Siemens - Update 01/10/2026 - ISIN DE0007236101

00:00:07: Siemens is a cornerstone of German industrial and stock market history.

00:00:14: The company was founded on the first of October, eighteen forty seven exactly one hundred seventy nine years ago.

00:00:21: today most people know the group mainly from things you can touch trains switch gear medical devices.

00:00:29: But the group's future is now meant to lie more in things that are far less tangible,

00:00:34: i.e.,

00:00:34: software and artificial intelligence.

00:00:37: And one of its most important divisions for factory automation and industrial software Is being reorganised As-of.

00:00:45: today The first of October twenty-twenty six The new structure takes effect.

00:00:51: Ultimately CEO Roland Bush wants it To achieve more profitable growth.

00:00:57: A reorganization so the company earns more.

00:01:00: Does that mean things aren't going well at Siemens right now?

00:01:20: Today we're looking at a company that is transforming itself from a conglomerate into technology group and asking to what extent the story already reflected in numbers.

00:01:31: Yes, I'd read about the reorganization too!

00:01:34: The new automation business being led by Rainer Bremm who was previously among other things Chief Technology Officer of Digital Industries Division And large industrial customers are meant to be able to bundle their needs through a single point of contact in future, from the factory's power connection all the way to software that runs machines.

00:01:54: Exactly!

00:01:56: My Warren Wise report is older than this news but it makes it easy understand why reorganization starts at precisely.

00:02:04: I looked at the model Siemens draws of itself and compared it with figures in The Annual Report which i treat as measurements.

00:02:13: On the money, Model & Measurement agree.

00:02:16: on the bet on software the measurements are still missing.

00:02:19: Model, measurement readings... Warren you're starting to sound almost more like a simulation engineer than an investor!

00:02:26: For anyone hearing us for the first time?

00:02:28: Im talking with Warren Wise An AI that analyzes and evaluates equity stories Like A Value Investor

00:02:35: Exactly.

00:02:36: I'm a synthetic stakeholder, my thinking and voice are AI.

00:02:41: Today's basis is My Report on Siemens AG's annual report for twenty-twenty five.

00:02:47: That report was published on the third of December.

00:02:50: Twenty-Twenty Five.

00:02:51: i examined it drawing On The Methodology Of The Investing Legends Benjamin Graham Warren Buffett And Charlie Munger but is a supplement.

00:03:06: And I'm Corey Capitol, also AI the voice of The Private Investor.

00:03:10: like A lot Of people i know Siemens from the name on the washing machine and as far As i Know Siemens Also builds the ICE high-speed train an.

00:03:18: honestly it sounds more Like unrest to me when a group seems To be constantly reorganized today?

00:03:24: I want to know.

00:03:25: has the transformation into a technology Group already arrived in the numbers.

00:03:29: or Is It for now just a new marketing gimmick?

00:03:32: And because we're often asked, every episode is selected checked and approved by an editorial team.

00:03:39: The analysis and the voices are AI –the responsibility-is

00:03:43: not.".

00:03:44: Then explain to me what Siemens actually does apart from washing machines in trains...

00:03:49: On the washing machine I have to correct you a little right away…The home appliances haven't belonged to the group since twenty fifteen though today's manufacturer still allowed use of name.

00:04:01: The trains, on the other hand, Siemens really does build.

00:04:06: In total...

00:04:26: Oh!

00:04:27: I honestly didn't know that about the washing machine.

00:04:30: So Siemens is more a supplier for factories, cities and hospitals than a company.

00:04:59: Werner von Siemens and the precision mechanic Johann Georg Halske founded The Telegraph Construction Company of Siemens & Halska there with ten people.

00:05:09: Their first product was a pointer telegraph, instead of decoding Morse code you could simply read the letters off a pointer.

00:05:16: just A year later the young company won the contract for Europe's First Long Distance Telegraph Line from Berlin to Frankfurt.

00:05:24: In eighteen sixty-six, Werner von Siemens then discovered the dynamoelectric principle.

00:05:29: The basis for large electric generators.

00:05:32: and in eighteen seventy nine... ...the company presented the world with a first Electric Railway that drew its power from an external source

00:05:40: So From the telegraph to the generator To the railway.

00:05:44: There's already quite A bit in there of what Siemens still does today.

00:05:47: Yes,

00:05:48: and that thread runs right through.

00:05:50: Today's Siemens AG came into being in nineteen sixty-six when three Siemens companies were merged.

00:05:57: The trains have stayed And Berlin alongside Munich is still one of the company's two headquarters to this day.

00:06:04: Another big step on Siemens path Is now the transformation Into a technology group.

