ZURICH (Reuters) - ABB (ABBN.S) is reorganizing part of its global power grids operations as the Swiss engineering group responds to the division’s sluggish profitability and falling orders.
The move comes as ABB seeks to justify its decision last year to reject calls from its second-largest shareholder to spin off Power Grids, the group’s biggest but least profitable business.
Power Grids, which also makes electrical substations, has suffered a 9 percent drop in orders this year while its profit margin of 9.9 percent lags ABB’s other businesses and the group level of 12.5 percent.
Although the business has improved in the third quarter, ABB is stepping up its efforts as it aims to achieve profitability for Power Grids of 10 to 14 percent from next year.
ABB said on Monday that it will restructure operations in North America, halting production at its factory in St. Louis and investing in its sites in South Boston and Crystal Springs, Mississippi, as well as expanding its medium and large transformer factory in Varennes, Canada.
The company said is also consolidating European production of traction transformers in Lodz, Poland, halting production of the train components at its factory in Geneva, Switzerland.
Other initiatives include expansion of production in India to better supply the local market and a factory upgrade in Datong, China, to improve efficiency and meet increasing demand.
ABB did not disclose the total number of jobs to be shed in the overhaul, though 100 are being axed in Geneva. The site will continue to produce high-speed chargers for electric buses.
It said 120 jobs would go at the St. Louis site, with production shifting to South Boston. The eventual number of jobs going is expected to be balanced out by increased hiring in India, China and Boston, with more than 500 posts being created over the next two years.
ABB declined to say how much the restructuring would cost, although analysts estimate $60 million to $80 million.
The restructuring had been triggered by increased competition and the growing tendency for customers in India and China to buying products locally, ABB said.
“This ... will enhance competitiveness and strengthen ABB’s global leadership in transformers by better aligning the business to reflect changing market dynamics,” said Claudio Facchin, president of ABB’s Power Grids division.
Earlier on Monday ABB said it is putting its turnkey projects arm for the oil and gas industry into a joint venture majority owned by Saudi Arabia’s Arkad Engineering & Construction.
Workers’ representatives in Geneva reacted angrily to the restructuring plan, saying that 100 fixed jobs and 43 temporary jobs would be lost.
“The Geneva location has been profitable for a long time. The decision to outsource production will cost nearly 150 highly qualified jobs and the destruction of a modern production location in Geneva just for a short-term increase in profitability,” a spokesman for the Unia trade union said.
(This version of the story has been corrected to remove reference to high voltage cables in third paragraph as company has sold this business)
Reporting by John Revill; Editing by David Goodman and Adrian Croft