Siemens AG Updates Smart Infrastructure Division

Siemens AG (OTC:SIEGY) has announced a strategic plan to enhance growth and profitability in its Smart Infrastructure (SI) division.

Updated Mid-Term Goals

The updated mid-term goals for SI include:
– Revenue Growth Target: 6-9%
– Profit Margin Range: 16-20%

These targets reflect improved expectations compared to the 11-16% profit margins outlined in 2021.

Analyst Optimism

Analysts from Goldman Sachs and Jefferies view these revised figures as achievable, with potential for medium-term gains.

Factors Driving Growth

The company is focusing on a competitive cost structure, portfolio optimization, and high-growth markets like the U.S. and India. Siemens has successfully reduced manufacturing costs by reshoring some operations to lower-cost regions, contributing to improved profitability.

Portfolio Optimization

Siemens is working on optimizing its portfolio, having already turned around EUR1 billion of its EUR2 billion target, with EUR300 million to be addressed by 2025. The competitiveness program emphasizes reshoring and capacity expansion, facilitating ongoing growth.

Strong Backlog and Market Shifts

The backlog-to-bill ratio is strong with low cancellation rates. Siemens' transition to higher profit areas and emphasis on productivity is expected to enhance margins. Although pricing boosts have benefitted margins post-COVID, future growth in this area is expected to moderate.

Electrification Segment Performance

Siemens has outperformed competitors, particularly in Electrification and Electrical Products, with noteworthy growth in data centers and energy storage, driven by increasing demand for energy-efficient solutions.

Data Center Market Outlook

While Siemens' growth from data centers during the pandemic is unlikely to repeat, steady growth is anticipated due to continuing demand from cloud computing and IoT.

Buildings Division Performance

Siemens' Buildings division has been lagging behind some competitors but aims for a 300-400 basis point profitability improvement by FY28, addressing its performance shortfall as it adjusts its broader portfolio mix.