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June 19, 2006 6:17 pm

Deal ‘will change face of industry’

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Klaus Kleinfeld, shortly before he took over as Siemens chief executive, dropped a journalist’s Nokia mobile into a glass of water in disgust. Reminded on Monday of the incident by the FT, Mr Kleinfeld laughed, saying: “I purposefully didn’t mention that in the negotiations . . . I will suggest Nokia go for waterproof phones.”

Just as his submerging the phone was laden with symbolism as Siemens struggled to keep its mobile handsets divis ion afloat, so was Monday’s joint venture agreement with Nokia. Telecoms was the founding business of Siemens back in 1847. Putting nearly all of its assets into a joint venture sends a clear signal he is no fan of tradition.

It also puts Siemens on a path to meet what looked like highly ambitious margin targets announced last year. Its telecoms equipment division, Com, was always the problem child. Its margin of 0.8 per cent in the second quarter compared with 8-11 per cent it was meant to reach by this April.

Now that worry has disappeared. Most of Com – fixed and mobile networks businesses as well as services – will go into the 50-50 joint venture with Nokia. Its enterprise networks business will be sold to a strategic buyer or a private equity fund already in the sector. The remaining wireless industrial applications unit will be folded into the German group’s automation and drive division.

Problems still remain but investors mainly believe these are all solvable.

All of this reflects Mr Kleinfeld’s impatience. Colleagues say he is unwilling to accept under-performing assets and his April margin targets underline that. He wants all divisions in the conglomerate to earn industry-leading margins. SBS aside, all are there or close with units such as medical technology and automotive parts already earning healthy margins.

“After this, Siemens’ other operations really are world-class,” said Ben Uglow, analyst at Morgan Stanley.

The mechanics of the deal show how weak Com was compared with competitors, who could negotiate with it from a position of strength. Despite bringing €9.2bn ($11.6bn) of the €15.8bn in revenues and 40,000 of the 60,000 workers Siemens still only gets 50 per cent of the joint venture, probably with fewer senior managers.

Mr Kleinfeld said: “We believe this was the best solution we could come up with. It will change the face of the whole industry.”

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