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Equity Research 360 Report Full report

Ca pital g oods $Com panyRe gion$ Sector re sea rch360_SR

Capital goods
Europe

04 September 2017

Digital convergence
What’s it all about?
As the pace of convergence between operational and information
technologies accelerates, so does speculation regarding the potential
impact of digitalisation, the fourth industrial revolution, the Industrial
Internet of Things, and Industrie 4.0. However, beyond the hype,
contextualising the impact on future growth and profit opportunities for Main author
the industrial sector is a challenge for investors. As both a creator and William Mackie
Head of Capital Goods
user, the capital goods sector is well-positioned to benefit from these
wmackie@keplercheuvreux.com
emerging technologies. This comprehensive review of key investment +44 (0) 207 621 5183
issues creates a framework to gauge the potential winners and losers
across 65 listed capital goods companies using six assessment criteria. Capital goods research team
Biographies at the end of the report
$William Macki eHea d of Capi tal Goodswmackie@ ke plerc he uv re ux.com+44 (0) 207 621 5183

IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst(s) certifications.
This research is the product of Kepler Cheuvreux, which is authorised and regulated by the Autorité des Marchés
keplercheuvreux.com
Financiers in France. It is distributed by Kepler Cheuvreux and its affiliates in their respective jurisdictions. This research is the product of Kepler Cheuvreux, which is authorised
and regulated by the Autorité des Marchés Financiers in France.

Capital goods

360
in 1 minute

Investment case summary
Digitalisation across industrial markets represents a significant
opportunity and threat for companies across the capital goods sector.
Top-down expert projections point to a 2-3% acceleration in annual
growth, 3-5% productivity gains, and scope for margin expansion. In our
view, the pace and nature of technology adoption will favour global
industrial control and automation companies with deep industrial vertical
expertise and a strong industrial software and service offer. Specialist
players in certain verticals or holdings should also achieve above-trend
growth. We see Siemens, ABB, Schneider Electric as winners among the
large industrials and also consider Hexagon, Cargotec, Duerr and
Datalogic to be well-placed as more focused companies.
Key findings of the report
This report provides a comprehensive introduction to digitalisation across
the capital goods sector while giving investors the means to navigate this
broad landscape and build a framework to assess the constant flow of
news related to Industrie 4.0 and the Industrial Internet of Things while
identifying attractive mid-term investment prospects.
 We provide a complete framework to assess how digitalisation is
impacting the capital goods sector and its key customer verticals.
We carry out a review of 65 capital goods companies, based on six
relevant criteria and highlight seven capital goods companies that
we believe are well placed to become long-term winners.
 Top-down headline projections for 1-2% mid-term growth, 3-5%
productivity and 10-20% margin expansion create an enticing
investment backdrop. Initial benefits from technology application
are being realised with new service and maintenance models.
 We focus on seven industrial segments where future adoption
creates the best opportunities for the capital goods sector;
transportation & logistics, discrete and process automation,
construction, utilities and healthcare sectors.
 Three sectors provide the enabling technology: capital goods &
industrial equipment providers, information communication &
equipment players, and IT software & services. Provisions for
nuclear decommissioning costs are considerably underestimated
in companies’ accounts and in consensus expectations.
 The change is likely to be evolutionary not revolutionary in nature
and gradual not abrupt. In our view, the principal beneficiaries are
likely to be large caps such as Siemens, Schneider Electric and ABB.

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Capital goods

Investment case in six charts
Chart 1: Overview of industrial revolutions Chart 2: Adoption driven by three main factors

Source: Kepler Cheuvreux Source: Kepler Cheuvreux

Chart 3: Digitalisation seen rising in all business areas Chart 4: Greatest value potential for factories

80% Today In 5 years 6% 4% 2%
70% Home
60% Offices
17%
50%
40% Factories
30% 32% Retail Environments
20%
10%
Worksites
0% 9% Human
Level of Vertical Horizontal Digital Product Customer
digitisation value-chain value-chain business development access, sales Outside
integration integration models, & channels &
product and engineering marketing Cities
service
portfolio 12%
11% Vehicles
7%

Source: Kepler Cheuvreux Source: Kepler Cheuvreux

Chart 5: Additional spending seen in six key segments Chart 6: We assess 65 companies based on six key criteria

450
400
350
300
250
200
150
100
50
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Source: Kepler Cheuvreux Source: Kepler Cheuvreux

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Capital goods

Contents
Investment case in six charts 3
Summary 6
A ten-year road to full digitalisation 12
From Internet of Things to Industrial Internet of Things 12
Enablers of this fourth industrial revolution 18
Who are the key players? 22
Industrial sectors at the core of I4.0, attention rising 25
Capital goods companies stand at the heart of evolution 30
Acceleration of investment the first key step 32
Summary and direction 33

Investments driven by financial gain 35
Gauging the digitalisation opportunity 35
Top-down projections point to huge potential 37
Bottom-up analysis confirms cost and growth potential 46

IoT platforms at the heart of change 51
IoT platforms at the heart of realising digital gains with IIoT 51
Review of the leading and key IoT platform providers 60
For IT services sector, IoT not a game-changer 81

Slow-paced disruption underway 83
Focus to shift from asset utilisation to outcome-based offers 83
A three-pronged transition 84
Customers to first demand predictive maintenance 85
Four areas of the business model set for change 87
Outcome economy evolution a long-term phenomenon 88

National initiatives speed up digitalisation 90
Western Europe dominated by German efforts 91
US focused on commercial solutions 95
China driving structured march towards higher added value 96
South Korea: focused on maintaining an edge 98
Japan: set to build on automation strength 98
India promoting adoption of Industrie 4.0 99

Digitalisation trends across industries 100
Process industries and infrastructure in most need 100

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com . Capital goods Ranking digitalisation across the sector 105 Summary of findings for the sector 106 Reviewing dimensional results 107 Company section 114 Amazon (AWS) 115 Cisco 118 Emerson Electric 121 Fanuc 125 General Electric 128 Honeywell 134 IBM 138 KUKA 141 Microsoft 147 Omron 151 PTC 155 Rockwell Automation 156 Yaskawa 160 ABB 163 Dassault Systèmes 168 Datalogic 170 Dürr 175 Hexagon 180 Krones 185 SAP 190 Schneider Electric 192 Siemens 198 Research ratings and important disclosures 208 Legal and disclosure information Error! Bookmark not defined. 5 keplercheuvreux.

operational enhancement and improved flexibility. Suppliers of automation.0 spans all aspects of industrial value chains. it seems that almost every capital goods company dedicates a lot of commentary to the far-reaching concepts of IIoT and I4. capital strength and far-reaching partnerships in the software and technology sectors. productivity gains and enhanced competitive position. controls. Over the next three years. IoT platforms. Among the smaller capital goods companies with more focused portfolios. logistics.0 (I4. Industrie 4. Duerr. We expect the long-term winners to be those best able to leverage insights from specific industrial verticals. Adoption has been encouraged and promoted by a number of national and corporate media drives which notably started in 2011 when the concept of Industrie 4. and Datalogic. ABB.0. alongside utilities. Building an investment framework is challenging for investors As investors survey the landscape today. analytics and enhanced digital services will experience the most rapid growth.0) was first introduced at the Hannover Messe. drawing on their breadth and depth of capability. Among the larger companies in our coverage universe. using the latest technology and software to deliver productivity-driven cost savings. while the Industrial Internet of Things centres on the optimisation of asset utilisation through the connection of objects. supporting higher valuations. data gathering. we flag Hexagon. Konecranes.com . and analysis. competitive 6 keplercheuvreux. technical jargon and fuzzy market definitions pose a significant challenge to accurately assessing the investment opportunity. transportation and cities. rapid deflation in costs for sensors. and Schneider appear to be the best-placed to win. we aim to clarify the clear differences. Siemens. we provide a comprehensive introduction to the subject that aims to provide a solid foundation for future detailed investment analysis. While the terms are often used alongside each other. Capital goods Summary Industrial focus on the topic of digitalisation has steadily intensified over the last five years as the maturing of technology and its application promises an exciting investment cocktail of higher growth. which is relevant for capital goods companies and their investors. Intensified focus on digitalisation over last six years Over the last six years. Here. Cargotec. interconnectivity of devices and cloud-based data storage combined with rising software and data analytics capabilities has led to an acceleration in digitalisation across the industrial sector. industrial software. Yet the multiple corporate messages. the industrial verticals set to provide the greatest growth potential for providers of enabling technologies are within the process and discrete industry sectors. the same year GE began promoting the Industrial Internet of Things (IIoT). yet for investors it is hard to contextualise this information and create an investment framework structured around the potential market size.

productivity and profitability. We expect the report to provide a solid foundation for future investment analysis across the capital goods sector. data analytics.0. cost and flexibility benefits. construction. including I4. we go on to discuss the relevant themes for investors. Out of necessity. Three sectors provide enabling technology Within the industrial environment. we are seeing an increasing convergence between operational and informational technologies into a cyber-physical landscape which in turn is blurring competitive boundaries. IIoT. and almost every global consultancy firm establishing and promoting a practice to drive technology selection. concepts.and mid-term productivity. or “second machine age” has increased substantially over the last three years. and predictive maintenance. and 3) IT software and services companies. and technology players. we find that the fourth industrial revolution is being shaped globally by three sectors: 1) capital goods and industrial equipment providers. As technologies. discrete & process automation. incorporation and corporate transition. systems and services from each of these sectors and prioritising based on the potential near.com . and highlight seven capital goods stocks we think are well-placed to be long-term winners as digitalisation unfolds. After providing an overview of the global context for these technology-related trends. IoT platforms. Seven industrial segments to gain the most The intensity of media noise related to the so-called “fourth industrial revolution”. utility and healthcare as the best-positioned sectors to benefit. software. we aim to provide a comprehensive introduction to the subject of how adoption of new technologies. business processes and the capabilities of human capital mature. Capital goods landscape. and terminology. the impacts on business development are likely to be more evolutionary than revolutionary in nature. conduct a review of 65 capital goods companies within our coverage. the conservative nature of corporate investment and speed of technological development mean that for capital goods companies. US. growth or eventual impact on profit and earnings. However. Siemens and SAP. 7 keplercheuvreux. We identify transportation & logistics. communication. hopes are high that a number of industrial sectors will experience a structural step- up in revenue growth. global industrial corporations such as GE. We provide a comprehensive introduction to the subject With this report. and Chinese political and industrial bodies. 2) information. driven by German. thereby increasing complexity for investors aiming to delve deeper and decipher the actual prospects for this technology beyond corporate communications. software and business processes within an industrial setting are affecting business and investment prospects in the capital goods sector as this fourth industrial revolution unfolds. We see industrial customers purchasing products. Moreover. much of the report is descriptive and provides a framework to contextualise themes. discussion of the theme during the World Economic Forum.

