Feb. 25 (Bloomberg) -- Siemens AG, Europe's biggest engineering company, will eliminate about 7,000 jobs at the corporate telecommunications unit as it prepares to sell the division, said two people with direct knowledge of the plans.
The cuts represent 40 percent of the division's 17,500 workers. Munich-based Siemens contacted Alcatel-Lucent SA, Nortel Networks Corp. and buyout firm Cerberus Partners LP about a sale, said the people, who asked not to be named because the talks are confidential. Basking Ridge, New Jersey-based Avaya Inc. already pulled out of discussions, the people said.
The unit failed to meet profit goals as demand fell and competition from Ericsson AB increased. Once Siemens's biggest by sales, the business was left over when the company formed a network equipment venture with Nokia Oyj last year. The division sells phone networks and communications services to companies.
``The enterprise communications business is in bad shape and Siemens needs to cut jobs and costs to convince potential buyers,'' said Boris Boehm, who helps manage about $7 billion, including Siemens shares, at Nordinvest in Hamburg. ``It makes sense to get rid of that business as the company focuses on faster-growing markets, but it would certainly be another blow to Siemens' public image.''
Siemens said today in a statement that it will inform the public and the unit's employees about the plans tomorrow. The company didn't give any details. Spokesman Marc Langendorf declined to comment via phone today.
German Losses
Chief Executive Officer Peter Loescher said in an interview with Bloomberg Television last week that the company is in ``promising talks with several partners to lead that business in a successful future.'' He also said that a solution for the division will be found ``in the near future.''
Alcatel-Lucent spokesman Mark Burnworth and Nortel spokesman Mohammed Nakhooda both declined to comment, as did a spokeswoman for Cerberus. Avaya spokespeople couldn't be reached for comment.
Werner Neugebauer, who heads the IG metall union in the federal state of Bavaria, said 7,000 job cuts would be a ``surprisingly high number'' because Siemens said in August it would reduce headcount by about 600 jobs at the division. He declined to comment on potential buyers for the unit.
The business has about 3.6 billion euros ($5.3 billion) in annual sales. About 4,000 jobs may be cut directly and about 3,000 jobs may be slashed by selling factories or setting up partnerships, according to the people. The unit's German operation will lose almost half of its 6,200 employees.
The cuts were reported earlier by Financial Times Deutschland and Handelsblatt.
Bribery Probe
Siemens may get just 1 billion euros for the unit because the enterprise communications market has become ``even more competitive'' since the Nokia deal was announced in 2006, Nordinvest's Boehm said. In 2006, analysts including Bernd Laux at Cheuvreux and Michael Bahlmann of M.M. Warburg estimated the unit could fetch about 1.5 billion euros.
Siemens, whose products range from light bulbs to medical scanners and wind turbines, rose 1.2 percent to 88.70 euros in Frankfurt trading. The stock has lost 19 percent this year, compared with a 15 percent drop for Germany's main DAX index.
Loescher, who joined Siemens in July, announced an overhaul in November that will consolidate the current nine divisions into three units: energy, industry and health care.
Loescher took over from Klaus Kleinfeld, who announced his departure in April after 2 1/2 years because of a bribery investigation. Kleinfeld had already accelerated an overhaul, getting rid of the unprofitable mobile-phone division and moving the network unit into the venture with Nokia.
Corruption Scandal
The communication unit was at the center of the corruption and bribery scandal that has rocked Siemens since 2006, amid allegations that employees used slush funds to bribe clients for orders. Siemens has found ``questionable'' payments of 1.3 billion euros between 2000 and 2006.
The investigations prompted the resignations of Kleinfeld and Chairman Heinrich von Pierer. The U.S. Securities and Exchange Commission also started its own probe into possible legal violations.
The enterprise division sells technology for call centers, messaging and teleconferencing. Its customers include Bayerische Motoren Werke AG, the Finnish Labor Ministry and Lockheed Martin Corp., while its main competitor is San Jose, California-based Cisco Systems Inc.
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