Europe’s industrial giants take diverging paths as they ride AI boom

{"text":[[{"start":7.9,"text":"Europe’s three biggest industrial companies are pursuing diverging strategies as they deploy the windfalls from the AI boom, with Schneider Electric joining Siemens by pushing deeper into software as ABB doubles down on equipment."}],[{"start":22.5,"text":"The rivals, who have all recently raised earnings guidance, have used their higher share prices and robust balance sheets to make chunky acquisitions, with each agreeing their biggest deals in the past two years."}],[{"start":34.8,"text":"The latest came last week, as France’s Schneider announced the near-$24bn acquisition of US engineering software group PTC, the largest Europe-to-North America transaction since 2021, according to Dealroom."}],[{"start":48.849999999999994,"text":"While the trio make everything from circuit breakers to the computers that run modern factories and high-speed trains, they have also pushed hard into products that will power, manage and cool the data centres being built as part of the proliferation of AI."}],[{"start":62.699999999999996,"text":"Because Europe has largely missed the boat on AI models for consumers, its industrial titans are instead betting on the infrastructure that underpins the sector."}],[{"start":73,"text":"They are also seeking to put themselves in pole position in the race for so-called industrial AI, a nascent segment that seeks to tap the troves of data generated by factories and production lines and harness it to operate them more efficiently."}],[{"start":88,"text":"“Each company is following their strategy in their own right and doing acquisitions that fit,” said Kulwinder Singh Rajpal, analyst at AlphaValue. “Balance sheets are strong, there’s enough free cash flow and they have good visibility on demand for data centres.”"}],[{"start":null,"text":"

"}],[{"start":104.4,"text":"Schneider chief Olivier Blum said the PTC deal created a “complete software and AI powerhouse”, bringing together the French company’s power meters, cooling systems and control devices with the US group’s software that helps businesses design, build and service their products."}],[{"start":122.9,"text":"“As intelligence becomes increasingly embedded in products, machines, processes and energy systems, significant new opportunities are emerging,” the company said."}],[{"start":131.55,"text":"Yet the market was less convinced, with Schneider shares down 10 per cent on the day the deal was announced. Analysts at Jefferies worried the transaction would “dilute” the energy management and data centre business and questioned such a big investment in software and AI at a time of growing angst about the sector."}],[{"start":149.9,"text":"ABB has taken a different approach with the $5.5bn purchase of UK industrial components maker Rotork. Although the Swiss group has 2,000 in-house software engineers, the move highlighted its focus on the physical equipment needed for electrification and automation."}],[{"start":168.05,"text":"Peter Voser, ABB chair, sought to accentuate that contrast, highlighting the “big difference to Siemens and to Schneider” when it came to M&A."}],[{"start":176.05,"text":"“We’re not a company who will buy software companies or AI companies . . . we’re not in favour of buying something where we’re not completely at home,” he said in an interview last month. “We try to develop it ourselves . . . from scratch.”"}],[{"start":null,"text":""}],[{"start":190.10000000000002,"text":"AlphaValue’s Rajpal said ABB was more focused on equipment for utilities, industrial groups, transport companies as well as data centres, which “shows you don’t necessarily need expensive software to extract better profitability if you have market leadership positions”. "}],[{"start":206.90000000000003,"text":"Bankers also say ABB has the firepower to strike more deals, citing past reports about interest in Legrand, the €36bn maker of switches and plugs. ABB has spent almost $13bn on acquisitions in the past decade, well below the $38bn for Schneider and $28bn for Siemens AG operations, according to the companies."}],[{"start":231.90000000000003,"text":"Siemens, Europe’s largest engineering company, was the first mover on software when it bought UGS for $3.5bn nearly two decades ago. Last year, it completed the $10bn acquisition of Altair Engineering, which makes software for the automotive, aerospace and energy industries."}],[{"start":251.30000000000004,"text":"“Recent developments in the market confirm we have already been on the right track for a decade by combining the real and digital worlds,” Siemens said. “The fact that other market players are now following suit only reinforces this.”"}],[{"start":null,"text":""}],[{"start":264.70000000000005,"text":"Schneider had the biggest exposure of the trio to data centres last year at about €10bn, or a quarter of total revenues. The company raised its outlook again on Friday due to soaring demand from tech companies."}],[{"start":277.70000000000005,"text":"For ABB, which says its technology supplies one in four data centres, the figure is about $3bn, about 10 per cent of total revenues. Siemens’ revenues from the sector exceeded €3bn in the first nine months of the fiscal year, about 50 per cent higher than the same period the previous year, and equal to about 7.5 per cent of its total core business sales."}],[{"start":300.70000000000005,"text":"Looking forward, investors hope the three companies can benefit from their push deeper into AI in two main ways. The first will be meeting continued strong demand for the supply and management of their technology to run data centres, which depends to a large extent on the boom continuing. The second will be the rollout of industrial AI."}],[{"start":321.20000000000005,"text":"Who wins that race depends on which can harness advanced machine learning in manufacturing, engineering and energy now being collected from thousands of sites around the globe."}],[{"start":332.55000000000007,"text":"Such data has the potential to provide measurable investment returns in everything from car and jet assembly to chemical and oil production by aiding design and simulation, identifying and fixing errors, cutting costs and reducing CO₂ emissions."}],[{"start":349.25000000000006,"text":"“Europe’s engineering giants have decades of industrial data,” said Bastian Nominacher, co-founder of German enterprise software company Celonis. “The opportunity to turn that into competitive advantage with AI is enormous.”"}],[{"start":363.8500000000001,"text":"Yet the implementation of industrial AI remains in its infancy. There are also fears about a potentially ruinous bubble in the industry, as the valuations of leading tech companies continue to surge."}],[{"start":375.75000000000006,"text":"Asked about a possible AI bubble, Voser of ABB voiced confidence in sustained equipment demand but admitted to concerns about the “financing of the boom” that risked a “challenging period”."}],[{"start":387.75000000000006,"text":"Meanwhile, Siemens and Schneider are betting that a combination of equipment and data to operate the next generation of industrial manufacturing can deliver success."}],[{"start":398.65000000000003,"text":"Lucas Ferhani, a Jefferies analyst, said: “The belief is you can no longer separate hardware and software to run the factories of the future.”"}],[{"start":406.20000000000005,"text":"Additional reporting by Sarah White in Paris"}],[{"start":418.25000000000006,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792303866_3691.mp3"}