By Oliver Sachgau and Aaron Ricadela (Bloomberg) -- Over the past 170 years, Siemens AG has forged a reputation as a manufacturer of trains, turbines and other huge things that weigh more than a house. So why is it asking a software guy to oversee the place?
Siemens on Wednesday introduced Jim Hagemann Snabe, a 51-year-old veteran of software house SAP, as its next chairman, scheduled to take effect next January, according to a statement. The move makes sense as Siemens seeks to adapt its 19th-century industrial heritage to the 21st century, says William Mackie, an analyst at Kepler Cheuvreux who rates the company a buy. The shares on Wednesday surged as much as 5 percent after the German manufacturer raised its outlook.
As Siemens products become more automated, they’re throwing off a growing flood of data that requires sophisticated software to really understand. And for Siemens, software and related services offer key advantages: they tend to be more profitable than industrial goods, they have predictable revenue streams, and they’re “sticky,” meaning they make it harder for a customer to defect to a competitor.
Snabe has “the crucial perspective of a man who has spent a large part of his career focused on the software and hardware elements of the technology sector,” Mackie said.
He also represents a stark departure from previous Siemens chairmen: The native of Denmark would be the first non-German in the job, and one of the few foreigners in top management. Snabe would also be the youngest person to ever serve as chairman, by more than a decade.
It’s his job experience, though, that really makes Snabe stand out. The company’s current chairman, Gerhard Cromme, 73, made his name at companies like industrial giant Thyssenkrupp AG and building materials producer Saint-Gobain, and earlier chairmen were mostly Siemens lifers.
Snabe has “in depth industry expertise in software and digitalization,” Cromme said in the statement, adding that the nomination sets the course for “long-term succession planning and continuity” at Siemens.
Snabe’s nomination comes as Siemens’s rivals are spending billions to reinvent themselves for the digital age. General Electric Co. has said that by 2020 it wants to become a top-10 software company, to rival Oracle and Microsoft. Swiss competitor ABB says it plans to boost its software and services revenue from 15 percent of total sales to about a third in coming years.
Siemens on Tuesday raised its full-year outlook after renewable energy projects and digital services led to better-than-expected first-quarter profit even as Europe’s biggest engineering company said orders are starting to weaken. The shares rose as much as 5.75 euros, the most in more than two months, and were up 4.5 percent as of 9:50 a.m. in Frankfurt.
Siemens, a company built on engineers and manufacturing know-how, says it must transform itself into a maker of fully digitized factories. In the past year it has pushed that strategy through major acquisitions like the $4.5 billion purchase of Mentor Graphics, a maker of equipment used to design and produce electronics. But in software, Siemens still gets help: Its flagship cloud offering, Mindsphere, incorporates SAP technology.
Snabe started at SAP as a trainee in 1990 and rose quickly, running by turns the consulting and product development groups. In 2010, he was named co-Chief Executive Officer, alongside Bill McDermott. Then in 2014, McDermott held on as the sole CEO while Snabe moved on to the supervisory board. The two took over SAP’s leadership after the ouster of CEO Leo Apotheker, who had alienated employees by cutting jobs.
Snabe and McDermott reversed a long-standing aversion to big takeovers at SAP. Over their four-year tenure, Snabe and McDermott spent more than $14 billion on acquisitions, including database maker Sybase, sales software house SuccessFactors, and expense account manager Concur Technologies to add mobile and cloud computing skills.
“Jim has broad insight into the field of digital disruption and business opportunity,” McDermott said in an e-mail. He “can build trust with leaders and colleagues at every level.”
For the past couple of years, Snabe has sought to combine his experience in software with the real world, according to a person familiar with his thinking. Snabe has been advocating the view that the next wave of digital goods won’t simply displace physical products -- think CDs being pushed out by MP3s and Netflix killing the DVD -- this person said. Instead, they’ll serve to augment existing products: driverless cars or automated factories would be examples.
Cromme in 2013 invited Snabe to join the Siemens board. Snabe believes that as chairman he can help accelerate the company’s digital strategy, the person familiar with his thinking said. To better focus on Siemens, Snabe intends to reduce the number of other supervisory board positions he holds over the next year, the company said.
He won’t likely push Siemens to build its software capabilities via further buyouts; After a string of acquisitions culminating in the Mentor deal last year, company executives have indicated that they want to hit the pause button on big transactions. That means Snabe’s initial task will be to help CEO Joe Kaeser integrate those purchases and think more like a software house, said Ingo Schachel, an analyst at Commerzbank who rates Siemens a hold.
“He can definitely play an active part,” Schachel said. “He won’t make a 180-degree turnaround, but he will assume a noticeable role at the company.”