Siemens to combine automation units in software-led overhaul

Siemens will bring four units inside its Digital Industries division together in a new automation operation from October 1, in the latest stage of chief executive Roland Busch’s effort to simplify the industrial giant.

The reorganisation is intended to connect teams responsible for sales, technology and data. Siemens wants customers to buy and use its machinery, industrial software and related services as parts of a more unified system, rather than dealing with separate parts of the company.

Briefs.co reports that the plan is designed to make it easier for large manufacturers to work with Siemens through a single commercial relationship. A customer could, for example, seek help connecting a factory to an electricity network while also purchasing machine controls and software for designing and running production equipment.

A broader industrial platform

The strategy reflects the unusual breadth of Siemens’ business. The Munich-based company supplies technology for factories, buildings, power networks and transport, while also selling industrial software. That footprint gives it access to physical equipment, long-standing customer relationships and operational information generated by those systems.

Siemens is betting that combining those assets will strengthen its position in industrial artificial intelligence. Software and AI tools can be added to existing equipment, potentially creating services that are more difficult for competitors to replace. A more integrated structure could also allow the group to offer complete industrial solutions instead of individual products.

The overhaul follows several years of portfolio changes. Since Busch became chief executive in early 2021, Siemens has sold or separated businesses in areas including semiconductors, energy equipment and medical technology. The remaining company still spans factory controls, electrical infrastructure, trains and industrial software, but management is now concentrating on making those operations work together more effectively.

Siemens retains more than 70% of its healthcare subsidiary, Siemens Healthineers, although it plans to reduce that holding next year. The intended reduction is part of the broader effort to sharpen the focus of the group that remains under the Siemens name.

Pressure to show stronger returns

The company’s industrial AI push has helped raise its profile among Germany’s most valuable listed businesses. Siemens has a market value of about €215 billion, equivalent to roughly $244 billion. Yet its margins remain behind those of Swiss engineering rival ABB and appear modest compared with US competitor Honeywell International.

That leaves the new structure with a clear test: it must produce more than administrative simplicity. Siemens needs to show that shared development work, coordinated sales and combined offerings can lift growth and profitability.

Some investors believe the model can deliver both savings and additional revenue. Jasmin Wolfram of Union Investment, which owns 0.7% of Siemens, said the company could gain if it expands research and development while selling equipment, software and services together. Investors had previously criticised the absence of a common structure across the group, she said.

The market has already become more receptive to Siemens’ simplification efforts. UBS analyst Andre Kukhnin said the discount applied to the conglomerate was once as high as 50%, but has narrowed to about 10% to 15%. In his view, Siemens is increasingly being valued alongside more focused industrial technology companies.

Further progress will depend on evidence that the new arrangement can speed expansion and improve returns. Reported margin data for Digital Industries and Smart Infrastructure cover the full divisions, rather than the smaller units inside them, an important distinction when assessing the reorganisation.

Competing in a tougher industrial market

The changes come as Germany’s manufacturing base faces higher costs, weaker demand and increasingly capable Chinese competitors. Siemens is relying on its engineering heritage while investing heavily in software and AI to remain competitive.

The group has committed more than $15 billion to software companies Altair and Dotmatics. It is also creating an AI hub in Seattle, which will be led by Vasi Philomin, previously an executive at Amazon Web Services.

Those investments give Siemens additional software expertise, but the automation restructuring is intended to determine how effectively that capability reaches customers. If the new operation can combine Siemens’ industrial hardware with its digital tools, the company may be able to sell more complete packages and make its relationships with manufacturers harder to displace.

For now, the financial case rests on execution. Siemens has reduced the valuation penalty attached to its conglomerate structure, but closing that gap further will require the reorganised business to generate faster growth and more durable profits.