Siemens reshapes its core to fuse software with factory gear

What Siemens is changing

Roland Busch, who took the helm in early 2021, is kicking off a restructuring aimed at bringing Siemens' software, hardware and data under one roof for customers. Starting Oct. 1, four units within its top division, Digital Industries, will be combined into a single automation operation. The idea is to connect what are now separate sales, technology and data teams so Siemens can squeeze more value from AI and software layered onto its equipment.

If this redesign works, Siemens would be in a stronger spot to package hardware, software and services as one system, and it would be simpler for customers to navigate a sprawling manufacturer.

Why it matters for the business

Busch wants big manufacturers like Boeing and Volkswagen to get more of their needs handled through one contact at Siemens - from hooking up a factory to the power network, to providing machine controls plus the software to design and operate those machines. Unlike a pure software vendor, the Munich-based company already delivers equipment across industrial plants, buildings, electrical grids, and transportation systems. Because of that reach, Siemens can tap into equipment, customer relationships and operating data, and the company is wagering that tighter integration of controls, code and data will make it tougher for rivals to swap it out, including in industrial AI.

This is the latest step in refocusing a company founded in 1847 in a small Berlin workshop with just 10 workers. Over the past few years, Siemens divested units spanning semiconductors, energy equipment, and medical technology. The emphasis now is on getting the remaining pieces to work together better.

Siemens' range still runs from factory controls and power kit to trains and industrial software. It continues to hold more than 70% of Healthineers and intends to trim that ownership next year.

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What investors are watching

Siemens' push into industrial AI has helped lift it into the ranks of Germany's most valuable companies, yet its margins still lag Switzerland's ABB and look small next to U.S. competitor Honeywell International. The company carries a market value of about €215 billion ($244 billion).

Some shareholders like the direction. Jasmin Wolfram of Union Investment, a fund manager whose firm owns 0.7% of Siemens, said, "If Siemens can scale R&D and at the same time sell hardware, software and services together to customers as an integrated system, that creates both cost and revenue synergies." "That was something investors criticized for a long time: the lack of a companywide backbone."

According to UBS analyst Andre Kukhnin, Siemens' conglomerate discount, which was as high as 50% about three years ago, has shrunk to roughly 10% to 15%. "They have been successful in reducing it and commanding valuation that is more and more comparable directly to their pure-play peers," he said. Narrowing that gap further will depend on demonstrating that the streamlined setup can accelerate growth and boost returns. For context, margin figures for Digital Industries and Smart Infrastructure refer to the entire divisions, not their sub-divisions.

The stakes for your money

Germany's industrial model is under pressure from higher costs, softer demand and faster Chinese competitors. Siemens is leaning on its engineering base and layering in software and AI to stay sharp. To build that capability, it has put more than $15 billion into the software companies Altair and Dotmatics, and it is establishing an AI hub in Seattle with Vasi Philomin, formerly of Amazon Web Services, set to run it.

If the restructuring delivers, Siemens could sell more of its portfolio as unified solutions and become stickier with customers. Markets have already rewarded simplification by shrinking the company's conglomerate discount, and the next move likely depends on whether this tighter setup turns into faster growth and sturdier profits.

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