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Siemens analysis: Betting on diversification

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  1. Introduction
  2. Brief description
  3. Porter's analysis
  4. SWOT analysis
  5. Analysis with respect to competitiors
  6. Income statement forecast
  7. Balance statement forecast
  8. Valuation
  9. Conclusion

Siemens AG is an electronics and electrical engineering company. The company is an integrated technology company with activities in the fields of industry, energy and healthcare. Siemens operates in six segments: Industry, Energy, Healthcare, and ?below the line? segments composed of Equity Investments, Siemens IT Solutions and Services and Siemens Financial Services (SFS). Siemens has changed its structure as of FY 2012 to Industry, Energy, Healthcare and the new Infrastructure & Cities segment. These segments are reported along with 14 divisions, recently restructured into 19 which comprise the divisions, Industry Automation, Drive Technologies, Customer Services, belonging to the Industry Sector, the Divisions, Fossil Power Generation, Wind Power, Solar & Hydro, Oil and Gas, Power Transmission and Energy Service, belonging to the Energy Sector and the Divisions, Imaging and Therapy, Clinical Products, Diagnostics and Customer Solutions belonging to the Healthcare Sector, and the Divisions, Rail Systems, Mobility and Logistics, Low and Medium Voltage, Smart Grid, Building Technologies as well as OSRAM (which has a planned listing for 2012) belonging to the Infrastructure & Cities. In this report, Siemens' analysis will be based on FY11's structure for a more accurate analysis. The Electrical Equipment (or Capital Goods) sector has a small threat of new entrants because they are huge barriers of entry, like a large capital, specific experience and a tremendous know-how knowledge, the only possible threats would be small Emerging Market companies with low costs projects but that don't normally affect Siemens.

[...] a US company is only of Siemens Cost of Goods Sold, and it's the company with the biggest affect on - Siemens' account. This means Siemens has a much diversified supplier base, which is an advantage over its peers. Siemens does not have to be dependent on just a couple suppliers. Bargaining power of buyers: Siemens will face price pressure in the coming years. With the upcoming recession and the turmoil of the European crisis, Siemens' customers will probably have cuts in their budgets and so low prices are key for Siemens as the company needs to keep as much customers as possible. [...]

[...] Siemens is also being investigated on allegations that it bribed customers to win contracts. On top of that, Siemens is being investigated for corruption in at least 10 other countries. As a result, Siemens can face fines or may face exclusion from its bidding for contracts. These misleading acts can take a significant effect on future growth Another weakness of Siemens is that the company has a high dependence on third party providers, which can be subject to a slowdown in revenues. [...]

[...] Even though Alstom is improving, its ROE is still lower than Siemens': another argument for investors to choose Siemens over its competitors. Also, ROE is also a sign of a company's growth potential: a company cannot grow earning faster than its current ROE without raising additional cash. Raising funds comes at a cost: servicing additional debt cuts into net income and selling more shares shrinks EPS by increasing the total number of shares outstanding. Siemens' increasing ROE is a positive sign that its growth rate could outpace its competitor's. [...]

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