München Siemens boss Roland Busch had just announced a billion-dollar software takeover in the USA. Now he wants to further accelerate the transformation of the traditional company into an IT group with a new digital platform – with the help of the US graphics specialist Nvidia.
A good year after taking office, Busch presented the digital strategy demanded by investors on Wednesday. With “Xcelerator”, Siemens wants to create the leading digital platform for industry. In the future, hardware and software modules from Siemens will be sold here and thousands of external partners will be connected at the same time. This should create an ecosystem and a digital marketplace with open interfaces. “Nobody can do it alone,” said Busch, referring to the digital transformation of the industry.
Siemens has found a very prominent partner in Jensen Huang. The founder and CEO of Nvidia, one of the most valuable companies in the world, traveled to Munich to announce the alliance with Siemens.
“Siemens will be one of the largest technology companies in the world,” he said with conviction. The group has laid the foundation for digitizing many industries. If artificial intelligence is added – also directly on the machine – a new era will begin.
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Together, Siemens and Nvidia want to bring the companies into the “metaverse”, i.e. connect the offline and online world and enable simulations in real time with a lot of computing power. To this end, the Siemens Xcelerator ecosystem and the “Omniverse” platform from Nvidia are to be linked. “This is just the first step in our joint effort to realize this vision for our customers and the global manufacturing industry,” said Huang.
Siemens and Nvidia: “Digital twin” is intended to make industry more efficient
At its core, the collaboration is about the digital twin. Nvidia is to contribute photorealistic graphics and artificial intelligence so that customers have a real-time digital image of their systems and buildings. “They can turn on the digital twin when they need it and pay for it,” Busch said. Then, for example, a bot with artificial intelligence could run through the optimization of settings and optimize the system.
Huang is convinced that the digital twin will soon be the most widely used application in the industry. After all, it’s always about improving efficiency in production and operations.
The Nvidia boss and the Siemens CEO announce a collaboration for the digital platform “Xcelerator”.
(Photo: Siemens)
In industry circles, it was emphasized with a view to “Xcelerator”: “This is a giant step for Siemens.” The group is changing its entire sales model and getting the developers out of their silos.
For example, the software protocols should be made transparent so that third parties can develop digital solutions that link to them. It is true that no direct competing products are to be sold via the Xcelerator marketplace. However, it is conceivable that complementary products from direct competitors will be permitted.
However, Siemens left open what they specifically expect from the new platform in economic terms and also what the business model looks like. No new growth targets were linked to it either.
Xcelerator from Siemens should bring growth to digital business
Xcelerator should help to achieve the ambitions that have already been announced, said strategy chief Peter Körte. At a capital market day last year, Siemens announced that the business with software and digital solutions should increase by an average double-digit percentage each year. In the digital industries, Siemens recently achieved software sales of 4.3 billion euros. Overall, Siemens estimates digital sales at 5.6 billion euros.
Earlier this week, Siemens announced it would be acquiring US software company Brightly for more than $1.5 billion as part of its new strategy. The company specializes in software for the operation and maintenance of buildings and energy systems, for example. Digital twins also play a central role in buildings. A lot of data, such as temperature, energy consumption and utilization, is used to make operations more efficient.
With the most recent announcements, CEO Busch is developing the group even further in the direction of an IT and software group. Networkable hardware, for example for and in trains, should remain in the group. Busch is convinced that no other company can combine the real and the digital world so well.
Whether automation specialists such as Siemens and Rockwell or the large US IT groups such as Microsoft and Amazon with their cloud services Azure and AWS will prevail in the digitization of industry is not foreseeable at this point in time.
In order to bundle its own strengths for the competition, Siemens is launching the new platform in close cooperation with customers and technology partners. The software from the Munich group, but also from other companies, is to be offered in a rental model in the cloud. According to company circles, the hardware will also be sold “as a service” in the longer term. Customers could then pay regularly to use a train, for example, instead of having to transfer a purchase price once.
Investors increase pressure on Siemens
Investors had been pushing for a clearer digital strategy in recent months. Because Siemens is not valued by the stock markets like an IT company, even after the spin-off of the low-margin energy technology. Under Busch, the group must finally make up for the valuation discounts compared to its competitors, demanded Ingo Speich from Deka Investment. “That will be the benchmark for his first term as CEO.”
Operationally, things are going well at Siemens in the software and automation businesses. The Siemens division “Digital Industries” increased its revenues from January to March by a comparable nine percent to almost 4.6 billion euros. The margin fell from 20.1 to 18.1 percent, mainly due to the switch to the “Software as a Service” rental model (SaaS), but is still impressive in an industry comparison.
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Busch announced the switch to SaaS a year ago. These models, in which a regular fee is paid for using the software in the cloud, are becoming more common in the software industry. With SaaS, sales can be stabilized and higher margins can be achieved in the long term.
However, even industry giants like SAP found it difficult to make the switch. “Such a transformation is indeed a great challenge, others have overcome it,” admitted Siemens CFO Ralf Thomas in an interview with the Handelsblatt. “We have great respect for it.”
Kernpartner Nvidia
Siemens had already started an attempt to secure a key position in the digitization of industry. Some in the group hoped that the Mindsphere platform would become the industry’s central operating system for the Internet of Things.
However, it quickly became apparent that Mindsphere would only be one of many elements in a world dominated by open interfaces and cooperation. Millions of machines were connected over time and a user club was established. However, Mindsphere remained one building block among many, and as an independent product it was rarely sold.
The Xcelerator strategy is now radically based on openness. “Not one single company can solve the challenge of our customers,” said Strategy Manager Körte. On the platform there should be a curated portfolio of hardware and software from Siemens, but also an open marketplace for partners.
Nvidia was presented as the most important partner. The hardware manufacturer is thus approaching another Dax group after Mercedes. At the Stuttgart car manufacturer, Nvidia is primarily involved in autonomous driving and receives more than 40 percent of the revenue via a “revenue sharing” model. This is a novelty in the automotive industry and is considered controversial internally at Mercedes.
More: Nvidia boss Huang on the partnership with Mercedes