Munich Siemens’ new digital strategy is beginning to take effect. “We have gained new customers and additional sales from small and medium-sized companies via the Siemens Xcelerator platform,” said Siemens CEO Roland Busch to the Handelsblatt. Digital growth should be further accelerated.
Busch wants to significantly increase the share of software and digital services in the group’s total sales, which was recently less than ten percent. “I can well imagine that we will be around 20 percent in the long term.” On a current basis, that would be a good 14 billion euros based on Siemens’ total sales of 72 billion most recently.
Siemens presented the Xcelerator last June. For Busch, the new digital platform is a central project that should lead the group into the future with its broad portfolio of industrial technology and infrastructure solutions.
After the radical restructuring under predecessor Joe Kaeser with the spin-off of the low-margin energy technology, Busch Siemens wants to change even more in the direction of an IT group.
In doing so, he does not want to give up traditional hardware expertise, for example in trains, but rather strengthen it with the help of data and software. Busch also wants to defend the group’s position in the automation of factories worldwide against competitors such as Microsoft and AWS, who diligently collect data via their cloud offerings and thus dispute part of the value creation from Siemens.
Siemens is involving external partners for the first time
In the future, Siemens wants to sell hardware and software modules via the “Xcelerator” and at the same time connect external partners. This should create an ecosystem and a digital marketplace with open interfaces. According to Busch, almost a year after the start, 70 external partners offer 91 applications and 333 products via the Xcelerator. The number should increase significantly.
This is the first time that Siemens has given specific figures and goals. So far, the effects on the business for investors have been difficult to assess. Since Busch did not associate any new growth or margin targets with the launch of the “Xcelerator”, the capital markets initially remained cautious after the announcement.
That has changed since the new strategy took concrete shape. The Siemens price has risen from 95 to 145 euros since the fall. There was also skepticism at times on the supervisory board. The committee pushed for the concept to be explained in detail, says an inspector. But I think the approach is correct.
Automation for factories should become more flexible
Now the platform is to be expanded further. So far, the Xcelerator has mainly contained many software modules. The automation technology with the Simatic controller, which is installed in almost every factory, is now to be linked more closely to the Xcelerator. Siemens is also presenting the new Xcelerator range for automation and production control at the Hanover Fair under the name Industrial Operations X.
“Previously, systems have often produced unchanged for years once they were set up,” says Rainer Brehm, CEO of the Factory Automation division. In the future, virtual control will also be possible. The data generated during operation could also be made available to app developers, for example.
In the future, the connected controllers can also be regularly supplied with updates for new functionalities and optimized during operation with the help of artificial intelligence. This increases flexibility for factories in new and fast-growing segments such as battery manufacturing. This also applies to smaller production facilities, which are being built closer to home markets as a result of global tensions.
The CEO wants to accelerate the growth of digital businesses.
(Photo: Lennart Preiss/Siemens AG)
Some medium-sized companies considered Siemens arrogant and expensive
There is still potential for Siemens, especially among medium-sized companies – but there are also reservations. “Siemens is still too expensive for many smaller companies,” says the CEO of an industrial company. The group is reacting: Due to the increased modularization in the Xcelerator, customers can now select individual elements that are tailored to their needs and then partially finance them, for example, through monthly license fees.
“The Xcelerator has the potential to drive business,” says Peter Bilello, industry expert at consulting and market research specialist CIMdata. The platform strategy is the right approach to attract customers who want modular solutions. However, it is still too early to make a judgment about the strategy. Phil Carter, Vice President of IDC, sees it similarly: “I see the Xcelerator positively.” The platform creates a framework for the various solutions and opens the door for partnerships.
However, Carter warns of internal consequences: “The Xcelerator is also a risk for Siemens, above all because all internal processes have to be changed.” That ranges from the sales organization to bonus systems. Siemens must also push through a change in mentality towards openness to ecosystems. “But if you want to lead a market, you also have to take risks.”
The starting position: Siemens is the world market leader
Siemens is embarking on the transformation from an overall good starting position. The group is the world market leader in industrial automation, for example with the Simatic controller for factories, and – mainly thanks to a series of acquisitions – in the field of industrial software.
Recently, the development could be expanded. In the 2021/22 financial year (September 30), the Digital Industries division increased sales by a comparable 13 percent to 19.5 billion euros. Siemens, for example, developed better than its competitor Rockwell Automation. CFO Ralf Thomas recently indicated that things continued to go well in the first half of the current financial year.
In the pure software business, the comparative development is currently not easy to assess. Some companies are still selling the licenses, others like Siemens are in the process of switching to a “Software-as-a-Service” (SaaS) rental model with lower but more stable revenues in the meantime, and still others have made further progress with this.
“Siemens is not at the forefront with the conversion,” says CIMdata analyst Bilello. For example, the major competitor PTC is already further advanced in the transformation. But the people of Munich are not too late either. Siemens customers are more conservative, so it is right to proceed more slowly but more carefully.
The switch to SaaS makes it difficult to compare sales at the moment. But the Redburn industry analysts judge for the central area of PLM software (product life cycle management): “We see indications that Siemens is gaining shares from Dassault in the course of the SaaS conversion.” Group, on the other hand, is ground to specialists such as Cadence and Synposis.
>> Read also: Siemens upgrades Siemens Energy stake by 1.6 billion
Siemens CEO Busch says he is “very confident” of achieving digital growth of more than ten percent in the current fiscal year despite the switch to SaaS. When this is largely completed, it should be significantly accelerated.
The competitors: “The hyperscalers have lost interest a bit”
It won’t be easy, there are a number of challengers. In addition to ABB, Schneider Electric and Rockwell Automation, there are also new providers such as the Chinese Inovance, which is very aggressive in price on the market for drive technology and controls. “There is a risk that it will become a kind of Huawei in the automation industry,” says an industry insider.
In addition, there are Amazon and Microsoft in particular with their cloud services AWS and Azure, which are pushing into the applications. However, says a Siemens manager, they have recognized how difficult it is to build up and scale industry knowledge. “You’ve lost a bit of interest.”
More: Siemens supports China’s defense industry.