Siemens 2006 Annual Report Download - page 111

Management’s discussion and analysis 107
Segment information analysis
Operations
Information and Communications
Communications (Com)
In fiscal 2006, following an intensive analysis by the Managing Board on Com’s strategic
reorientation, Siemens announced significant changes that will result in dissolving Com as a
Group and reportable segment. Effective with the third quarter, Com’s two largest businesses,
one serving telecommunications carriers and the other serving corporate enterprises, were
classified as held for disposal. Also effective with the third quarter, the Siemens Home and
Office Communications Devices division (SHC) was carved out of Com as a separate business
and reported within Other Operations. Com’s remaining business, Wireless Modules, will be
included in A&D, effective with the beginning of fiscal 2007. SHC has been included retroac-
tively in Other Operations to maintain a meaningful basis of comparison with prior periods.
Beginning with fiscal 2007, results for Wireless Modules will be included retroactively in A&D.
Sales at Com rose 7% compared to fiscal 2005, to €13.080 billion, and orders were up 5%, at
€13.571 billion. Group profit was €283 million compared to €421 million a year earlier, as sev-
erance charges increased to €393 million from €113 million a year earlier. This rise was partly
offset by higher gains on sales of Juniper shares, which were €356 million compared to €208
million a year earlier. Profitability improved significantly in the carrier business, where sales
rose to €9.819 billion from €8.867 billion a year earlier. In contrast, the enterprise business
saw sales decline to €3.338 billion from €3.455 billion, and posted a larger loss than in the pri-
or year. As part of its previously announced severance program, the enterprise business took
the majority of the charges mentioned above.
During fiscal 2006, Siemens reached an agreement to transfer the carrier networks and
services business into a joint venture with Nokia, to be called Nokia Siemens Networks (NSN).
We expect this transaction to close in the first half of fiscal 2007 and result in a significant
gain. We also expect that equity earnings from NSN will contribute positively to Group profit
from Operations in fiscal 2007, despite integration costs and charges that may arise from sev-
erance programs related to merging Siemens and Nokia operations into a single organization.
Forming the NSN joint venture and divesting the enterprise business will be a significant
management focus in fiscal 2007.
Management’s discussion and analysis
Year ended September 30,
% Change
(€ in millions) 2006 2005 Actual Adjusted*
Group profit 283 421 (33)%
Group profit margin 2.2% 3.5%
Sales 13,080 12,201 7% 4%
New orders 13,571 12,869 5% 2%
* Excluding currency translation effects of 2% on sales and orders, and portfolio effects of 1% on sales and orders.