0 ideas. best growth The level of demand growth for I4. control and analytics software. healthcare and utilities.0) are more focused on the full application of digital technologies across the horizontal and vertical value chains linked to product design. The Boston Consulting Group and Accenture project 1-2% annual additions to national GDP through I4. We see the fastest payback from the potential to improve asset utilisation and control. aggregation on IoT platforms and data analysis are the key enabling technologies. as digitalisation moves up the priority list of corporate agendas. Capital goods Consequently. which has prompted spending in the areas of predictive maintenance. On the flipside. The concepts linked to Industrie 4.5%.5bn between 2016 and 2020. 2) providers of design.com . We see the greatest opportunities in the process industries (oil & gas. mobility. logistics.0 enabling technologies with 75% spent on software and services and 25% on hardware. automation of 5% and electrification of 2. When combined with top-down projections for productivity improvements of 3-5% annually over 5-10 years through the full incorporation of I4. improved asset utilisation and production efficiency may reduce classic demand for machinery and capital equipment. transport. industrial investment needs to increase. production and supply chain to allow self-optimisation of design and production. rather than sales of hardware. Service and maintenance models deliver shortest payback. and 3) services business delivering increased asset utilisation or production efficiencies. cities. simulation. petrochemicals and mining). This suggests that the main benefit for capital goods companies will be through the adoption of technology. we believe the early winners will be in three categories: 1) suppliers of connected sensors.5bn to 7. and promotion to customers. Remote monitoring sensors. Enticing projections for growth. development. remote asset monitoring and control. productivity and margin expansion Enticing headline growth potential is captured in Gartner’s projection for the number of industrial connected devices to rise from 2. 8 keplercheuvreux. In part. automation and controls. the differentiation between these future trends is reflected in Siemens’s mid-term annual growth expectations for industrial software of 8%. or GE’s promise of a USD90bn saving in the oil and gas industry through a 1% reduction in capital investment needs.0 and IIoT hardware and software over the next 3-5 years will hinge on the length of payback times and the speed at which economic advantages can be realised. chemicals. data capture and communication.0 (I4. the impact on industrial profitability could amount to a 10-20%+ improvement in operating margins for the best-in-class players. Surveys by Roland Berger project a 20-30% CAGR for investment in IIoT and I4. which could be around three times higher for the industrial sector. automation. while GE estimates that nearly 50% of the global economy will be impacted by IIoT.0 adoption. To achieve these potential gains.

They include Hexagon. and the potential gains are proven by the trial implementations underway. more focused. Siemens. IBM. Schneider and ABB have all been quick to extend partnership agreements with companies including Microsoft. aligning via M&A (Siemens’ acquisition of Mentor Graphics and partnership with Bentley Systems. Konecranes. Datalogic. Duerr. Cargotec. electronics. These shifts ensure that the rebalancing of structural growth away from traditional capital goods hardware toward complex electronics. Given the critical importance of the Internet of Things (IoT) Platforms. automation and software and services will continue over the next five to ten years. size and capital availability will be key advantages. GE’s purchase of ServiceMax and Schneider Electric’s approach to AVEVA).0 has the greatest potential benefit for the discrete and hybrid manufacturing industries including automotive. the winners in the capital goods sector will likely be those companies that are able to fully utilise specialist knowledge and operational insights of particular industrial verticals to provide new revenue opportunities and productivity gains. standardisation is more prevalent. Evolution not revolution ahead: slow-paced disruption While we see no Kodak-like event arising from disruption in the sector. a number of smaller venture capital funded start-ups are also set to experience rapid growth in conjunction with specialist software and services companies .com . as they combine deep industrial knowledge with internal software development and partnerships across the software and services sector. a step-up in R&D. Smaller. PTC. Winners for investors: mainly the large companies As the fourth industrial revolution progresses. Scale. and rapid expansion of partnerships and joint ventures with software and technologies companies to achieve combined leadership across all new technology areas. and Cisco to expand the exposure of their automation. Early signs of this shift are evident as software as a service takes preference over license sales. 9 keplercheuvreux. tailored analytical software and enhanced automation and control. and pharmaceuticals. food & beverage. We expect management across the capital goods sector to increase capital allocation to this trend. On the latter point. we do expect a gradual shift toward outcome-based business models. GE. General Electric. in our view. Implementation of I4. higher internal capital investment. Bosch and Schneider Electric are well-positioned to emerge as clear winners. companies with specific vertical knowledge of products and service strength also remain well-positioned winners. Later developments will be towards product as a service or infrastructure as a service. which will ensure Siemens. facilitated by closer service- based relations between suppliers and customers. and TKH Group. software and service offers. Capital goods We believe potential gains in productivity and flexibility will take longer to materialise and companies are more hesitant to invest until systems and technologies have matured.

• Digitalisation is at the heart of the company's strategy both internally and through added services and products Capital goods for customers.0 – Valuation table 10 Mkt cap TP Rating EV/Sales EV/EBITDA PER Industrie 4. along lines of IIoT.12 16. It is a leader in multiple Industrial software areas.com Grade Siemens 88. • Ecostruxure connects >1bn devices.80 9.83 18.01 8. EUR10bn in M&A to develop industrial software activity • Software targets Digital Design." • R&D targeted to increase capacity to connect products.384 77. The company has a Schneider Electric 37. Table 1: Industrie 4. ABB has provided limited detail on Capital commitments to expand capability.61 1.00 long track record of developing leading capabilities.19 4.09 10.54 10. • To date.74 11. Digital growth in the Industrial business should be supported by Invensys acquisition (2014).20 9. Manufacturing. • The open-source structure of the platform enables the company to benefit from pure players applications to further develop the capacity and strength of its multiple applications. edge control and apps that can be tailored for each end-market application. Service and Support serving Discrete and Hybrid Manufacturing Industries as well as Process Automation Industries.13 • Invested c. • Long-standing technology and market leadership will prove crucial to provide digital solutions to optimise asset utilization and production efficiency.0 Hold 1.12 3.00 13.23 1.020 25.56 14.5 Hold 1. Pure players trade at higher multiples" • Digital strategy based on the appointment of a Chief Digital Officer and the launch of ABB Ability (Q4 2016) through the unification of the company's portfolio of connected products and systems • We expect the firm to develop its strategy around its installed base of connected objects supported by a wider ABB 41.83 1.0 Buy 1.0 Classification Stock EURm 2017E 2018E 2017E 2018E 2017E 2018E Survey Comments keplercheuvreux.63 4." Source: Kepler Cheuvreux .10 16. Engineering.73 array of partnerships. control with secure software and utilised operational data to enhance asset efficiency and energyu use • Ecostruxure platform: a stack of devices. • EUR8bn invested over 10 years in R&D in its Industrial Automation and Software Business • It is one of the fastest growing businesses of the portfolio in conjunction with digital services.642 125.55 13.

• Leader in its field and technologically advanced with its Dürr 3. • 9% of revenues are invested in R&D to support Datalogic 1.64 15.0 – Valuation table (continued) 11 Mkt cap TP Rating EV/Sales EV/EBITDA PER Industrie 4.80 8. • The company's leaner processes and client-focused applications has helped it expand revenues and lower production costs for its customers " "• Developed SitePilot software solutions regrouping the group's MES. Smart Services and Smart Factories. • New revenue streams are also to be expected through the use of its data centres and consulting and business services. sensors and markers that enable traceability along the value chain as well as inspection for better production precision. Zebra.0 Buy 4.90 3. it is central to the firm's digital strategy.03 16.87 development of new connected products and solutions.41 12.1 Source: Kepler Cheuvreux .85 0. Solutions target exclusively the F&B Industry.53 2.93 4.8 22.05 7.559 30.83 0.28 13.0 18.60 23. Honeywell.6 9. Table 2: Industrie 4.0 Hold 0. Sick.0 Classification Stock EURm 2017E 2018E 2017E 2018E 2017E 2018E Survey Comments Grade keplercheuvreux.670 454.47 • Further down the line.0 Buy 0.47 2.8 16.99 15.5 11. and PCS solutions.2 10.53 • IIoT Strategy is based on 2 pillars: 1) automation of manufacturing operations. Smart Processes.8 2.73 23. results and design. • Competition from Keyence.3 9.1 18.com "• Best grade of our IIoT Analyst Survey. Krones can expect better insight in its customers' operations and derive operations optimization from it. Hexagon 14. Strengths were seen in each dimension showing the company's leadership on the topic.43 21. 2) automation of information sharing." "• Datalogic is an Industrie 4.0 enabler: it delivers connected scanners.3 1. WMS.24 16.7 1. and Cognex will prove the company's strength along its different business lines during the global digital transformation. " "• Digital strategy well implemented under the flagship ""Digital@Dürr"" and based on 4 pillars: Smart products.351 117. both are based on an Industrial software.48 20.16 4.76 8.76 18. Capital goods • Future investments expected in connectivity and digitalisation to reach the company's target of synergies between its 3 main focuses: inspection. • Development of predictive maintenance tools through Krones Asset Management Krones 3.50 7. • R&D represents 12% of firm's revenues.282 101.27 14." Capital Goods Mean 1.0 Buy 2.73 elaborated software development strategy and automation levels.4 Capital Goods Median 1.20 3.5 2.

It also carries the threat of lost business for laggards. 12 keplercheuvreux. offers the prospect of a step change in productivity throughout industrial value chains. which will support attractive demand growth for industrial software and services. and new revenue growth opportunities. especially in B2C-related industries. the potential value for industrial companies can only increase. as it creates a shifting investment landscape of opportunity. industry leaders. Capital goods companies stand at the centre of this disruptive evolution. the mass proliferation of sensors able to capture and transmit gigabytes of data to cloud-located databases. shifts in the sources of value creation. big data and application and analytics software coupled with declining data storage costs and increased connectivity of objects. the topic of IoT as applied to the industrial sector is at the top of many C-Suite investors’ agendas. the commoditisation of data storage. driven by potential productivity gains. Supported by the IoT. and a competitive advantage to early adopters. we are witnessing the emergence of a fourth industrial revolution that promises to bring new productivity gains for countries and corporations. mass customisation in manufacturing. where intelligent analysis provides meaningful insights. Across multiple industrial verticals. we provide an extensive review of key issues linked to digitalisation. IoT is a well-developed concept now. With advancements in data science. albeit at the expense of traditional operational technologies. IoT is defined as the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or external environment. Capital goods A ten-year road to full digitalisation According to governments. Gelernter’s dream is rapidly becoming reality. and the rise of smart data analytics to provide efficiency insights across industrial value chains. academic and corporate marketing and capital allocation through M&A. In this section. this revolution is being driven by the convergence of information and operational technologies enabled by the proliferation of smart sensors. and the need for higher investments in technology and people.com . From Internet of Things to Industrial Internet of Things Nearly 25 years have passed since David Gelernter published Mirror worlds (which imagined a digital world able to capture a physical reality) and 18 years since Kevin Ashton coined the term “the internet of things” (IoT). At its heart. academics and consultants. disruption of business models. reduced time to market for products. the widespread use of wireless communication and internet technology. This revolution promises closer customer ties. a concept that is driving the changes underway across the industry sector today. Supported by a chorus of political.

