Siemens’s New CEO Sets Sight on Software to Boost Valuation

After his predecessor spent years whittling down Germany’s preeminent industrial conglomerate, new Siemens AG Chief Executive Officer Roland Busch has set his sight on raising the manufacturer’s valuation by doubling down on software.

Siemens is targeting acquisitions of software-focused companies to break into “highly attractive” new markets adjacent to its existing businesses that offer as much as 120 billion euros ($143 billion) in potential revenue, it said Thursday.

Busch predicted software revenue of 5.3 billion euros in fiscal 2020 will grow at a compound annual rate of around 10% until 2025 -- in excess of the hardware products for which the engineering giant is renowned.

Siemens, long a barometer for industrial growth with its wide range of products spanning high-speed trains to factory-automation gear, slimmed down under Busch predecessor Joe Kaeser, who sought to create value by spinning off big chunks of the company rather than keeping them under one roof.

Having made its name forging equipment for the first industrial revolution, Siemens now sees cloud-based software suites pioneered by Silicon Valley giants as the path to a higher valuation.

“Digitalization, automation and sustainability are growth engines for our business,” Busch said in a statement ahead of a presentation to investors. “As a focused technology company, we want to strengthen our position in all our markets.”

Siemens’s New CEO Sets Sight on Software to Boost Valuation

Striking an optimistic tone, Siemens also raised financial targets and announced its first share buyback since 2015. The company will purchase as much as 3 billion euros of stock over a five-year period from next year.

The new financial goals and share buyback mark the first significant steps by Busch, 56, who took the helm in February. While the company’s share price has gained amid the spinoffs of Siemens Healthineers AG and Siemens Energy AG, profit margins continue to lag those of competitors like Schneider Electric SE.

Siemens reversed an initial gain to fall 0.7% in Frankfurt as of 11:24 a.m. local time. The shares have advanced 16% this year, among the 10 best performers on the DAX Index.

Foreshadowing the direction of future acquisitions, Siemens in May agreed to pay $700 million to buy supply-chain management firm SupplyFrame Inc. that provides intelligence on factory outages and material-cost changes.

Siemens on Thursday confirmed its earnings guidance for fiscal 2021 and raised profit targets for its Smart Infrastructure unit -- a division that makes systems for controlling power grids, traffic and buildings -- and its Mobility business, which sells trains as well as related software and equipment.

The company had raised its targets last month on the back of a booming Chinese economy and a recovery in the global automotive sector.

Siemens’s New CEO Sets Sight on Software to Boost Valuation
Siemens’ New Financial Targets:
  • Comparable annual revenue growth of 5%-7% over business cycle to 2025 versus 4%-5% previously
  • Annual increase in earnings per share before purchase price allocations in high-single-digit percentage range
  • Digital Industries keeps profit margin range of 17%-23%
  • Smart Infrastructure aims for profit margin range of 11%-16% versus 10%-15% previously
  • Mobility unit targeting a margin of 10%-13% versus 9%-12% previously

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