00:06:09: How do you actually look at A transformation like That?

00:06:11: With a comparison.

00:06:13: Promise against numbers Because this transformation is also a central part of Siemens' equity story.

00:06:20: At its core, the so-called Equity Story... ...is The Story a company tells about it's own future.

00:06:26: For investors It's anchored in numbers that have to carry That story.

00:06:30: Picture it This way Corey.

00:06:32: We do it like the engineers who work with Siemens software.

00:06:36: Before they build A factory They build In the computer first As a digital twin And once real plant Is running They constantly compare What does the model promise and what do the sensors measure?

00:06:48: All right, then let's put a twin like that next to

00:06:54: Siemens.

00:06:58: To that end, the group has cleaned up considerably.

00:07:08: It sold its business with motors and large drives, enomotics reduced it's stake in Siemens energy to ten percent... ...and announced it would give-up control of its medical technology subsidiary Siemens Healthineers.

00:07:22: And on the other side, Siemens bought two American software houses for almost thirteen billion euros combined Altair for simulation software and Dotmatix, for software used by research labs in the pharmaceuticals and biotech industries.

00:07:38: That really is a complete overhaul.

00:07:40: so they're tending to part with things you can touch... ...and buying software instead!

00:07:44: And what do your sensors say about that?

00:07:46: The first measurements fit the model surprisingly well.

00:07:50: From ongoing operations.

00:07:51: after investing in its own business Acquisitions not included A record amount of freely available cash was left over.

00:07:59: The technical term is free cash flow, just under eleven billion euros.

00:08:05: That's even a bit more than the reported group profit of a good ten-billion.

00:08:09: Wait!

00:08:10: How can more money be left over then?

00:08:12: the group earned in first place?

00:08:14: Among other reasons because not every expense costs money same year.

00:08:18: Siemens recorded depreciation and amortization almost three and half billion.

00:08:25: Those are earlier investments in its own facilities, but also in acquired companies that reduce profit spread over the years.

00:08:32: But no longer cause any cash to flow out.

00:08:34: today The group newly invested just under two and a half billion In it's own business That same year more than in any of four years before.

00:08:46: So the profit isn't on paper?

00:08:48: The money actually arrives

00:08:50: Exactly And balance sheet fits well with that.

00:09:16: So in the industrial business, little debt and no big holes.

00:09:25: At the very start of my assessment, there are always six exclusion tests modeled on Benjamin Graham.

00:09:31: They check whether a company can survive over the long term.

00:09:34: Siemens passes all six and it also met the targets that had set itself for the year – growth in earnings per share and return to capital.

00:09:44: So this model is pretty well calibrated up until now?

00:09:47: And a group profit of about ten billion fits the picture too doesn't it?

00:09:54: Group profit rose by sixteen percent to a record high, but that includes a book gain of good two billion euros from the sale of Inomotics.

00:10:03: A Book Gain arises when you sell something for more than it was carried at in books – that's genuine success for shareholders…but happens exactly once!

00:10:13: And what is left if you strip out that sale?

00:10:15: Then your left with the Profit From Continuing Operations

00:10:19: i.e.,

00:10:19: everything Siemens still runs today and that fell by six percent compared with the previous year.

00:10:26: Fell?

00:10:27: But revenue was up, compared to last year wasn't

00:10:30: it?!

00:10:30: I really wouldn't have expected then!

00:10:32: Yes at first glance its surprising but mechanism behind is easy follow The operating industrial business actually earned more than ever even though it booked significantly higher severance costs.

00:10:45: What weighed on things were mainly items outside of it, spending on new shared-based technologies more than quintupled to just under seven hundred million euros and the write downs on the acquisitions rose On top that a one off gain from The Siemens energy stake That had propped up previous year was missing And tax rate also high.

00:11:06: So reason for record profit is sale of enomotics And in day-to-day operations, the transformation costs money first.

00:11:14: Yes you could sum it up that way On its own.

00:11:17: That's not yet an alarm signal In my view.

00:11:20: Transforming simply costs Money.

00:11:22: What matters is what The measurements show Where Siemens sees Its future In automation and software for factories.

00:11:30: And thats exactly what we'll look at now.

00:11:32: Gladly Warren But First Briefly on our own behalf Since It fits right Now!

00:11:38: The full Warren Wise Report examines an equity story across eight dimensions, page by page against the annual report.

00:11:47: Anyone who wants this kind of look at their own company on-the-board, the supervisory board or in investor relations, warren-wise.com.

00:11:57: So and now back to Siemens into division which the group sees its future?

00:12:02: Sure gladly.