cars braking or acceleration. and distribute power use to utilities providers. Today. Even the insurance industry may need to adapt to the availability of dynamic driver data when determining the risk profile of drivers. Changes are already occurring and utilities such as RWE are preparing to change and develop new revenue streams through investments in start-ups. and engine performance along with the GPS and route guidance systems. The rapid increase in the number of sensors embedded in vehicles able to detect movements. Against the backdrop of increased renewable generation. most notably in relation to fleet management and navigation applications. With market competitors ranging from Fitbit to LVMH through Samsung and Apple. Through the integration of this health and tech company. and Uber’s development of driverless cars or enablers. More sophisticated unions of technology are emerging. ventilation. reflected in the success of LVMH’s recent launch of a high-value smart watch that generated sales of a thousand units on its first day. with Tesla. Such applications enhance energy use and/or provide improved functionality. Capital goods It is already common in residential or office settings to see connected heating. accompanied by results from a wearable personal healthcare monitoring device. along with actions by existing car manufacturers such as Volvo. 13 keplercheuvreux. Moreover. while rental car companies could use sensors to maintain databases of car usage and customer grading. all connected to the company’s Health Mate App. Nokia is shifting its scope from a telecom company to a broader business delivering connected products and solutions to both consumers and businesses. Beyond personal health and home. a subcategory of IoT. optimise. road signs. including interconnectivity between vehicles to optimise their movement. Moreover. Moreover. such as Innogy SE. One of the many examples of these shifts is the recent acquisition of Withings (a health tech and wearables company) by networking giant Nokia. is expanding vehicle functionality. is rising exponentially. a health tracker.com . who invested in the start-up to integrate new technologies into its product lines and revenue streams. the development of wearable devices. power use can be monitored and managed by algorithm-based applications that aggregate. further technological development linked to the IoT for vehicles could enable predictive maintenance rather than defined interval servicing and road worthiness checks. lines. it is possible to wake up to a diode mimicking the sun rising while the shower is warming up and an espresso is prepared and waiting. Wearable devices produced by the French company include its best-selling watches as well as connected scales and air quality monitors. the consequences of this energy management are significant at the single house level and have the potential to impact utility revenue models. air conditioning or security systems developed by a multitude of companies (from telecom operators to shutter specialists) supported by tech start- ups. the use of connected devices has been adopted by many consumers and software platforms and applications have proliferated while competitive boundaries have shifted. allowing them to better price their fleet sales. IoT is becoming ubiquitous in the truck and car industries. Google.

the business segment of the market is actually expected to be much larger. a year after IoT appeared on Garter’s hype cycle for emerging technologies. when more things than humans were considered connected to the internet. its significance has now been elevated by the heightened interest surrounding potential growth and productivity appearing on the Gartner hype curve over the last couple of years. While the penetration of digital technologies accompanied by the integration of operational and Informational technologies has been underway for nearly 30 years now. 14 keplercheuvreux. cities. IBM. health.0) by the German Federal Ministry of Education and Research appeared. from vehicles.0 (I4. with applications set to enhance business performance in every sector. we review the impact of these technological changes on the industrial sector. and Ericsson launched far-reaching marketing and educational initiatives. offices. At the same time. and the concept was crystallised in 2012 and 2013 with a multitude of German government initiatives. the first references to Industrie 4.com . consumer- driven opportunity. and in 2011 when the launch of the IPV6 protocol allowed for enough scope to assign IP addresses to every atom on the planet a hundred times over. With this explosion in potential IP addresses. Given our focus on the capital goods sector. While the popular view is to regard the IoT as a mass-market. In 2012. Cisco. an opportunity that we expect to eventually eclipse the consumer IoT. Chart 7: Adoption of IoT began to accelerate ten years ago Source: Kepler Cheuvreux Moving towards the Industrial Internet of things The IoT reached a milestone in 2008/09. Capital goods After nearly 20 years of development. retail. the IoT now offers unimaginable amounts of not only collected but processed data to its users to understand any specific environment. GE claims to have coined the term Industrial Internet of Things (IIoT). agricultural machines to homes.

which allows machines to “learn” by themselves to attain a certain degree of artificial intelligence (AI). its application is currently mostly focused on the optimisation of industrial operations. This PR and education movement aimed to promote key German interests in the industrial and IT sectors. aviation. thereby sustaining German leadership in key industrial sectors over the long term. industrial software and smart manufacturing technologies and specifically applies them to the manufacturing environment to optimise all aspects of a product’s value chain and builds on all prior automation and IT capabilities. and promoted by industry leaders such as Bosch. data capture and analysis. Deutsche Telecom. The plan was then adopted by the German government in 2013. metals & mining. but focused on manufacturing. The concept of Industrie 4. lifted by literature from global management consultancies including BCG and AT Kearney.0 (I4. and acts to accelerate the convergence of information and operational technologies. Capital goods The IIoT can be defined as the application of IoT in the industrial sectors including energy. Within the European capital goods sector. these benefits are likely to be evolutionary rather than revolutionary. while the pace of implementation is just getting started.0 has gathered momentum. Expectations for potential revenue growth and productivity gains appear high. As the uses of IIoT develop. We see it as a far more comprehensive and complex application of technologies and corporate relations. the EU and many European nations launched their own movements to 15 keplercheuvreux. However. and ICT companies are set to tap greater revenue growth opportunities than capital goods companies. when Henning Kagermann (co-founder of SAP and President of Acatech) along with fellow German politicians began championing Industrie 4. utilities. SAP.0 and marketed it at the Hannover Messe of the same year. and 3) machine learning. logistics and other manufacturing end-markets.com . oil & gas. and Siemens. interest in the IoT emerged in 2011. The rise of the IoT has been enabled by the development of technologies such as: 1) cloud computing and the decline in IT costs for data storage.0) uses all functions derived from IoT. IoT by itself is unlikely to boost IT software and services companies’ top-line growth in the mid-term. the amount of hype surrounding IIoT and I4. enhanced automation and maintenance. While IIoT covers a huge variety of opportunities. 2) advances in big data analytics to help improve processes and create specific optimisations from the masses of data gathered by sensors. While it is clear that there will be benefits from digitalisation for industrial companies. although we are convinced that it will become one of the key components of the global shift towards digitalisation that we are already seeing. as we will see in the following sections. Over the past five years. Industrial companies adopting new digital-based operating methods have more to gain in the form of accelerating productivity improvements. Following the German lead. disruption is expected with the acceleration of predictive maintenance service models and the selling of more customer solutions. thus enabling “predictive analytics” (the analysis of past data to identify the likelihood of future outcomes such as maintenance needs).

chemicals. emphasising a commitment to IIoT that began with a focus on enhancing internal performance. GE. the UK. extending the narrative to the reindustrialisation of national industries. Indeed “4. IBM. While Europe’s efforts to enhance awareness among the industrial base have been heavily supported by the governmental agenda in the US. we see several clear differences.0 is cast as a revolution While the concepts of the Industrial Internet of Things (IIoT) and Industrie 4. and other EU countries. also expounded at the WEO and in Klaus Swab’s recent book. China’s launch of its ten-year plan Made in China 2025 in 2015 also captures the drive towards the increased use of technology in the Industrial sector. and ICT in a stated policy to raise China’s global competitiveness in advanced manufacturing. Industrie 4. Cisco. development has been led by more commercial initiatives.0 is the concept of a smart factory that brings machines. In contrast.0 aims to harness the notion of a fourth industrial revolution. The plan provides financial and political support to increase the use of smart factories. 16 keplercheuvreux.0) are merging. GE has pledged to become a top-ten software company with revenues of over USD15bn from programmes and services by 2020. as many of the enabling technologies are available but there are limiting factors associated with human resources. with the launching and promotion respectively of Industrie du Futur and Fabbrica del Futuro. data collection and analysis. Today. Sweden. objects and humans together in perfect harmony along the value stream to self-organise in the most efficient manner.0 (I4. the plan promotes technological advancement across ten target sectors. Building on many ideas and concepts from Germany and the US. allowing production systems to eliminate waste while maximising quality and flexibility. Capital goods promote industrial digitalisation. Industrie 4.com . and action is also underway in Spain. robotics. At the heart of I4.0” is being linked to development in sectors including logistics. and Intel. farming. US interests were harnessed by the formation of the Industrial Internet Consortium (IIC) in 2014. the concepts of this almost utopian vision remain quite theoretical. management practices. and is best applicable to equipment monitoring. founded by AT&T. It is now common to see companies mentioning their work and development towards Industrie 4. automation. IIoT evolves from the notion of connecting industrial objects to create value from sensing. and healthcare to express a targeted implementation of integrated digitalisation across industries. Since its introduction at the Hannover Messe in 2011. and the penetration of technologies across supply chains for individual companies and industries. Other initiatives across Europe include political action in France and Italy.0 in their presentations.0 has been adopted as a generic term to address the digitalisation of the sector. How I4. predictive maintenance. and patient monitoring.

or convergence. but small innovative specialists are also carving out fast- growing profitable niches. it is worth asking whether the interest in the terminology is not far greater than the actual value potential. especially because a lot of the progress is based on technologies that have been under development for decades. Indeed.com . after six years of promotion. much of what is promoted as a revolution appears more as a natural evolution and the union. leading global industrial equipment makers. efficiency. and data collection and analytics companies are shaping change in conjunction with national policymakers and academic bodies. its first major pure industrial software acquisition. Siemens started thinking of this future. and quality. As we explore in this report. Those corporations or countries able to develop and harness the necessary skills and technologies to optimise value chains related to product creation. From the outside. information & communication suppliers. of IT and OT that has been predicted and underway for a long time could be seen as analogous to the former convergence of mechanical and electrical technologies. while the digitalisation of the entire value chain may look like a game-changer in terms of productivity costs and new revenue generation. Companies across numerous industrial disciplines have the opportunity to generate value by creating the necessary tools to enable this fourth industrial revolution and utilising the multiple technical disciplines to enhance their own productivity. production management and system operation are set to secure a competitive advantage for all respective stakeholders. acting and allocating capital to build it in 2007 when it acquired UGS. Capital goods While the concept has reached the ears of the entire industrial and investment world. Chart 8: The various stages of industrial revolution Source: Kepler Cheuvreux 17 keplercheuvreux.

Enablers of this fourth industrial revolution Today. IBM. Capital goods The chart above represents how the unfolding revolution follows and builds on technologies and processes developed with the first. technologies. The period of rapid transformation lasted 60-80 years. systems. after-sales service. electrification. the development of advanced logistics and production processes.com . the internal combustion engine. most notably transforming the textile industry and giving birth to factories. and the vertical elements of the classic control stack in a production environment. and telecom equipment. and transformed business processes related to information management. and the US. and data storage and analytics providers. Germany. taking place mainly in the UK. manufacture. the oil industry. second. through improved efficiency in processes such as product design. production management. The unfolding fourth revolution combines IT and OT systems in a seamless cyber- physical world. shown horizontally. The application of these “digital twins” in production. and rapid industrialisation. This was supported by the evolution of a number of technologies including the Bessemer process. and projects from conception to creation and operation offer a multitude of ways to improve the value process for companies. and Microsoft. A third revolution began around 1970 and can be attributed to the development of information and communication technologies (ICT). supply chain management. delivering a 22x increase in productivity between 1770 and 1860. and third industrial revolutions. 18 keplercheuvreux. unleashing a wave of productivity and growth. this emerging fourth industrial revolution is defined as the merging of operational (OT) and informational technologies (IT) to form a complex cyber- physical system (CPS) that marries the digital virtual world with the real world in multiple industrial situations. This was led by US companies including Intel. and matured around 1915. The second industrial revolution involved widespread electrification. The following chart gives an overview of all the enablers. These enablers are provided by companies from a number of sectors including mechanical and electrical equipment makers. and systems that enable the development of data usage at all levels of the company. information and communication companies. The first industrial revolution saw mechanisation replace manual production. Current shifts in production processes are based on a multitude of key components. and support.

