Siemens Pushes Industrial Software With Purchases to Lift Profit
Siemens AG (SIE), Europe’s largest engineering company, said it will continue to buy industrial software companies in its pursuit of a larger share of a market that’s growing at twice the pace of factory equipment.
Acquisitions will be mainly smaller after Siemens announced the purchase last month of LMS International, a closely held Belgian software maker, for about 680 million euros, said Siegfried Russwurm, the Siemens executive leading the industrial division.
Industrial software is slated to become a 28-billion-euro ($37 billion) market by 2018 from 17 billion euros today Siemens and competitors ABB Ltd. (ABBN) and Schneider Electric Co. add software to let industrial tools perform complex tasks from developing race cars to space probes. Siemens generates a third of total operating profit from its industrial automation and drives units, and marrying hard- and software supports its margin as the Munich-based company seeks to boost profitability.
“Virtual product design and testing is all about being faster and reducing development costs,” Russwurm said in an interview in Munich last week. “Our software investments safeguard our industrial automation and drives businesses.´´
The industrial-software industry will grow by 8 percent each year through 2018, and Siemens aims outpace that expansion, supported by potential acquisitions, Russwurm said. Siemens does not disclose sales or profit generated with software. The company has 17,000 software engineers, out of a total workforce of about 370,000.
The promises of higher profitability from software is illustrated by the success of SAP AG (SAP), the market leader for programs that help companies manage tasks such as procurement and inventory. The German company leapfrogged Siemens as the country’s largest company by market value, with revenue that are but a fifth of Siemens’s own, yet profitability twice as high.
Siemens, ABB and Schneider spent at least a combined $8 billion in the past six years to add software allowing clients to simulating product development and manage power grids or transportation systems more efficiently. Daimler AG uses Siemens software for its global vehicle development, switching over from Dassault Systemes SA (DSY) in 2010.
‘‘It is a hard-fought market, Russwurm said. ‘‘If we perform, customers stay with us. It’s a very sticky business.´´
Russwurm said the company will seek to expand its customer base to include industries including food, beverages and pharmaceuticals to complement its existing stock of automotive and aerospace companies.
ABB claims the leading position in software for process automation, serving petrochemical and pharmaceutical companies. The Zurich-based company spent $1.5 billion on industrial software companies since 2010, and Chief Executive Officer Joe Hogan said he aims to grow services and software revenue to make up a combined 25 percent of total by 2015.
Schneider bought Telvent GTI SA last year for about 1.4 billion euros, adding software to its offering in infrastructure and doubling the number of employees in software businesses to about 10,000.
Siemens’s software, built on more than 4 billion euros of acquisitions, creates ‘‘a tremendous amount of synergies,’’ said David Humphrey, an analyst at ACR Advisors specializing in industrial software. ‘‘For some, acquiring software makers would make a lot of sense. There is a still window of opportunity open.´´
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