Siemens retreats from the consumer

The giant is shifting onto its backfoot. But it will need to hone its consumer marketing skills to retain its position in med-tech over the next decade.

At the height of the boom, it all looked so simple for Siemens. Like many other electronics giants, telecoms was the place to be. And the hottest action in telecoms was mobile.

Many investors, particularly in America, urged Siemens boss Heinrich von Pierer to dump the company's slower moving big iron stock - especially its ailing med-tech division. Von Pierer ignored their advice. Instead, he put a young Americophile, Klaus Kleinfeld, in charge of the medical division. He promptly shifted the point of gravity of that division westwards over the Atlantic.

Now the medical division is the biggest gem in the Siemens crown: the former lame duck is now Siemens' most profitable business. Its boss, Kleinfeld, has ascended to the top of Siemens, succeeding von Pierer as company CEO.

Affairs within the company's consumer mobile division are not nearly so happy. The ICM division is now losing money hand over fist. In an echo of their earlier advice to von Pierer, investors are urging Kleinfeld to dump mobile. Rumours are rife that the division is for sale, or the chop.

So what? One division has turned around, another falters. But there are signs that a more tectonic shift is underway at Siemens. For while the mobile division is leaking money, the company's network infrastructure business is booming. The company has gone on a spending spree to acquire more heavy engineering and power generation assets.

So it seems that the lesson Siemens might be drawing is to stick to their knitting - that sound McKinsey mantra. And in Siemens' case, their knitting appears to be big gear, business to business industrial goods.

And of course that's just where Siemens is strongest. Its forays into the consumer market expose the company's flanks to attack from much faster, lower cost eastern rivals - like Samsung, responsible for so much damage to the company's mobile business.

But Siemens needs to retain its consumer marketing edge if it's going to maintain its position in medical over the next decade.

Healthcare technology is becoming increasingly commodified. The long term trend is towards simpler, easier to operate and cheaper equipment. It's happened at the lower end of the diagnostic market. There's every sign it's now moving, slowly, towards the upper end of the market.

That means big diagnostic equipment will increasingly be found outside the big specialist centres where Siemens, Philips and GE have their established client relationships. Their medical divisions will have to learn to communicate to a wider, less specialist audience. It also means that margins will shrink, so volume of sales will increase in importance.

In short, medical divisions will have to master the consumer market — channel relationships, marketing, media, and all. Where will they learn such skills? Well, in Siemens case, the obvious answer is the company's mobile division. Will their former boss sell it before Siemens medical needs it?

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