0): The full integration of digital and physical data throughout production value chains to realise increased productivity.0 Source: Kepler Cheuvreux Industrie 4. managing IoT devices. Enablers: Through the use of IoT platforms. making the process of collection faster and the analysis more useful with a plethora of applications already available on the market. efficiency. companies are going to change the way they collect and read data. It also includes vertical integration within a company from strategic management through to data and control and to the shop floor. and higher technical capability for a range of physical 19 keplercheuvreux. the increased prevalence. flexibility and quality while facilitating better strategic and operational decision making and closer supplier and customer relations.0 (I4. Capital goods Chart 9: An overview of Industrie 4. 1. Industrie 4. Some companies will be able to integrate both results while others will only manage to be effective in one of the two . Each element of the value chain is being transformed with the introduction or evolution of IT in its field. which in turn leads to the prospect of new revenue-generating business models.com .either revenues or higher margins. Declining costs.0 (I4. we review how each element of the value chain has the opportunities to change and evolve. ensuring cybersecurity. analysing the data collected and allowing the building of ad-hoc applications. Following the numbered system in the chart above. which connect sensors and devices to the cloud.0) incorporates the digitalisation of the entire horizontal value chain spanning the integration of suppliers and logistics providers through to the production floor and out to warehouses and customers. 2.

Capital goods

and digital systems, are enabling the realisation of the fourth industrial
revolution as the penetration of the enabling technologies across industries
increases.
3. Internet of Things/Connected devices: IoT is a key component of the IIoT
and Industrie 4.0. It refers to all devices, sensors, connection devices
(smartphones and tablets), computers and smart devices (e.g. watches) that
collect data and use wireless and ethernet connections. IoT is having an
impact on all sectors of the economy spanning cars, health, security,
consumer, energy, trade, aerospace and banking, to name only a few.
Machine-to-Machine communications (M2M) are also crucial in the
development of the Internet of Things at the industrial level. They enable the
direct transmission of data between elements of the production floor and
the concept of mass customisation, the main driver of the fourth industrial
revolution. Through the use of sensors and bar codes, communication and
data collection are made easier and faster over the entire value chain. The
surge in the use of smart connected devices is being driven and supported by
continued increases in microprocessor power and declining processor
prices.
4. Cloud services: They allow the outsourcing of data management onto
remote servers. Cloud infrastructure offers larger sizes of storage and
better monitoring and maintenance compared to in-house servers. They also
allow the connection of all the parts of a company to a same closed system
where top management can have access to production floor data in real
time. Data can be stored and analysed to improve performance of
equipment and manufacturing systems. Cloud services are being created by
global technology leaders such as Amazon, Microsoft, and IBM among
others, pure IT players such as SAP, PTC and Atos, and dedicated industrial
providers (e.g. Siemens, GE).
5. Robotics and Automation: These technologies form the backbone enabling
the physical part of the industrial transformation across 4IR. Robotics is
widely used in car manufacturing, but adoption rates are accelerating
throughout the entire industry. Sensors, software and services attached to
robotics and automated machines represent a significant future
opportunity.
6. Data analytics: The advancement of data analytics from the volumes of data
produced by the industrial complex is key to reaping all benefits of smart
factories. Only a small part of data produced is currently being used to
create valuable corporate outcomes, but this is set to increase. More and
more IT players are launching IoT platforms that enable the management of
connections with sensors and devices, the analysis of data collected and
stored in the cloud, as well the building of ad-hoc applications dedicated to
specific IoT-related business needs, all within in a secure environment.

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Chart 10: Key I4.0 enablers

Source: BCG

7. Strategic management: Management to gain better access to information,
supported by connected devices and machines and due to data from
customers and suppliers, which will help to achieve personalised
manufacturing (known as “batch size one”). Increased visibility across the
entire value chain should enhance decision-making.
8. Operational management: Increased depth of understanding and control
provided by high visibility of the local manufacturing environment and
demands up and down the value chain will provide local management with
greater autonomy. The visibility offered by the new amounts of data also
permits the evolution of technologies such as predictive maintenance and
remote monitoring. The combination of the two enables the user and
producer of the machine to anticipate failures and repairs by predicting
them. Thus, the operator and machine seller can set a fixed time and date to
carry out the needed changes. This system allows for a higher productivity
rate per machine and a decrease in global downtime for the company.
9. Data and the control layer: The local control layer holds a high level of
embedded processing and communication capabilities that provide
intelligent connection across the value chains. Data collected from the
production lines can be scheduled for local processing and analysis or
directed to the cloud for central processing. This data processing can be
carried out with the use of fog computing (also known as processing at the
edge of the network). Fog computing enables communication systems to
operate directly between machines and connectors at the production level
rather than being processed in the cloud. This accounts for a lower amount
of data travelling in the cloud and reduced latency: only the relevant data
collected is sent to the cloud for further analysis.

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10. The smart production floor: The production shop floor will be transformed
as machines become more intelligent and operators need to develop new
skills. Shifting requirements in terms of workforce, skillsets and human
capacity are a real challenge for the industry. Production systems target
increased productivity and flexibility, with the ultimate aim of achieving
personalised manufacturing (i.e. the cost-effective “batch size one” output).
11. Suppliers: Through horizontal integration, technology enables closer
collaboration between suppliers and production to allow increased working
capital efficiency, improved logistics, and faster throughput. Closer
collaboration with suppliers gives companies a greater knowledge of
delivery dates and preparation statuses that can then be refined in future
projects.
12. Customers: The shift towards 4IR places the customer at the heart of the
production process. It aims to offer the customer higher quality, greater
choice and customisation, and faster delivery, allowing customer choices to
be reflected back through the value chain at much greater speed. The
customer, with the digitalisation of the space, has access to more
information including data related to order status.
13. Feedback: New data offers new efficiency information at the shop and
data/control levels. Through ERPs and PLMs, access to deadlines is clearer
and more precise which is critical to enhance strategic and operational
decision-making. Feedback data is derived from suppliers, customers,
production lines, and internal operations.
14. Planning: Full vertical and horizontal integration allows for the optimisation
of business decisions at every level and an increased amount of automation,
such as automatic supplier ordering scheduled maintenance customer
demand aggregation, and dispatch.
15. Vertical integration: Full vertical integration allows for faster decision-
making, closer proximity between upper management and production, and
greater autonomy for local decision-making.
16. Horizontal integration: Increased connectivity means better reaction times
and readiness among suppliers, factories and customers and among product
designers, production engineers and aftersales support teams.

Who are the key players?
A perfect transformation to the idealised next level in manufacturing demands the
complex integration of multiple operational technologies: data-collecting sensors,
data communication and interpretation capabilities, decision-making, and control
signals to automate equipment and supply chains. It also requires a strong IT
structure including fibre optic cables, routers, switches, and secure mobile
communication technology. Achieving the smooth operation of a complex cyber-
physical system will require high levels of corporate commitment and capital.
Software and hardware providers in this system include traditional industrial
companies, Information and Communication Technology companies (ICTs),
including established technology companies and, more recently, data storage and
data analytics companies. Start-ups are also emerging as innovation accelerators.

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Capital goods

Differences and barriers between traditional industrial companies, service providers
and technology companies are starting to blur as key players are trying to gain as
much market share as they can, while start-ups are creating new business models. In
this context, many of the capital goods and IT software & services companies under
our coverage play a special role, as they are either suppliers or users (or both) of
Industrie 4.0 technologies, while they are also set to benefit both from increasing
revenues and decreasing costs (productivity gains) through investment.
On the IT side, software companies such as SAP (with its Leonardo digital innovation
systems) and Dassault Systèmes are bringing valuable solutions to the market, while
service companies like Cap Gemini and Atos are offering their integration skills.

Chart 11: Corporate interrelationships supporting development of Industrie 4.0

Source: Kepler Cheuvreux

1. Established manufacturers: Companies set to experience the greatest
impact from Industrie 4.0 are central to our stock coverage and include
Siemens, ABB, Schneider, General Electric, Emerson, Rockwell Automation,
and Mitsubishi Electric. They all offer products and services to enable their
customers to adopt I4.0 processes and stand to benefit from application
within their own plants and factories. Smaller players offering more niche
products and systems are also set to benefit.
Our coverage includes companies in the following sectors: home technology
(Legrand, Rexel, Osram Licht), healthcare application (Philips, Siemens &
GE), robotics (KUKA, ABB, Fanuc and Duerr), energy and renewables
(Vestas, Gamesa, Schneider, ABB, Siemens), transport and specialist
manufacture (Dürr, Alstom, ABB, Siemens), and mining equipment (Atlas
Copco, Sandvik, Rockwell Automation, ABB), etc. In fact, I4.0 covers such a
broad scope of themes and end-markets that almost all of our coverage is set
to benefit from investment in I4.0 technologies.
2. Digital and tech companies: Companies involved in software development
data analytics, data storage, system integration, and hardware are playing a
critical role in the development of I4.0. On the software and infrastructure
front, the sector is dominated by US tech players, including Amazon,

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there are numerous partnerships between tech and industrial players.0 transformation process. Successful value-added start-ups and niche players provide innovation input for traditional industrial companies or technology giants. Tech firms are largely focused on software services. demonstrating a two-way flow of capital between the business areas.0 market is a real need for collaboration and focus on the company’s core businesses. data storage. Examples include PTC (with the acquisition of ThingWorx) and SAP’s acquisition of Fedem Technology to gain key capabilities in Industrie 4. such as Apple and Google developing their self-driving cars. and IBM. Software AG. along with platform and services companies. Atos and Capgemini are also active in the area. 3. Over the last ten years. while harbouring deep vertical knowledge. Traditional manufacturers are forming partnerships with tech players to allow each company to exploit their specific strengths. TCS. Partnerships (or not): Lines separating traditional industrial companies and IT firms are blurring and shifting fast. gaining space and lowering server maintenance costs. Data centres are key to the I4. as customers need to have a common IT protocol in order for machines from different suppliers communicate with each other. or Google developing robots and augmented reality glasses that could be used in factories. as industrial companies offer physical products along with the software to run them smoothly. Indeed. so 24 keplercheuvreux.com . As data creation expands exponentially. which is evident from global companies’ willingness to establish incubator funds. IBM.0: software development. Tech companies. In this universe. and interpret the data. gather. analyse. more agile companies will play an important part in reaping the benefits from a more digital interconnected industrial environment. They focus on all aspects of I4. There are plenty of examples. Datacentres represent the backbone of cloud computing and enable companies to access huge amounts of storage space. flexibility and creative abilities are powerful drivers for innovation. the recent trend seen in the Industrie 4. Cognizant. Leading consulting and systems integration players in IoT include Accenture. Dassault Systèmes. country-specific regulations will play an important role in how cloud providers’ data centres are set up to meet national data security laws. Start-ups and niche players: Smaller. The IoT platforms we review further on have mostly been developed through multiple acquisitions of such smaller and highly specialised companies. 4. In Europe. Leading Global industrial OEMs. cybersecurity. This process is one of the key enablers to release value. Strong capability is also found in Europe with SAP. Traditional manufacturers have acquired small tech companies while tech giants have acquired cutting-edge manufacturing start-ups. robotics and artificial intelligence. including Siemens and GE. Their adaptability. and communication technologies. all of the companies in our coverage have started to shift their data storage from in-house servers to external cloud providers. cloud. However. and Hexagon.0. and IOT software companies including C3 IoT. Acquisition: Acquisitions play an important role in terms of the development of large companies. Capital goods Microsoft. 5. and Deloitte. Smaller players include security companies like Nextnine. have already developed their own data analytics tools and CPS.

