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The company's debt appears manageable for now. Given Siemens' total debt of $32 billion, this would equate to debt/EBITDA of about 3.5x. The company's run-rate EBITDA (Q4 EBITDA annualized) was about $9.1 billion. If the power generation market continues to deteriorate the competitors with the best balance sheets may survive.

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However, its free cash flow was EUR $3.3 billion, up 38% Y/Y. Will Power's Demise Impact Siemens' Cash FlowДuring the quarter Siemens' total income from operations fell by 46%. A deterioration in Power could lead to another ratings downgrade for GE, potentially into junk status. However, the headwinds impacting Siemens' power generation segments will likely impact GE in Q4 2018 or by the first half of 2019. Moody's may give GE a chance to stabilize Power before another downgrade. GE is highly-dependent on turning around its Power operations to prove to the rating agencies it deserves an investment grade status. However, its segment profits are one-fifth that of Power and Gas and Energy Management. It grew revenue and profits by 9% and 28%, respectively. Digital Factory, which provides industrial software, was the star. Renewable Energy demonstrated strong revenue growth, but it currently loses money. If these segments continue to deteriorate then it could drag down the entire company's earnings. Power and Gas and Energy Management represent a combined 63% of Siemens' profits. This has resulted in a decline for new large turbine units and price erosion due to overcapacity and aggressive behavior from competitors.

Revenue from services was up slightly, but global energy continue to structurally reduce demand for gas turbines. Power and Gas alone had negative profits during the quarter negative profits were caused by severance charges of EUR 301 million. The total power generation business, which I would characterize as Power and Gas and Energy Management, represented about 30% of total revenue. Each segment generated revenue growth except Energy Management, which was flat Y/Y. In Q4 2018 Siemens generated EUR 22.6 billion in revenue, up 5% Y/Y. The problem is that pretax profit margins of renewable energy tend to be in the single digits versus double-digit margins for gas turbines. Siemens and GE have a sizeable presence in renewable energy that could potentially capture lost sales of gas turbines. As countries continue to shift towards clean energy the slide will likely continue. Sales of large gas turbines for power generation have been in free fall, and recently hit a 23 year low. Now Siemens, GE and Mitsubishi must adapt. Alternative energy sources continue to disrupt the power generation market. Companies that used to be on the cutting edge must continue to adapt. New technologies are disrupting traditional business models. General Electric ( GE) and Mitsubishi ( OTCPK:MHVYF) also face oversupply and declining sales of gas turbines. The cuts in Houston come on the heels of 2,900 announced job cuts in Germany to help boost Siemens' competitive position in its Power and Gas segment. In a letter to the Texas Workforce Commission, Siemens also pointed to overcapacity within its network. The Texas operation will close between late 20, according to the spokesman, who called the decision 'difficult.' German engineering firm Siemens plans to dismiss about 200 workers at a gas turbines parts and components service center in Houston, Texas, next year due to weaker global demand, a company spokesman said on Tuesday. Siemens ( OTCPK:SIEGY), ( OTCPK:SMAWF) recently announced plans to dismiss hundreds of workers at a gas turbine parts and components center in Houston, TX due to weak global demand: Source: ReutersДЄs the global economy teeters, companies continue to announce lay offs in order to cut costs. Siemens logo on a building in Siemensstadt in Berlin, Germany.

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