Siemens reports software revenue up 5% on demand for EDA & Mendix — improved outlook for PLM
Siemens reported results on Friday that were, overall, decent. Siemens AG reported total revenue in FQ2 of €14.7 billion, up 8% (and up 9% in constant currencies, cc). As usual, not much detail was given about the PLMish part we focus on, but here are some overall indicators: Digital Industries, the immediate parent of the PLMish software business, reported total FQ2 revenue of €4.03 billion, up 4% (up 8% cc). Within that, Software revenue was €1.09 billion, up 5% as reported (up 11% cc).
CEO Roland Busch’s comments about the quarter highlighted how important the software business is to Siemens overall: “As our order intake and revenue in the second quarter demonstrate, our customers place great trust in us. We support them with their digital transformation, which enables them to become faster, more efficient and more sustainable.” He told investors that Siemens is uniquely positioned to deliver “superior customer value by combining real and digital worlds” and that the pandemic has served as a “catalyst to accelerate digital transformation”.
One thing that stood out in the earnings was how Digital Industries grew in the US. For reasons known only to Siemens, it chooses to disclose growth excluding software. On that basis, Digital Industries reported organic growth in the US of 38% in FQ2. Why might this matter? Because a lot of buyers like integrated solutions –the hardware that runs a production line integrated with the software the programs and monitors it– which plays to Siemens’ unique strength in that it owns both the hardware and software assets. And that huge 38%? While important, we shouldn’t read too much into it; it’s likely due to the lumpy nature of the deals closed in Q2 as well the total it is compared for in the year-ago quarter. FYI, Digital Industries’ ex-software growth was down 2% in FQ1. Lumpy.
CFO Ralf Thomas gave a bit more color on the software business in the conference call with investors. Like last quarter (and last year), it seems that much of the growth Siemens saw in its software sales was “on strength in the EDA and Mendix segments. Our PLM business saw improving investment attitude by their customers on a broadening basis. A strong contribution came from the software business driven by EDA,” — which echoes what Siemens Digital Industries Software President Tony Hemmelgarn told me earlier this year.
Mr.Busch added, “In [Digital Industries], the software business grew by 11%. This was again driven mainly by EDA but PLM also was now catching up again. China was extremely strong, and also Americas and Europe. This was really a kind of a broad support of our software business and Mendix, also up more than 20%. So that’s a trend which we see. If you look forward, we see that this growth will keep on going modestly. And again PLM – hopefully PLM can get more momentum. This is also driven by a recovery in major verticals like automotive and the like”.
Mr. Thomas, the CFO, also spoke about how heavily Siemens is investing in the cloud and cast it as a drag on profitability. Investors picked up on this and asked whether this investment was enough, given how their customers seem to be moving to more SaaS offerings. Mr. Busch replies that “We are investing in our cloud and IoT offerings. You know that Mendix is a SaaS basically a 100% SAS business and software. And we are working on also doing more there.” Mr. Thomas added that Siemens’ integration and SaaS investments are ongoing, and will continue.
Mr. Thomas also looked ahead to the rest of fiscal 2021 (ends in September 2021), saying that Siemens AG now expects revenue growth of 9% to 11% (up a percentage point or two from prior guidance), with Digital Industries up 9% to 11% on an organic basis”.
Siemens is holding a capital markets day in June; perhaps we’ll learn more then.
If software is up just 5% as reported, and if Medix is up 20% [c/c?], and if “hopefully PLM can get more momentum,” then I estimate that MCAD revenues were negative or pretty close to flat.
Possibly, Ralph. Nothing is clearly spelled out, and I’m not sure what is included in the “software” total but suspect it is more than CAD+CAM+CAE+PLM+EDA. I would imagine Mendix is a tiny portion of the software total, certainly compared to EDA, and is unlikely to move the total needle all that much. I hope to learn more at the investor event in June.
You’ll probably see software be flat or dip as more new and existing customers transition to subscriptions over the next few years. They just take a slower, less painful approach than ADSK’s all-in; and don’t push ARR the same way.
Excellent point – thank you, Jeff!