which the Gartner Group projects to rise from c. 2. We expect much of this growth to take place in the commercial sectors. as they now must immediately communicate any breaches in the data centres. 2) a fall in data storage costs. and non-compliance could trigger potential fines against the company or worse. which can represent a major source of downtime. Industrial sectors at the core of I4. suspension of operations. and 3) exponential growth in the number of connected objects. Choosing the right data storage provider is key due to variations in in data protection laws according to the country.0 searches on Google Chart 13: Rise of connected objects Source: Google Trends Source: Gartner group 25 keplercheuvreux. which has changed the game for network operators there.5bn in 2016 to 7. Three trends are driving the acceleration of technology and methods linked to I4. permit or license cancellations.000 users. Capital goods does data storage space. or a shutdown of the company’s website. in June 2017 the Chinese government implemented a law on cybersecurity and data protection. Data generated in China must be stored within Chinese borders. at company level. Larger regulatory issues could affect data protection in emerging countries such as China and Brazil.000GB or affecting more than 500. However. companies must allow Chinese officials to access their data in the event of an investigation. A security assessment is mandatory for businesses exporting data packets larger than 1. attention rising Mounting interest in Industrie 4. there are other differences between European and US data centres in areas such as the “emergency power off” function.0: 1) a rapid decline in the cost of sensors. and the new rules prevent any data in their data storage centres being sent outside the country. Chart 12: Volume of Industrie 4. Beyond data protection.5bn by 2020. Finally.0 is reflected in the rising number of Google searches and confirmed in various consultancy surveys.com . but is required in some areas.0. where data centres are growing but legislation has not matured yet. As an example. the state has imposed a random security assessment on companies.

who placed the smart factory at the heart of the evolution. Capital goods As we discuss further on. the extent to which the Industrial Internet of Things spans numerous segments of the economy was captured by GE economists. Moreover. 26 keplercheuvreux. healthcare and manufacturing sectors in both developing and advanced economies.0-related technologies and services in order to benefit from some form of economic advantage. or quality. suppliers and the production value chain offers additional advantages in design. The full digitalisation of product and service offering allows for the creation of smart products. and manufacturing. the horizontal integration of designers. aerospace and consumer product developers are all sectors currently benefiting from the full digitalisation of product development. integrating horizontal and digital processes. higher productivity.0 and adjacent concepts Source: General Electric Source: acatech Adopting technology hinges on a positive financial outcome There is growing motivation to procure Industrie 4. Chart 14: Scope of global economy impacted by IIoT Chart 15: Scope of I4. Automotive. computer aided manufacture and engineering analytics) with Manufacturing Execution Systems and dedicated automation software. We expect value to be created in three streams: 1. through increased asset utilisation. including the transport. logistics. computer-aided design. End-to-end product development: The complete integration of the digital product design and development. mobility. Siemens has integrated Product Lifecycle Management software (including product data management. The scope of application and business areas to be affected were also reflected in a study by the German Federal Ministry of Education and Research. who identified that 46% of the global economy is expected to be affected by the Industrial Internet of Things.com . Siemens claims that car development times have been cut from eight to three years and production development has been cut from 11 to six years. production planning and engineering data release for the production and support of product service offers gains in time to market and responsiveness to customer needs. healthcare. The main sectors to benefit from IIoT are transport. flexibility. utilities.

Optimisation of industrial value chains: The optimisation of horizontal value chains creates value by bringing all the players together.com . the production system and distribution and sales. allowing the value chain to achieve greater horizontal collaboration between suppliers. Chart 17: Horizontal industrial value chains Source: KeplerCheuvreux 27 keplercheuvreux. Capital goods Chart 16: Horizontal integration (top) end-to-end engineering along value chain Source: Siemens 2. increasing service levels. In the industrial environment. increased quality and productivity levels. this is expected to raise speed to market. while lowering working capital (lift W/C turns) and enhancing production flexibility. Tighter vertical integration and digital control should provide higher asset utilisation.

Capital goods

4. Asset use optimisation: The opportunity offered by access to real-time data
is a massive step forward for any company in the industrials sector. This data
can be used to optimise asset utilisation and reduce downtime. With sensors
collecting data from machines, it can be directly sent to a remote monitoring
centre that can then use predictive maintenance with this additional
knowledge. Predictive maintenance helps machine owners reduce the
downtime of their machines as they can be fixed on a set date and time
before a major issue arises. With the optimisation of asset use, companies
could massively improve their productivity and lower their costs over time,
as well as take into account more demand with the same assets.

Chart 18: From operating data to insights

Source: GE

Traditional capital goods companies must increase digital content
Historically, many of the companies under our coverage in the capital goods sector
have focused on the design, building, and installation of industrial products and
systems, while targeting service revenues. Opportunities to maximise value within
specific industry verticals remain dependent on the level of digitalisation.
Readiness for the transition can also be considered at a national level: the reduction
in manufacturing contribution to GDP has become a focal point for governments.
The implementation of I4.0 in the industrial sector is seen as a way to support a
manufacturing revival, although there are varying degrees of readiness across
different countries when it comes to adopting new techniques.
The countries taking the lead to support the development of digitalisation, advanced
communications and smart manufacturing include Germany, the US, Japan, and
China, which we will review in greater depth further on. However, Roland Berger
highlights a varying degree of readiness across Europe too, slowing the pace of
adoption. As we will explore further on, the focus of application of I4.0 and IIoT

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Capital goods

between North America, Europe, and Japan differs markedly, with North America
leading in the development of service models, while Germany’s focus is on the
application of the technology stack to manufacturing.

Chart 19: Varying levels of readiness across Europe Chart 20: Pace of adoption will be measured

Source: Roland Berger Source: Roland Berger

Enhancing the productivity of countries and companies is a key objective when
allocating capital to I4.0 projects. From a national perspective, governments target a
resurgence of value-added manufacturing as a proportion of GDP, which has been
declining in developed countries over the past two decades. Corporate focus is
centred on retaining a competitive edge (lower costs, higher quality, increased
flexibility, higher productivity), while pursuing additional growth opportunities. Cost
reduction, increased customer satisfaction and revenue growth are the key drivers
when it comes to boosting shareholder returns.

Chart 21: Key drivers behind I4.0 adoption

Source: Kepler Cheuvreux

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Capital goods

Capital goods companies stand at the heart of evolution
While concepts, physical building blocks and software are advancing quickly, the
extensive penetration of I4.0 concepts across the industrial base is still at an early
stage. However, capital goods companies are some of the best-positioned to benefit
from the internal transition toward I4.0 operating methods, while those with a solid
product offering encompassing the enablers described above should also experience
revenue growth.
Sequential studies undertaken in recent years demonstrate that digital
transformation is becoming more of a priority on corporate agendas. A recent report
by PWC (surveying more than 2,000 companies in 26 countries) showed that the
digitalisation of the industrial process was a major concern for respondents.
Between 2016 and 2021, they expect the level of digitalisation in their company to
more than double, from 33% to 72%, (through their entire business stream).
The overall industrial process is expected to shift towards digitalisation, from product
design and engineering, to factory management and even sales channels and
marketing, changing the entire business model of traditional industrial companies,
which we will discuss further on. The survey provides a qualitative insight into the
growth potential for industrial software and digital enablers over and above hardware.

Chart 22: Companies are expecting to increase their level of digitalisation

80%
70%
60%
50%
40%
30%
20%
10%
0%
Level of Vertical value- Horizontal Digital business Product Customer
digitisation chain integration value-chain models, product development & access, sales
integration and service engineering channels &
portfolio marketing

Today In 5 years

Source: PWC

All respondents agreed on the importance of adopting digital strategies for their
companies and factories. While it is likely that early adopters will benefit more from
these new technologies than followers, there are many risks related to launching a
digital strategy, the first one being the heavy cost of implementing I4.0 initiatives
across the value chain.
While industrial companies will no doubt all embrace I4.0 to varying degrees, we
assume that larger conglomerates such as Siemens, GE, Rockwell, Honeywell, ABB,
Schneider Electric, and Johnson Controls will lead the way, as they benefit from
larger investment and software development capabilities. Indeed, they can couple

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Capital goods

their own software with their machines internally. Investing in proprietary software
platforms provides a further trade-off.
With traditional lines of competition blurring the business opportunities linked to
software, data collection, analysis and interpretation, we are likely to see
competition between traditional industrial companies, ICT giants like IBM, Cisco,
SAP, Microsoft, Amazon, Google and start-ups. It remains unclear at this stage
whether IIoT software models will standardise towards free common open
platforms, allowing many developers the ability to design I 4.0 software, or whether
there will be more bespoke solutions. What is most likely is standardisation at higher
control levels and for horizontal applications and more bespoke solutions closer to
the device levels for specific industry applications.

Chart 23: Expectations for digitalisation and integration by sector over five years

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Electronics

Manufacturing

Chemicals

Automotive
Aerospace and

Energineering
Packaging

Metals
Transportation
Paper and
Products,

construction
and Logistics
Forest
Industrial
Defence

and

Now In five years

Source: PWC

We see the blurring of competitive boundaries between capital equipment and
software providers as a function of where industrial customers will prioritise capital
investment over the next 5-10 years, which will be towards all technologies and
systems that facilitate greater digitalisation. Since much of the technology is
software-related, this business activity can be expected to demonstrate the greatest
growth, thereby attracting both traditional capital goods companies and software
providers onto the competitive battlefield.

Chart 24: Capital goods sector is the heart of the Industrie 4.0

Source: Kepler Cheuvreux

31 keplercheuvreux.com

g. For vendors. raising the prospect of margin expansion. while the opportunity to develop new business could boost revenue growth by 1-3% a year. Therefore. Wartsila) consumer appliances (e. Software AG) while the traditional capital goods companies will offer enabling hardware. The possibilities emerging from hardware companies exist if the 32 keplercheuvreux. SAP.g. Yaskawa). all increasing Siemens’ capabilities in industrial software. Sandvik. AVEVA). increased production efficiency. ABB. ABB’s April 2017 acquisition of B&R.g. Through the possibilities of predictive maintenance. ABB. discrete. some companies under our coverage face the risk of declining demand for physical operating assets. Investment to drive revenue growth Unlocking the potential requires accelerated investment by the industrial sector. tighter customer relations and faster demand responsiveness could strengthen customer ratings.com . The benefits of higher production flexibility. GE and ABB). smart grid equipment (e. Siemens. the electromechanical equipment providers will need to offer smarter products with longer lifecycles and better adaptability to updates (as opposed to today’s era of planned obsolescence for certain products on the market). Valmet. Legrand. data capture and analysis (e. Rockwell). although we expect the latter to demonstrate higher growth. Indeed. Microsoft. Acceleration of investment the first key step The concepts related to I4. On the other hand. a product and technology company whose main business industrial PCs. Hexagon.g.g. the opportunities stem from both hardware (enablers) sales and software. Schneider. Kone. Assa Abloy. Siemens’s recent purchase of Mentor graphics follows a number of similar industrial software acquisitions since the 2007 UGS acquisition. Dassault Systèmes. Strategic choices when deciding to invest in hardware or software companies should strongly favour the latter. switch. IBM.g. Alstom. provide a framework for boardrooms of industrial companies to increase capital investment.0. Rexel. Fanuc. Atlas Copco. Electrolux. Schneider. Duerr. Atos. Husqvarna) urban infrastructure and transport equipment (e. Siemens. it seems obvious that assets will have longer lifecycles. ABB. higher quality.g. this could entail fewer machines sold each year and therefore a potential decrease in revenues. Thyssen Krupp) but also application and product-specific software for design and operations (e. Capital goods ICT and technology companies are set to provide much of the communication. Siemens. mining and marine (e. Hardware companies include cable. Philips. and the touted potential benefits. including robots (e. KUKA. ABB) and construction-linked products (e. ABB. In the case of companies with little to no organic growth. Cisco. Schindler.g. router.g. Adoption of technologies and processes linked to I4. Emerson. Siemens. PLCs and gateways increases the group’s exposure to growth segments. hybrid and process automation (e. and gateway manufacturers and PLC and industrial PC suppliers. Schneider. which may see capex requirements increase to 2-3% of revenues.0 is expected to boost industrial productivity by 3-5% a year.

