Exclusive: Siemens scouts market for more software business acquisitions

The German technology giant plans to increase investments in core technologies beyond €500m next year

The headquarters of Siemens in Munich, Germany. The firm is mulling software firm acquisitions. Reuters

German technology conglomerate Siemens is actively considering software business acquisitions and plans to increase spending beyond €500 million (Dh2.15 billion) to develop its core technologies in 2019, as the company also looks to grow its presence in the Arabian Gulf.

The €500m plus would focus on the advance and pre-application elements of developing its technologies as part of its bid to meet its 2020 vision, said Roland Busch, chief technology officer of Siemens.

"We will increase [it] because all our businesses recognise that this is where we have to play," Mr Busch said in an interview with The National in Munich. "For me this is good, it creates momentum so there we have to increase this number."

Mr Busch also spoke of the company's aspirations for an increased role in the development of petrochemicals and infrastructure sector and development of smart cities being built across Arabian Gulf, especially in the top two regional economies of Saudi Arabia and the UAE, , as investment environment improves on the back of stable oil prices.

The Siemans head declined to reveal the exact figure for the company's potential rise in spending as its budgeting process for next year is still in progress. The €500m investment in core technologies this year is part of the company’s estimated €5.6bn 2018 research and development (R&D) budget, he noted.

Siemens, which ranks among the 10 largest software companies globally, has been aggressively investing in R&D and acquisition of software companies as it seeks to strengthen its position to leverage data analytics and the global economy’s pivot towards digitisation, automation and electrification.

The 2018 R&D budget is already an 8 per cent year-on-year rise from the €5.2bn spent a year earlier. About €1.2bn of the total is invested in its digital business. Since 2014, the company has increased R&D spending by 40 per cent.

Siemens has spent about $10bn in software acquisitions since 2007 and it is now scouting for more transactions to build its software development capabilities.

“We have an investment-dedicated fund for it and in our mergers and acquisitions and capital allocation strategy, of course, the digital space is on top of the agenda,” Mr Busch said, without identifying the potential targets of acquisitions. “We are looking at this space and if there are attractive targets we will definitely explore them.”

The company in August signed an agreement to buy application development company Mendix for $730m, a move aimed at accelerating the adoption of Mindsphere - a platform that facilitates data analytics to increase the efficiency and optimisation of businesses. It expects to close the deal in the first quarter of 2019.

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Siemens, which has reorganised its business into core and strategic operating companies, told The National in April that the merger of its rail entity with France's Alstom will happen by the close of this year. However, the deal, which will create a European champion with combined revenues of €15.3bn, is now expected to conclude in the first half of 2019, he said.

“We are working hard on it and we are engaging with the commission. We had a lot of questions. I think it was underestimated how complex the field is,” he noted.

Europe's largest industrial conglomerate, also wants to boost its presence in the rail sector of the Arabian Gulf, particularly in Saudi Arabia and the UAE, where large scale infrastructure investments and development of metro networks have garnered interest from international conglomerates.

The GCC, which is home to about a third of the world’s proven oil reserves, has seen a decline in investments in the last few years after crude prices plunged from the mid-2014 peak of $115 per barrel. With the oil price currently hovering at $70 per barrel, governments that previously shelved development schemes have now revived spending plans.

"Everybody was holding the money back and not investing and why would you invest [with oil prices] coming down from the $100 plus [per barrel],” he said. [However,] as the oil prices are coming back, we are really seeing the investments coming back.”

Mr Busch said, revival of some of the rail projects that were on the ice would have a meaningful impact on the regional economies.

“I hope these discussions will be up again as it [rail] connects economies and logistics is a big, big element of that. I think they would be very meaningful,” he said.

Siemens has extensive experience in creating new cities advising and offering technologies and equipment on infrastructure, energy mobility and planning, which will become handy for smart cities projects being developed in the Gulf region.

The company is already advising Saudi Arabia on parts of the $500bn Neom, a specialised economic city being developed in the kingdom as the world’s largest crude exporter diversifies its economy away from oil. The company has made proposals for rapid construction of a temporary airport that will bridge the aviation needs in Neom for a couple of years until it can have its own airport.

“We are actively engaging and made some proposal already,” he said. “There is no big order so to speak of as they [Saudis] are in a phase where they are just about to start [on Neom].”

Siemens, which has a big presence in the region, this year announced plans to invest $500m in the Middle East over a period of three years. The spending is a combination of software grants and investments in Mindsphere application centre in Abu Dhabi, Dubai and Riyadh.

Mr Busch, did not rule out opening more centres in the region.  “We should put the money on the ground first … and then after spending it in three years we will take it from there” he said.