some interesting questions about the solar sector. If a giant, well-capitalized company like Siemens can't make money in solar, what chance do smaller players like First Solar (NASDAQ: FSLR) and Canadian Solar (NASDAQ: CSIQ) have? Neither of these companies has the kind of resources that Siemens has.
On the plus side, Siemens' exit from the field might be an opportunity for such smaller players. They will have less competition for major projects and more opportunities in developing countries, such as Saudi Arabia. Yet these companies may not have the resources to take advantage of this opportunity.
First Solar's net income, as you can see, is in the negative territory. Judging from First Solar's experience, it is easy to justify Siemens' decision to get out of the solar electric business. First Solar is hardly alone as a money-losing solar company; Canadian Solar reported a net income of -$118.02 million, JA Solar reported a net income of -$239.12 million, and Trina Solar reported a net income of -$115.29 million.
Nobody is making any money in the solar business. Siemens' decision to get out is a very smart one. If renewable power has a future, it looks like it is in wind or hydro, rather than solar power. Siemens' decision to stick to those areas shows just how cloudy solar power's future might be.
Siemens is moving into value territory with its cost cutting program. It's a good company that is on the verge of getting better. The share price is a little high at $100, but if you're a disciple of Warren Buffet, you know that it can make sense to pay a little extra for a good company. Siemens looks like a good company, and more importantly, it has a management team dedicated to increasing value.
If you're looking for a buy in the technology or energy category, or a strong European stock to invest in, try Siemens. It has been increasing in value for some time, and it looks like it is about to take off. Even if it doesn't, Siemens is still a good buy because it still has a lot of value.
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