The concepts of Industrie 4. as future acquisitions and partnerships will define both the growth potential and the appeal of the corporate offer. and something of a revolution in production system operation. Strategic capital allocation to favor digital business As shown in further detail in this report.0 concepts. With smart acquisitions and synergies. We also define where the value is (and could be) and where the productivity gains and new revenue streams are expected to be. or new service offers. but the pace of adoption is likely to be slower than current hype suggests. we realise that software will be the main driver of this shift towards digitalisation. The rationale behind future acquisitions in the capital goods sector must be carefully scrutinised in the context of digitalisation and I4. bespoke lIoT. the value creation potential remains due to top-line growth potential. with many sub-sectors enjoying 5-10 years of double-digit demand growth. 33 keplercheuvreux. Chart 25: Steps towards Industrie 4. Capital goods buyer has the skills and efficiency to reduce the targeted company’s costs as much as possible.com . we do not see this as a key share price driver.0 and the Industrial Internet of Things do offer the prospect of a step-change in industrial productivity. a strong company could be capable of creating new revenue streams with the launch of bespoke applications for the products it sells. In this report. Since IoT platforms remain an attractive but minor part of the income stream in our coverage universe of IT software and service companies. Even though software and especially IoT specialised companies currently trade at (or are priced at) higher valuation multiples than traditional industrials. we aim to provide a clearer understanding of the existing and future technologies and enablers and the links between them.0 Source: Kepler Cheuvreux Summary and direction We view the current pace of digitalisation and connectivity across the industrial base as more of an evolution that is building on 20 years of prior technological investment.

In the following sections.g.com . electronics. and traditional electromechanical equipment vendors may even see pressure on revenue growth. car manufacturing) are already well advanced in the transition toward I4. the disruptive impact of digitalisation on business models and corporate performance. but other industries and smaller companies have a long way to go and appear cautious when making investment decisions.0. and the main investment opportunities in our coverage universe. we review the potential financial impact of I4. the pace of adoption expected across differing end markets. the competitive landscape across the main enabling technologies. national interest and support.0/IIoT rollout. Capital goods Some industries (e. Growth opportunities for vendors are set to be greatest in the software and automation segments. 34 keplercheuvreux. expected corporate winners and losers.

0 and confirm that revenue and productivity opportunities are greatest for discrete manufacturing. which is revenue growth. which we see as productivity. which are also the most important target markets for the capital goods sector. Productivity gains of 2-3% a year above normal gains are envisaged. The opportunity this creates will be contested by traditional industrial companies. This slowdown has weakened the primary driver of shareholder value. software applications and analytics. Combinations of top-line growth and productivity have the potential to lift capital goods companies’ margins by 10-20% under stable price conditions. 25% directed towards hardware and 75% for implementation services. underlying global growth rates have slowed.0 (I4. we expect 15-20% growth in certain industrial software verticals.com . communications technology. 35 keplercheuvreux. which is a more all- encompassing trend. In its absence. process industries and healthcare. transport and logistics.0) requires consideration of the broader Internet of Things (IoT). we review the attempts by global consultancies to quantify and gauge the opportunity. and niche focused start-ups. Spending on products. Bain predicts that annual revenues for hardware. More specific studies target the narrower subject of IIoT and I4. Capital goods Investments driven by financial gain Given that the pace at which industrial verticals will adopt full digitalisation hinges on the prospects of realising targeted financial and operational benefits. which take the all-encompassing view of those segments that will benefit most. Productivity remains the critical driver for CEO/CFO investment Over the past ten years. often encouraged by national policies. while others suggest that the IoT will grow to affect 60% of GDP in developed economies. software and services that facilitate I4. with most benefits accelerating over 3-5 years. software and solutions could exceed USD470bn. despite ambitious government stimulus measures to restart growth after the global financial crisis. By 2020. Multiple corporate case studies are maturing and offer proof as to why companies should accelerate investment. and data storage. A huge range of consultants’ forecasts exists to gauge what proportion of the global economy will be affected as the IoT develops. with c. As industrial companies remain focused on increasing ROIC through productivity gains and cost reduction. We highlight some estimates related to the impact of IoT. multinational software companies. IoT platforms. generated by global consultancies. Gauging the digitalisation opportunity Defining the scope of the Industrial Internet of Things (IIoT) and Industrie 4.5% a year.0 and IIoT are expected to post a 20-30% CAGR over 2015-25E. corporate leaderships have intensified efforts to improve the second most important lever behind value creation. Full incorporation of best-in-class digital technologies is expected to boost GDP by 1-1.

lean manufacturing. cyber security.0 integration. As a reminder. Top-down estimates are prone to consultant hype (motivating industry change). and opportunities to grow revenues or secure customer loyalty. R&D efficiency. EPS growth. local communication and ICT capabilities. The allocation of capital on a regional and business division basis will depend on national policy environments.0 enabling technologies and training will be made at individual company level. the potential is clear and the opportunity is real. raise labour productivity.com . Nonetheless.0 is expected to improve all components Source: Kepler Cheuvreux The adoption of digitalisation tools along the value chain provides scope to enhance asset utilisation levels.0 offer the potential to make a step-change in productivity gains over the next 5-10 years. readiness of the workforce. Defining the total revenue opportunity by region or sector is fraught with uncertainty. Chart 26: Higher productivity is the reward for investment Increase in productivity is hard to quantify. which could result in a direct boost to profitability. we consider increased productivity to be the third key step on the route towards full I4. Capital goods Most companies under our coverage are currently focused on traditional measures including working capital reduction. IIoT and I4. the decision to invest in I4. which are all key inputs in the productivity equation. For industrial companies. reduce energy costs. and improve service performance. while bottom-up are also exposed to similar forecast errors. 𝑂𝑢𝑡𝑝𝑢𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝐼𝑛𝑝𝑢𝑡(𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝐿𝑎𝑏𝑜𝑢𝑟 + 𝐸𝑛𝑒𝑟𝑔𝑦 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝑆𝑒𝑟𝑣𝑖𝑐𝑒𝑠) Investment decisions that drive growth hinge on companies As indicated in the opening paragraph to this section. and procurement. 36 keplercheuvreux. and ROIC. cultural towards innovation. but Industrie 4.

reaching a total of c. energy savings of 10-20% and 15-20% productivity gains over a ten-year period. Studies imply that the bulk of investment will be directed towards discrete manufacturing. Accenture estimates that real GDP growth could be increased by 1-1. 37 keplercheuvreux. which could lower maintenance costs by 10-40%. the benefits are more closely linked to predictive maintenance.5-2.6% annual cost reduction from digitalisation and may spend 5% of revenues a year on digitalisation technologies.5% through the full adoption of IIoT/I4. estimating direct IoT technology spending at USD95bn and forecasting average growth of c. McKinsey estimates a 10-25% increase labour productivity.9% annual growth from digitalisation over the next five years. These are the industries and existing assets that are likely to see the greatest productivity boost.0 technologies over 15 years and its sees the potential to add USD14.0 could add 1% to GDP. 2. For existing assets.5% on an underlying basis. USD300bn by 2020.2trn to global GDP including direct investment in IIoT products and services and indirect factors such as productivity benefits. suggesting that a sample of 2. PWC’s 2016 survey implies that companies expect a 3. Annual increases in productivity of 2-3% projected. which was expected to reach USD500bn by 2020. or 15-25% excluding materials. PWC’s survey from 2016 appears even more optimistic. analysis and implementation costs in businesses. The main economic segments set to benefit are manufacturing. In Germany alone. 4. Applying similar metrics to Europe suggests potential productivity gains of EUR110-175bn. process and energy & natural resources. In 2012.com . with a bias toward software and services. GE projected total spending on IoT of USD20bn. there are four key points that are relevant for investors: 1. from USD70bn to USD285bn. and which can be compared with McKinsey’s estimate of c. Spending on devices/sensors is likely to be more limited.000 companies expect 2. USD800bn by 2025. which accelerate GDP growth. Capital goods Top-down projections point to huge potential We review the projections for future revenue growth and productivity gains associated with the rollout of IoT software. data storage. transport & logistics. higher in some segments. services and hardware over the next five years. and utilities. healthcare. utilities.7% annual addition to Germany’s national gross value added over 2013-25E. 25% over 2015-25E. while the group also sees total spending on IoT Technologies rising by 33% a year between 2015 and 2020. implying a potential annual productivity boost of 1. 3. In our view. BCG also forecasts additional total productivity gains of 5-8% over ten years including material expenses. Growth of investments to target software and services with less emphasis on hardware: Productivity gains from existing hardware may lead to lower capital investment as capital intensity increases. For Germany. The Fraunhofer/Bitkom study of 2014 calculated a 1. McKinsey takes a similar all-encompassing approach. Growth boost expected by all major consultancies. Spending is likely to be accelerated to target connectivity. transport & logistics. BCG estimates that I4.

Kepler Cheuvreux 38 keplercheuvreux. Human monitoring and managing illnesses and supporting personal healthcare Outside Logistics routing. worker monitoring. maintenance and smarter insurance products Source: McKinsey.9trn and USD11trn. promotions. Chart 27: Split of value potential across nine sectors Vehicles Home 6% 4% Offices 2% Cities 17% Factories 32% Outside 9% Human 12% Worksites Retail Environments 7% 11% Source: McKinsey. Kepler Cheuvreux McKinsey’s value creation estimate is so large because the study incorporates all the potential benefits for stakeholders across the value chain of consumers. health and safety. price reduction. home automation. layout optimisation. The figure reflects value captured from customers and consumers and extends to 11% of global projected GDP in 2025 at the upper end. businesses. shown in the table below. traffic control and resource management Vehicles Conditional based monitoring. health & safety.1trn per year by 2025. where we take the mid-point of McKinsey’s projections at USD8bn potential value. Perhaps more interesting is the breakdown of value across nine settings. governments. and suppliers. Capital goods McKinsey identifies an USD11trn potential from IoT In 2015.com . IoT R&D. Retail Automated checkouts. In each setting. in-store personalisation. equipment maintenance. predictive maintenance. Factories represents the largest segment for potential value creation and is nearly twice as significant and the next major category . with a range of between USD3. and new revenue streams. Table 3: Range of IoT applications across settings Setting Key applications Home Energy management. McKinsey’s IoT: Mapping the Value Beyond the Hype study flagged a potential economic impact of USD11.cities. safety & security. inventory optimisation. productivity. inventory control Worksites Optimisation of operations. increased functionality of appliances Offices Organisational redesign. energy monitoring and building security Factories Operations optimisation. there is a range of benefits that are realised such as cost savings. smart CRM. autonomous cars and trucks and navigation Cities Improvement of public safety. augmented reality.

