Shifts in the Wind Industry Uncover Opportunities

In Brief: Siemens

Siemens is a diversified industrial company with operations in six sectors.  Doing business in 190 countries, sales for FY08 were near $112 billion.  The largest three sectors are Industry (industrial automation, management technologies, rail transportation, automotive electronics, etc.), Health (medical diagnostics, etc.) and Energy. Two sectors cross over other divisions, Siemens IT Solutions & Services, and Siemens Financial Services.  Equity Investments, the sixth sector, offers consumer appliances and communications through alliances with other businesses.

Along with rival General Electric, Siemens has the world’s broadest energy product line, offering products along the entire value chain from power generation, power transmission, and power distribution to end use applications such as lighting and building automation.

Strengths

Siemens remains a leader in market share in most businesses in which it competes, and has expanded market share with expanded Smart Grid solutions:

·         Announced January, 2010, Siemens will team with BPLG to integrate and resell BPLG load management and distributed energy resource management solutions. Siemens and BPLG will integrate BPLG Smart Grid solutions with Siemens’ distribution automation applications, including its distribution management system (DMS), SCADA and substation automation solutions.

·         Siemens struck an agreement to acquire Solel Solar Systems, one of the two largest producers of solar receivers, making Siemens a player in the solar power plant market. Siemens wind power business has the potential to be a significant revenue generator. The solar unit blends well with its steam turbine business, aligning it with existing electric utility infrastructure.

·         In October, 2009, Siemens bought Energy4U, a consultancy that helps utilities implement SAP management software. Energy4U synergizes Siemens’ transmission and distribution engineering and manufacturing expertise with the software from SAP that makes it more useful.

In Europe, Siemens is a leader in setting Smart Grid standards for substation automation. U.S. utilities have preferred to stay with older protocols.  But the U.S. stimulus money came with demands for standardization. It is likely Siemens will receive significant new business from government infrastructure spending in the U.S., Europe and China and that its standards experience will be an advantage.

Siemens Environmental Portfolio is the world’s largest supplier of eco-friendly technologies. In 2009, its products and solutions enabled customers to reduce their CO2 emissions by 210 million tons.

Challenges

Late restructuring in 2009 will likely hit 2010 earnings and places Siemens behind the curve versus its competitors.

While Siemens has acquired new businesses with potential for growth, there is a struggle in integrating them into the company platform. 

Siemens divested its 34% investment stake in Areva NP in 2009 due to lack of influence over the nuclear power joint venture.  The risk to Siemens is that competitors will move in and thwart opportunities for Siemens in future turnkey nuclear power projects.

Our View

The company is expanding its market presence around the globe, especially in China and India. The diversity of its products and geographic exposure leaves Siemens well-positioned for future Smart Grid build-out.

The evidence suggests that SI has gained a better grasp of the opportunities ahead in the Smart Grid sector and is building better strategies in that direction.  If they can reorganize and refocus internally for more efficient integration of their Smart Grid solutions, they will likely be a major force in furthering the global implementation.

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