Siemens Will Shut Solar Unit on $1 Billion Loss in Two Years

Siemens AG will close its solar power unit after struggling to find a buyer following losses of at least 784 million euros ($1 billion) euros since 2011 amid Chief Executive Officer Peter Loescher’s failed push into that business to expand renewable energy offerings.

The shutdown of the solar division will affect about 280 workers at Europe’s biggest engineering company. Siemens, based in Munich, will finish several solar projects and the closure will cost a “double-digit million-euro” sum, spokesman Torsten Wolf said via phone.

The company paid $418 million to acquire Beit Shemesh, Israel-based Solel Solar Systems in 2009 as Loescher sought to replicate Siemens’ successful expansion into wind-power and win more revenue from its so-called green portfolio. The division was put up for sale in October as prices for solar technology offerings declined because of a supply glut and weak demand.

It “has become evident that, due to the increasingly difficult market situation, we will not find an investor for this business,” Wolf said. “We had negotiations with a number of interested parties but no agreement could be achieved.” Siemens’ solar operations offered solar-thermal power technology, whereby mirrors in so-called parabolic troughs focus sunlight on liquids to generate steam and power turbines.

The segment has been undermined by plummeting costs in the competing photovoltaic panel sector. Three years ago energy from the latter was 10% more expensive than solar-thermal, while now it is less than half as much, according to data compiled by Bloomberg New Energy Finance.

Siemens’ solar unit also struggled because of the perception in North Africa, one of the biggest markets for the industry, that the unit was an Israeli company, making it hard to do business there amid the region’s political tensions, according to a person familiar with the company’s strategy, who asked not to be named because of the matter’s sensitivity. Wolf declined to comment.

Siemens rose 1.5% to 80.51 euros as of 1:44 p.m. in Frankfurt trading, valuing the company at 71 billion euros. Before today, the stock had declined 3.5% this year. At the time of the acquisition, Solel had more than 500 employees. Siemens also increased its stake in Italian solar thermal specialist Archimede Solar Energy Srl to 45 percent in 2010. Siemens then returned its stake in Archimede to majority shareholder Angelantoni Industrie SpA before announcing its plans to leave the solar sector, according to spokesman Wolf.

Amid the rising charges for the failed push into solar energy and delayed train deliveries, Loescher in May cut the company’s profit forecast for the fourth time in his six-year tenure, prompting investors to question whether he’ll be able to reach a target for matching profitability at rivals General Electric Co. (GE) and ABB Ltd. (ABBN)

His target is to boost the operational profit margin to 12 percent by the next fiscal year. That compares with a 9.5% margin in 2012, when ABB and General Electric had margins of 10.3% and 15% respectively. Siemens said today it will complete unfinished solar contracts, which include projects in Spain, where it paid 115 million euros in charges in the three months to the end of December for delays in the sector, before finalizing the unit’s closure.