Around 75% of spending on IoT technology is expected to be focused on integration services. inventory optimisation. Overall projections target a total economic benefit of USD3. Of the total economic benefit. which is expected to grow at a rate of c. and health. 20% over ten years between 2015 and 2025. which is seen slowing to a 25% CAGR over 2020-25E.9trn in 2015. This IoT technology spending equates to new revenues for the sector. Chart 28: USD3. The main benefit stems from productivity improvements. up from USD0. the prime benefits are seen from streamlined operations and predictive analytics. and worker health & safety. with other benefits in the areas of equipment maintenance. equivalent to USD50-140bn. By 2025.1trn. with only 25% allocated to hardware.com . Capital goods The factory setting is estimated to offer the largest potential value and incorporates all standard product environments from hospitals to agriculture and classic manufacturing. equivalent to a 32% CAGR.6trn value by 2020 Chart 29: Split of IoT tech spending Integration 11% services 25% 25% Consumer 30% Software/app surplus development Customer Software value 5% infrastructure Technology Connectivity spending 12% 64% 28% Hardware Source: Kepler Cheuvreux Source: Kepler Cheuvreux Reviewing the split of IoT business and services provides insights into the competitor landscape and which companies will be best-positioned to provide the enabling technologies to release the envisaged economic value: 39 keplercheuvreux. software infrastructure and connectivity. 15% was seen spent on IoT technology in 2015. software. the total economic benefit is projected at USD11. which are seen in the form of energy savings of 10-20% and a 10-25% improvement in labour productivity.6trn in 2020. resource management. Benefits in cities include enhanced transport management. In the worksite setting (including oil & gas platforms or metals and mining facilities).

Alongside productivity. Rockwell Sensors 8% Cognex. CSC General contracting/project mgmt 15% Deloitte. The increases in potential GDP provide a framework for how investment in IIoT technologies may increase growth across the sector. the potential for value creation in factories is the greatest of all setting values. autonomous vehicles. Applications include electricity distribution and substation management. IBM. implying that the adoption of technologies and the realisation of benefits should be considered over a 3-5 year period.com . driven by the next phase of factory automation. digital advancements leave open the potential to secure an additional 15-20% productivity improvement from factors including 30-50% less machine downtime and 40-50% improvements in labour productivity. built a model aiming to measure the economic potential of IIoT/I4. a baseline of USD14. Schneider. while specific targeted investments could raise the total to 1.2trn additional GDP was projected to be generated over 15 years. Accenture estimates 1% hike in GDP growth Accenture. GE. predictive maintenance could lead to maintenance cost reductions of 10-40% according to McKinsey. Capital goods Table 4: IoT technologies and key suppliers/competitive landscape Category % of spend IoT Technology % value Competitve landscape Integration services 30% Physical setup 15% Atos Origin. also cutting equipment downtime and capital investment needs due to longer machine lifecycles.0. In total. IBM Software infrastructure 13% Device cloud 3% Microsoft. 40 keplercheuvreux. One of the notable features of the study is that the acceleration of the impact on GDP is not seen across major economies until 2022-24.5%. defined as Industrie 4. and USD500bn to China. with USD6. In addition. The study suggests that real GDP across 20 major economies may be lifted by 1% a year until 2030 over trend projections. Keynence Source: Kepler Cheuvreux As mentioned. Atos.0. McKinsey notes that cost pressures across industries drive the need for companies to find 2-4% productivity gains each year under normal conditions. which we would see partly due to the delay effects of technology adoption (previously highlighted as the productivity paradox). and crime monitoring and prevention. ABB. Schneider. IBM Secuity 3% Symatec Analytics tools 8% IBM Connectivity 5% Connectivity 5% Alcatel Lucent. in conjunction with Frontier Economics. traffic control. Cities provide the second-largest set of economic benefits as a vertical for IoT application and represent a pressing issue due to the continued rates of urbanisation expected over the next ten years. Cisco Hardware 25% Other hardware costs 18% Siemens. bus and train schedule management. users Packaged software 13% Microsoft. USD700bn to Germany. Cap Gem Software/app development 28% Algorithums 3% Aspen Tech Business apps 13% Siemens.1trn added to the US. water leak identification. air and water quality management. Accenture.

the BCG team states that Germany could add 1% a year to GDP over ten years.000 jobs (thereby easing concerns about the jobs paradigm) and add EUR250bn to manufacturing investment. logistics and healthcare services. BCG focuses on growth and productivity Studies by BCG focused on Germany indicate that the implementation of Industrie 4. Accenture quoted work from GE suggesting that total spending on IIoT in 2012 was USD20bn and could rise to USD500bn by 2020. equivalent to a total saving of EUR90-150bn for the German economy alone.5-0.8% annual increase in productivity. the potential gain is estimated at closer to 15-25%.0 practices could drive 5-8% productivity gains on total manufacturing over ten years. mining. To achieve this savings target. oil & gas and utilities. In 2015. equivalent to a CAGR of nearly 50%. including manufacturing. demand for enhanced equipment and new data applications is seen rising by c. While the full shift might take 20 years. EUR30bn a year. which would represent a structural demand boost for key technology suppliers. Pre materials expenses. agriculture.5% of revenues) to realise potential benefits. In a similar conclusion to Accenture. Capital goods Chart 30: Model to measure the economic impact of IIoT Source: Accenture Accenture highlights that the IIoT spans industries representing 62% of GDP among the G20.com . key advances are seen over the next 5-10 years and will define winners and losers.5% of revenues a year. equivalent to 1-1. 41 keplercheuvreux. The sectors expected to reap the greatest benefits include industrial component makers and car suppliers. or a 0. create 390. or 1%. warehouses and ports offering transport. BCG expects German producers to have to invest EUR250bn over ten years (or 1-1. The figures for Germany are affected by the importance of manufacturing for the country’s economy. while incorporating hospitals.

Kepler Cheuvreux 42 keplercheuvreux. USD70bn in 2015 to USD285bn by 2020. cloud. with Healthcare. BCG’s review across 11 market segments demonstrates that 50% of total spending on IoT is expected to be directed towards three verticals: Discrete Manufacturing. Transportation & Logistics. 80% relates to services. platform and communication products. BCG also reviews the size and potential applications for IoT-related technologies and services. Capital goods Chart 31: Summary of BCG potential productivity benefits Germany Source: Boston Consulting Group Beyond the review of potential productivity gains. Kepler Cheuvreux Source: BCG. Chart 32: Allocation of IoT spending by category Chart 33: Expected spending by end market Service Discrete 17% manufacturing 20% 24% IoT Applications Transportation and 34% logisitics IoT analytics Utilities 10% 16% Indentity and Healthcare security 6% IoT backbone (cloud Process 24% and platform) 5% 8% Communications 16% Energy & Natural 6% 8% 6% resources Source: BCG. which is expected to grow from c. and 20% to hardware such as sensors. IoT applications and IoT analytics.com . Energy & Natural Resources and Process industries accounting for another 20%. split evenly. Reviewing the spending split. equivalent to a CAGR of 33%. The highest rates of growth are expected to be seen in IT services. software. and Utilities.

This shows that the largest applications are expected to be remote patient monitoring. 9% automotive. The survey was split as follows: 21% industrial manufacturing.9% from digitalisation. 8% metals. paper. USD907bn a year. The survey also indicated a total spend by participant companies of c.000 participants in 26 countries at companies with total revenues amounting to c. 8% other.6% annual cost reduction . PwC surveyed 2. The relative importance of each segment is reflected in the chart below.com . packaging.use cases driving IoT Source: BCG PWC appears optimistic about growth and productivity In 2016. equivalent to a total saving of USD421bn per year on average over the next five years. summarised in the following chart. The survey concluded that the companies surveyed were expecting additional annual revenue growth of 2. USD17trn. predictive maintenance and automated inventory management. 11% chemicals. 4% forest. equivalent to a total of USD493bn a year on average over the next five years. Capital goods In the same study. 10% electronics. 43 keplercheuvreux. Chart 34: BCG . BCG highlights the IoT applications that are likely to see the greatest level of corporate investment. The results also reveal the expectation among survey participates of a 3. or just over 5% annual revenues on digital technologies including hardware and training. 9% transport & logistics. 19% construction. 2% A&D. self-optimising production.

with manufacturing accounting for 22%. which it forecasts to rise to c. The industrial segment is the vertical expected to be the largest adopter of the technology. Chart 35: Cost reduction potential by sector Chart 36: Investment plans by sector Source: PwC Source: PwC PWC’s data. equivalent to annual growth of 14%. Products included sensors. Actuators.2-4. Capital goods Companies in all sectors see annual savings of 3. software. productivity. from its surveys. while services included advisory.com . IDC worldwide spending IDC estimates that global spending on IoT hardware. appears more optimistic that expectations from other major consultancies in terms of growth potential.4trn by 2021. chipsets. Average growth in each sector was estimated at 15% and 17% respectively until 2021. USD1. MEMS. Zinnov technology specialist sees 15% growth Specialist consultancy Zinnov identified total IoT spending of USD120bn in 2016. storage and server infrastructure and IoT platforms. network bandwidth. product development. it estimates total spending at just over USD800bn. In 2017. although they confirm a strong trend of expected growth. as the projections of total spending are 5-6x greater than other more specific estimates. and cost-saving potential from IoT.2%. 44 keplercheuvreux. services and connectivity reached USD737bn in 2016. split as follows: USD54bn for IoT products and USD66bn for IoT services. The company’s estimates may be very broadly defined. consulting. transport 11% and utilities 8% (these are seen as the three most important sectors). and managed services. while investments are expected to amount to 4-7% a year. The surveys conclude that the fastest growth is likely to be seen in advanced manufacturing. connectivity hardware.

As shown below.7% annual growth to value added until 2025. projections implied the additional growth in value added expected over the 12-year period and hence implies real benefits and increased value added to Germany. of which EUR430bn from productivity. Across the whole economy. which accounts for around one-third of GDP. which would add an additional EUR78bn gross value added to Germany for the six key sectors.com . software.8% rise. ATKearney estimates a value creation potential of 7% for the EU28 GDP. it estimates that 57% could be directed toward services. and the main IoT benefit (productivity) may take ten years to emerge. cloud. and only 13% to sensors and devices. EUR165m from housing and hospitality and EUR235m from healthcare. and network applications. it estimates EUR160m from Industry. and EUR210bn in monetised time economies. shown in the table below. ATKearney forecasts that 6% of the world economy will be impacted by IoT. Of the total. including B2B and B2C applications. with a 1. a EUR300bn increase in purchasing power. 45 keplercheuvreux.9% increase in productivity. equivalent to EUR940bn. Chart 37: Projected revenues and profit from the IoT (2020) Source: xxx ATKearney expects ten-year period to full fruition Globally.0 on six economic sectors in Germany could add an additional 1. Fraunhofer institute and Bitkom on impact on German GDP A study conducted by the Fraunhofer Institute and Bitkom in 2014 concluded that the economic potential of Industrie 4. by 2020. EUR80bn from IoT solutions. As the study assumed no underlying GDP growth. Based on ATKeaney’s commentary it is clear that the incremental revenue in target segments is estimated to be small. 12% to applications. profitability and split Bain’s study covers the entirety of the IoT landscape. Capital goods Bain analysis indicates market size. 18% to Infrastructure platforms. while also indicating that the main focus will be the industrial sector. the majority of the future value is expected to centre on systems. the potential increase gross value added was extrapolated to EUR189bn and only a 0. Reviewing the allocation of additional revenues. By 2025.

