IoT era Siemens bets on edge computing and AI

As the Internet of Things takes hold, Siemens expects double-digit growth in its software business for years to come.
Quelle: picture alliance/dpa
Edgy in a good way.
(Source: picture alliance/dpa)

Siemens’ new Digital Industries business, set to launch in April 2019 as part of a company-wide restructuring, will focus on edge computing and artificial intelligence to achieve profitable growth, top executive Klaus Helmrich, who will run the unit, told Handelsblatt.

Edge computing locally processes data collected from sensors fitted into industrial machinery, increasing speed and saving costs by eliminating the need to send the data to the cloud.

“It lets customers decide which data they give to the cloud and which they prefer to keep in-house,” Helmrich said.

Industry sources said the group’s profit margin target of 23 percent for Digital Industries is ambitious. But Siemens’ software business, which tends to generate relatively high profits, is likely to grow. “I expect continued double-digit growth rates for software in the coming years,” said Mr. Helmrich.

Edge computing derives its name from decentralized data analysis in factories, cars or security cameras  — at the edges of computer networks. It’s going to be a key technology in the Internet of Things, the fast-approaching era of smart manufacturing in which machines and components will communicate with each other.

The Siemens business makes both the machines and sensors as well as the software that runs the equipment. It competes against GE and Swiss-based ABB, as well as other smaller, specialized automation firms.

Demand for digital systems and factory automation technology is booming. Siemens' Digital Factory division, which is being integrated into the Digital Industries operating company, achieved a 14 percent rise in revenues to €12.9 billion ($14.6 billion) in the 2017/18 business year with an operating return of 20 percent. 

The Process Industries & Drives division, which will also be integrated into Digital Industries, fared less well with revenues up 3 percent and the operating return on sales improving from 5 percent to 5.9 percent.

Analysts expect demand for digital technology to keep growing in the coming years. That’s because companies tend to invest more in productivity improvements when they see economic growth weakening.

But Siemens will only succeed if its software platform Mindsphere, with which machinery and equipment across many industries can be hooked up to the Internet of Things, becomes more broadly established. IoT platforms like Mindsphere and Predix of GE enable industrial customers to use their machines more efficiently, monitor their vehicle fleets or analyze data to develop new business models.

Siemens plans to use Mindsphere as a platform for the entire group including its spun-off division Healthineers and its rail engineering business. It will also play a key role in the new Smart Infrastructure operating company Siemens is setting up, the third pillar in the company’s new organization alongside Digital Industries and Gas and Power.

Mr. Helmrich said the introduction of Mindsphere among industrial customers was progressing “very well.”

“Revenue is developing better than we had expected,” he said. A total of 750 users and developers had adopted Mindsphere so far. The group has a competitive advantage here because it’s the clear market leader in automation technology — most factories use its Simatic automation system. “It’s not so easy to emulate an automation system, so that protects us,” said Mr. Helmrich. In addition, Siemens is the world’s biggest provider of industrial software following a number of takeovers in the US.

Axel Höpner is head of the Handelsblatt office in Munich, focusing on the state of Bavaria's companies, including Allianz and Siemens. Christof Kerkmann has been an editor for Handelsblatt since 2012, and writes about the technology sector. To contact the authors: hoepner@handelsblatt.com and kerkmann@handelsblatt.com.

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