00:12:03: it's about digital industries The division for factory automation and industrial software.

00:12:10: That's exactly the division being reorganized now, And one into which two acquired software houses were integrated.

00:12:17: In twenty-twenty four of every euro revenue there Just under nineteen cents left as profit.

00:12:24: What do you think Corey?

00:12:26: How much was it in fiscal year?

00:12:27: twenty twenty five?

00:12:29: Hmm... If quite a lot has been getting reorganised lately Then I'd probably guess bit less.

00:12:35: Seventeen cents, maybe?

00:12:37: Just under fifteen.

00:12:39: And revenue in the division also shrank by four percent.

00:12:42: Oh that's quite a clear decline of course and precisely in the Division That supposed to carry The technology group going forward.

00:12:49: Why is that?

00:12:50: In large part it's due To an effect that sounds paradoxical at first.

00:12:55: Many customers and distributors had built up high inventories Of Siemens Automation Technology.

00:13:01: Instead of reordering they First used-up those stocks.

00:13:05: The technical term for that is de-stocking, so demand wasn't simply gone.

00:13:10: For a while it was served from their own shelves.

00:13:13: on top of That came severance costs over good three hundred and fifty million euros mainly for capacity adjustments in the automation business.

00:13:22: And the two acquisitions also weighed on profit in the first year.

00:13:26: But de stocking like that is over at some point.

00:13:29: isn't that more of dip than a permanent condition then?

00:13:32: Yes, you can certainly see it that way.

00:13:34: According to Siemens desk stocking was largely complete by the middle of the fiscal year.

00:13:39: in The second half revenue In the automation business grew again and the divisions orders were up eight percent overall on the previous Year.

00:13:48: But there's a second measurement That gives me pause.

00:13:51: the software Business stripping out acquisitions And exchange rates.

00:13:55: its revenue fell By five percent.

00:13:58: hold on.

00:13:59: In the very same year they bought software for almost thirteen billion, their own software business shrinks?

00:14:06: On a comparable basis.

00:14:07: Yes.

00:14:08: Siemens points to a strong previous-year and large individual contracts make this business fluctuate anyway.

00:14:16: on top of that comes an effect Siemens is moving parts of its software to subscription models.

00:14:24: Instead of paying the full license price once, customers then pay on an ongoing basis and the revenue spreads across several years.

00:14:33: Going forward I'd wish for Siemens to show more clearly how much of a decline is due that shift... ...and how much do business itself weakening?

00:14:42: Translated onto our digital twin That means at most important point in model The sensors showed headwind in fiscal year twenty-twenty five.

00:14:50: And that's exactly where the transformation now takes hold.

00:14:53: Yes, right!

00:14:54: The latest quarterly figures point to a recovery at digital industries in automation and software.

00:15:01: but whether it holds or the transformation works... ...the next annual report will have show.

00:15:07: Then let us come to acquisitions which cost almost thirteen billion.

00:15:12: The two software houses belong this division too.

00:15:15: What if they delivered so far?

00:15:16: In their first shortened year, just over three hundred million euros in revenue combined and a loss at the bottom line.

00:15:24: That doesn't surprise me.

00:15:25: in the first year after an acquisition part of the purchase price is allocated to the acquired technologies and customer relationships and written down over the years plus there are integration costs.

00:15:37: much more important Is The Question Of What You Should Later Measure To Tell Whether The Purchase Paid Off

00:15:44: And how do you normally measure that?

00:15:48: I would have wished for that there.

00:16:15: It's as if you'd built a pretty expensive component into the digital twin, but connected no sensor to precisely that part?

00:16:22: Yes!

00:16:23: You could put it this way, Corey... And the Component really is expensive.

00:16:28: A good ten of the almost thirteen billion is pure premium Money.

00:16:33: Siemens paid For something you can't value on its own.

00:16:37: In technical terms This Premium Is called Goodwill And it stands, for example, for expected synergies and the knowledge of the employees.

00:16:45: That's not automatically bad but this premium still has to be earned... ...and precisely then I'd expect the group to supply in The Annual Report itself….

00:16:55: …the yardstick by which its success can be

00:16:57: checked.".

00:16:58: Can you already see the acquisitions elsewhere?

00:17:02: Yes!

00:17:02: In the return on capital that is how much profit the Group earns from the capital it employs.

00:17:08: The technical term is return on capital employed.

00:17:13: At just under eighteen percent, it was still within Siemens' own target range but for fiscal year twenty-twenty six the group itself announced in a report that would fall well below the lower limit of fifteen per cent mainly because of

00:17:26: acquisitions.".

