Siemens AG (SIE.XE) plans to divest its solar business, the German industrial conglomerate said Monday, a first step in an overhaul to bolster profits.

"Due to the changed framework conditions, lower growth and strong price pressure in the solar markets, the company's expectations for its solar energy activities have not been met," Siemens said in a statement.

Earlier this month, Siemens said it would initiate a program to strengthen profitability and efficiency, and would review underperforming operations. It will disclose further details on Nov. 8.

The exit from the solar business, which doesn't meet the group-wide aim of 15% to 20% return on capital employed, will slim Siemens' energy business down further. Last year it said it would exit the nuclear segment, and sold its stake in the nuclear joint venture Areva NP to France 's Areva S.A. (AREVA.FR).

Overcapacity among producers of solar equipment and competition, in particular from Chinese companies, is denting the sector's profitability and has led to the insolvencies of several German makers of photovoltaic equipment, such as Q-Cells and Solon.

Siemens said it is already in talks with potential buyers. Its solar business is rather small, with revenues last fiscal year of less than 300 million euros ($409 million), a small fraction of the group's EUR73.52 billion total revenue. Overall, Siemens' energy segment had sales last year of EUR24.9 billion.

Siemens is active in solar thermal energy generation, using technology that converts sunlight to heat, which drives a heat engine. Siemens expanded in this field three years ago with the acquisition of Israel-based Solel Solar Systems for EUR284 million.

Siemens doesn't make photovoltaic cells or modules, which use semiconductors to convert sun rays into electricity.

The divestiture plan affects 680 employees, 400 in Israel and around 180 in Germany .

Siemens will focus its renewable energy activities on wind energy and hydro power. More than 7,000 of its employees work in the wind power division and another 2,000 work in the related service business.

An analyst says Siemens' exit is a logical step. "Solar thermal energy hasn't been able to compete with photovoltaic since 2011 due to declining prices of modules," said Leonard Herbig of the Berlin-based Center for Solar Research. Siemens has entered the solar business too late and operated it only half-heartedly, Mr. Herbig added.

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