Siemens AG’s FQ4 boosted by Digital Factory, admiration for Bentley
Siemens AG reported FQ4 and fiscal 2017 earnings earlier today. It’s a confusing picture of a huge company, with acquisitions and divestitures, but here’s what matters: The AG grew total revenue by 4% to €83 billion. The Digital Factory segment (where PLM sits) reported that revenue was up 12% to €11 billion. Digital Factory isn’t the biggest business within the AG but it is big and profitable.
Sloshing billions around is all well and good; what does it mean to those of us in the PLMish world? Here’s what Siemens AG CEO Joe Kaeser told investors:
The PLM software business grew revenue in the mid-single digit in Q4, in line with peers ... We are also taking major steps to improve time-to-market for product development by using our own PLM software product as digital backbone to improve collaboration and increase process speed and transparency. More than 13,000 Siemens developers are now using our own PLM software.
That’s interesting, both in the sense that Siemens PLM’s toughest customers may be internal and that the AG itself is a significant revenue source. Too, that comment about Q4 PLM revenue neglects to mention that FQ4 2017 includes a contribution from Mentor Graphics, which reported revenue of $323 million in the year ago quarter so likely had revenue a tad below that this year. We don’t know exactly how the PLM business did, but grow it did. And speaking of Mentor, Mr. Kaeser said,
It is very encouraging to see that Mentor Graphics integration hit all defined integration milestones 6 months after closing. As expected, the cross-selling pipeline is filling up with new opportunities. As already announced earlier in the year, we now implemented the targeted improvements in the business, impacting profitability by severance charges of €86 million … The Mentor Graphics acquisition actually has turned out to be even better than our original thinking, integrating the physical mechanical design with the electrical design.
That fits with the impression the PLM/Mentor team gave at the analyst day in September. Lots of opportunities to work together on key accounts, to smooth the design and manufacturing of complex electromechanical systems, and to look for ways to reach higher fidelity via co-simulation.
And, finally, MindSphere, Siemens’ IoT entry is still a work in progress:
For the full fiscal year, we spent €100 million getting MindSphere into place and we will see that investment continuing for the next 6 or 8 quarters. We expect to see our MindSphere investment peaking in in fiscal ’18 at €175 million …
Siemens clearly continues to believe that its software vision is critical to its long-term success — but I’m surprised the MindSphere investment isn’t bigger. Don’t get me wrong: €175 million is a lot of money. It just seems rather paltry given Siemens’ overall resources, the potential of the IoT market as a whole and for Siemens, specifically, to grow into every operating plant and every product design team. It has the potential to connect the dots between designing and making and using across a huge industrial and geographic scale, so why not invest more? Perhaps because it’s still a market in search of products rather than concepts and toolkits. But here’s what I think Siemens means for us to take away from today’s earnings call: Siemens AG’s software business is big, healthy and growing. PLM is used across the enterprise, constantly feeding back to the R&D team. And the pace of MindSphere investment is ramping up — so get ready.
One last nugget. An investor asked about mergers and acquisitions, pointing out that Mentor was announced just about a year ago. Mr. Kaeser was cautious but again singled out Bentley’s contribution in the process industries:
it’s been busy, getting our act together on the mechanical and electrical design environment [PLM + Mentor]. We are the only company in the world that can provide a fully comprehensive digital thread from the design of a product, to the production line, all the way to the service life. We feel pretty good on what we do there … [For the process industries] We signed a deal and a cooperation agreement with Bentley that gives us access to 3D design. In turn, we provide a global distribution network for that product. It’s a huge benefit for both of us. We are, in general, a bit shy about doing rich cash deals … we also do believe that valuations have gotten pretty rich in the space we are active in. We have quite a full plate in 2018!
It’s striking how often Bentley and Siemens talk about one another, and how important this cooperation is to both. I still need to write up my notes from Bentley’s Year in Infrastructure last month but when I do get to it, you’ll read that I CEO Greg Bentley also seemed very happy with the state of the Siemens partnership. He sees a lot of scope to expand technical and go-to-market with no need for a tighter business relationship. But that’s for another time —