00:17:27: So money has already been spent and now the return on the capital employed will also be noticeably burdened.

00:17:33: At the same time, it still has to prove out whether over the next few years as much money really flows back is hoped.

00:17:40: Since Siemens' names no target values on this in The Annual Report As an investor I can't even read off what's actually supposed.

00:17:52: In the report, Siemens likes to speak of leading offerings but nowhere names market shares against competitors like Rockwell, Schneider or ABB.

00:18:02: That Siemens has a moat – a protection against competition.

00:18:06: I do believe whoever once built their factory on Siemens technology and software doesn't switch so easily.

00:18:13: But how wide that mote is?

00:18:15: I can really only estimate not measure

00:18:18: With many missing measuring points...I wonder Where does your digital twin actually show the strongest values?

00:18:26: Interestingly, precisely not where Siemens sees its future.

00:18:30: The most profitable industrial business is now smart infrastructure technology for power grids and buildings increasingly also data centers.

00:18:39: there profit rose to four-and a half billion euros A good one-and-a-half times as much as at Digital Industries.

00:18:47: That's real strength in my view And a foundation that makes the transformation elsewhere bearable in first

00:18:53: place.

00:18:54: So Siemens has lately earned most with power grids, building technology and data centers.

00:19:00: Warren when you put all your measurements together where does Siemens land?

00:19:04: On basis of annual report Siemens receives second highest rating.

00:19:09: I give four out five.

00:19:11: The zone is called strong.

00:19:17: And how exactly does this four come about?

00:19:20: After all, today we've only talked a small excerpt of your report.

00:19:39: So a

00:19:46: rating the group earns with cash and balance sheet, And one that going forward hangs above all on the software bed.

00:19:53: Exactly!

00:19:54: The foundation carries the four.

00:19:56: Whether it holds will be decided in future Above All by the software... ...and By concrete measurable progress On the way to becoming A technology

00:20:05: Group.".

00:20:06: What would you ask the Chairman of Managing Board if he were sitting here today?

00:20:10: Three things.

00:20:11: First Mr Bush What targets apply today for altair and dotmatics?

00:20:17: On revenue, on costs by when.

00:20:20: And where do you stand on that path?

00:20:22: Second what margin do you consider sustainably achievable at digital industries... ...and what exactly is the new automation unit meant to contribute it?

00:20:32: Third from which year do you expect The Return on Capital To be back within your own target range

00:20:39: as a shareholder?

00:20:41: I'd ask those exact questions.

00:20:43: And what do take away for the next annual report, no matter which company it's

00:20:54: from?

00:20:57: The purchase is meant to achieve and the progress update.

00:21:14: If both are missing, you're missing not only the yardstick but ultimately also key information for judging whether the whole thing was successful... ...and one more thought that goes beyond Siemens.

00:21:27: A digital twin is only as good as measurements that flow back from a real plant.

00:21:32: Without them it stays pretty drawing At Siemens model and measurement agree where its about money.

00:21:40: The group reliably generates cash flows, and the balance sheet is strong.

00:21:44: But on the software bet in my view... ...the measurements that would show whether the model holds are still missing?

00:21:51: The current transformation….

00:21:53: …is something like a new version of this model—whether it's better.

00:21:57: only the next comparison with reality will

00:21:59: show.".

00:22:00: Then I now have my answer!

00:22:02: The foundation is stronger than i thought at the start.

00:22:05: Siemens reliably earns money —and the balance-sheet is solid.

00:22:09: So, the transformation here isn't a sign of unrest but an attempt to make better use that foundation.

00:22:15: Whether it pays off in software though can yet be read-off.

00:22:18: so for next report I'll watch two measuring points especially closely The margin at digital industries and progress update on acquisitions.

00:22:28: We're staying on

00:22:29: Until the next deep dive and if you don't want to miss any analysis warren-wise.com subscribe To The podcast.

00:22:38: have a fine and profitable day, And always remember be wise when others go crazy yours Warren Wise.

00:22:51: The content of this episode is for general information purposes only.

00:22:55: It does not constitute investment advice or an invitation to buy, hold or sell any financial instrument.

00:23:02: All assessments are based on a model-driven AI supported analytical approach.

00:23:07: Warren Wise is a fictional synthetic character.

00:23:10: neither real person nor their estate Nor company connected with such persons.

00:23:17: Any reference to Benjamin Graham, Warren Buffett and Charlie Munger Is purely descriptive of the investment philosophy attributed.

00:23:25: No endorsement, authorization representation or other connection including to their estates or affiliated companies exists.

00:23:35: All voices and audio content in this episode are synthetically produced

00:23:39: and AI generated.