21% 30% ICT 93.08 2. Capital goods Table 5: Reviewing the potential impact of I4. leaving the numbers looking attractive but lacking much substance in terms of timing or specific scope.0 across six key industrial sectors Gross value Gross value Increase in gross cumulative I4.05 1.com . Fraunhofer Bottom-up analysis confirms cost and growth potential Here we have generated our own estimate of what the total revenue potential for digitalisation could be for our coverage universe and review GE’s approach to identifying the market potential. ABB adopted a similar approach to communication and highlighted five key markets where management sees scope for USD90bn savings potential for customers. Using this method.76% 10% Total Germany 2326.27% 11% Source: BITKOM. which the asset operators can realise in the form of higher profits on increased investment. GE claims that in 2016 it achieved productivity savings of USD500m from the application of industrial internet applications internally.78 1.68 0.77 1. GE reviews the potential gains for its most important customer base based on a 1% saving across five industries over 15 years. GE does not provide an indication of the level of investment required by the specific industries to achieve the target savings. management estimates total potential customer savings of USD988bn.65 4% 107.61 100% 2593.27 85% 2170.0 potential % gross value add Annual growth added 2013 (bn) added 2025 (bn) value added productivity 12Yr Auto 74.02 2. Chart 38: GE savings by segment Source: GE In recent presentations.17% 15% Agriculture 18.21% 30% Chemical 40.27 2% 52.17% 15% Six key industries 343.11 78.35 12. 46 keplercheuvreux.21% 30% Electrical equipment & chemical 40.33 2. GE identifies USD276bn of total potential savings.95 188.08 2% 52.0 3% 88.1 12.74% 23% Other sectors 1983.06 267.53% 20% Mechanical and Plant Engineering 76.8 14. although no timescale for achieving these savings was provided.79 3% 99. Across 15 key markets.7 14. equivalent to 40bps of revenues. Internally.55 1% 21.83 23.8 1.34 15% 422.04 2.45 1.

 Building & infrastructure: residential. As a basis for our own analysis. or only very marginally. However.com . and this may gradually increase to 2-4% by 2020. We see spending biased toward IT. consumer monitoring and health facilities.5-2% of sales annually on digitalisation. software. 1.0 initiatives. a substantial portion of the 1.500 largest global companies.0 and KECH coverage players in those end-markets Source: Kepler Cheuvreux The five big sectors we selected narrow the scope of our study to c. and integration costs. chemical and petrochemical. 47 keplercheuvreux. IoT. transmission and distribution and renewables and water.  Health: Medicines. we take our bespoke global capex study which reviews capex for the 1. distribution. machine building. IIoT and I4. railway and aerospace & defence. Our capex study monitored 56 sectors covering the entire global economy.500 companies totalled sales of EUR25trn. the sample of 1. non-residential and civil infrastructure  Process industry: metals & mining and oil & gas.500 companies are not involved in Industrie 4. Chart 39: Summary of key end markets impacted by Industrie 4.000 companies.0. and we expect all of them to see increased spending on digitalisation. In 2015. We expect the additional investment to come mostly from Tier 1 companies with large investment capabilities operating in the industrial sectors mentioned above.  Transport & logistics: auto. as they operate in business segments that will not be affected by it. Capital goods Our bottom-up review Many of the studies we have reviewed above imply that companies are currently spending 0. We estimate that the main capital goods end markets that will be impacted are:  Utilities: Power generation.  Discrete manufacturing: Auto.

capture between 3) If we assume 0.000bn in 2015.5bn and EUR28.com . we apply the broad methodology shown below.000 coverage is expected to companies and sales of EUR19. 4% by 2020 as spending priorities of the sample group shift.0 p. Capital goods Chart 41: Yearly investment in Industrie 4.0.000bn in 2015. totalling more than 1.0. 2) Out of the 56 subsectors reviewed in the capex study.0 over next five Chart 40: Current level of digitalisation versus in five years years (% sales) 90% 8% 80% 7% 70% 6% 60% 5% 50% 4% 40% 30% 3% 20% 2% 10% 1% 0% 0% Now In 5 years Industry 4. the amount ranges EUR9. only 35 fall into our KECH capital goods definition of relevant end market for Industrie 4. Chart 42: Steps to estimate investment in IoT/IIoT/I4. reaching combined sales of EUR25. Industrie 4.0 in 2016 48 keplercheuvreux.0 in 2016 Source: Kepler Cheuvreux 1) We start with the overall sales generated by the top 1.5-2% of sales invested in Industrie 4.500 companies worldwide in the 56 sectors covered in our capex study from April and September 2016. We expect this range to grow and reach from investment in c.a investment (% of revenues) Source: Kepler Cheuvreux Source: Kepler Cheuvreux To evaluate the total investment in digitalisation by industrial companies and the global economy.5bn of revenues between EUR95bn and EUR380bn.

which provides scope for the market potential. although most sales would not be generated by hardware. Again. some companies might benefit more than others.5% 2% 2% 4% Amount Invested in Industrie 4. as a large part of the investment remains the machine. etc. we can use the IMF’s growth estimates to obtain the total 2020 sales of our capex sample. the sensors and other related service that capital goods companies do not typically provide. and assume that investments will not be 0.5-2% but closer to 2-4%. Accordingly.5bn and EUR28. 5) We then narrow this investment again to determine what part of this range would be captured specifically by our coverage and end up with a range of between EUR9.0 0.365 % sales invested in Industrie 4. the additional revenues for global capital goods companies would range between EUR47. Some parts of these additional sales might already be part of current sales.0. 49 keplercheuvreux.5bn in 2015 (we estimate that our capital goods coverage will capture c.0 in 2016E and 2020E EURbn 2016E 2020E Sales from top 1000 global companies concerned by IIOC 19. We estimate that.000 23. additional sales in Industrie 4. Capital goods 4) However.0 from top 1000 companies 95 380 436 872 Reachable by cap goods sector (50% ratio) 47. large conglomerates like Siemens and ABB benefit from broader portfolios. on average. capital goods companies’ product portfolios can cover 50% of the needs of Industrie 4. these calculations give a rough idea of the significant potential for European capital goods companies. The remaining 50% includes the cloud. not all of this additional investment would be entirely captured by capital goods companies.5 32 65 % sales due to additional investment 2% 7% 7% 13% Source: Kepler Cheuvreux Given that these estimates depend on a large number of assumptions. However. 20% of the investment reachable by worldwide capital goods companies). its setup and related services.5 190 218 436 Reachable by KECH coverage (20% ratio) 9.0 could represent 2-7% of sector sales in 2016 and 7-14% in 2020. If we extrapolate these numbers to 2020. as Industrie 4. Table 6: Investment in Industrie 4. the platform.5bn and EUR190bn. they should be treated with caution.0 might erode sales in other segments under our coverage. as we said. If we apply this 50% ratio.5 28. the investment in the digitalisation of the relevant economy that is reachable by the companies under our coverage ranges between EUR35bn and EUR65bn in 2020 (see Table 4 for calculations). a substantial part of the business.com .

0 by end-market 450 400 350 300 250 200 150 100 50 - Source: Kepler Cheuvreux While not all our end markets offer the same potential and are at the same stage of development.0 .0 range of our expected increase in investment to reach a total EUR413bn annual investment in 2020E. 50% of the investment starts with the lower range of 2016E investment (EUR95bn) and adds the lower in Industrie 4. The following goods product chart summarises our expectations for additional investment by end markets. 50 keplercheuvreux. Capital goods Chart 43: Investment in Industrie 4. 2015 (total USD100bn) Chart 44: Estimated IoT spending (USDbn) 900 Integration services 800 700 600 Software/app development 500 400 Software infrastructure 300 200 Connectivity 100 0 Hardware 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Lower Higher Mid-range Source: McKinsey Source: Kepler Cheuvreux We now review each of the key end markets that are expected to go undergo the We expect the capital biggest transformation thanks to the adoption of digital technology.com . Chart 45: Expected additional investment in Industrie 4. It portfolio to reach c. almost all of them are capital goods customers.

with the largest players surviving. For businesses. GE. Over 5-10 years. Currently. data analytics. 51 keplercheuvreux. and Amazon Web Services (AWS) . and control connected devices. including over 450 businesses. the scope of interoperability can be a limiting factor when maximising IIoT capabilities. the market for IoT platforms is likely to grow by 30-40% a year with IoT platforms becoming the critical factor when determining success in the field of industrial digitalisation. software. Today. who are all building leading positions. While all may have been state-of- the-art at the time of implementation. or 30 years. We think that the current IoT platform leaders are IBM. with IIoT platforms being a sub-set of the broader scope of IoT platforms. An IIoT platform represents a collection of software components that allows the deployment of applications that monitor. of which only 50+ are full-capability providers. facilitates data collection in a fully secure environment. mobile and fixed assets. the importance of selecting the right platform for the future means that many projects are in the pilot phase. meaning that the market is relatively small but growing very fast. IoT platforms at the heart of realising digital gains with IIoT What is the IoT platform and what differentiates providers? The internet’s ongoing transition from being a network of connected computers to an all-encompassing cyber-physical system that connects people.0 implementations. 20. we expect a period of organic and inorganic consolidation of the market. and provides device and sensor management and integration with other software systems such as data analysis and ERP. The worldwide implementation of IoT solutions by companies is likely to be driven by Accenture. Cognizant. and IBM. and Bosch. targeting applications. and expect them to be joined by Siemens (MindSphere) . the range of companies providing IoT platforms is large. data capture and analysis Internet of Things (IoT) platforms sit at the centre of IIoT and Industrie 4. and IT services. as they are involved in the integration and consulting phase. Capital goods IoT platforms at the heart of change By providing connectivity. nearly all manufacturing and industrial companies are operating a range of information and automation technologies that have been installed and commissioned over the last 10. sensors. smart devices. Microsoft. We view the Industrial IoT as a sub-set of the broader IoT. and products requires a framework over which the devices can securely share and analyse data to create valuable business outcomes. Over the next five years. manage. We review in detail six leaders able to offer cloud computing. PTC. and in Europe by Atos and Cap Gemini. diverse.com . IoT platforms. SAP (Leonardo) . and highly fragmented.

to create and manage the link from the device to the communication medium and then the internet. and operations Six key tasks can be of IoT devices. two- thirds of companies adopting IoT business will use an IoT platform for at least one IoT project. edge platforms and gateways able to conduct local processing. as the number of connected devices may be very high. IoT platforms simplify the process of configuring.” By 2020. maintenance. Connection of “things” to the internet: IoT platforms support various radio or ethernet technologies. This is a critical task.com . and multiple devices with control and analytics consolidation of data and information into an IoT platform hub. 4. 3. The platform: 1) provides the capability to monitor IoT event streams. network connectivity. IoT platforms incorporate security components to ensure device attestation. 2. and 3) engages back-end IT systems or services. All the data collected from the potentially very 52 keplercheuvreux. encryptions. Chart 46: Reference model for IoT business solutions Source: Gartner An IoT platform usually performs the following tasks: 1. Analysis of the data collected: The extent of capabilities of a platform in terms of analytics and machine learning is a key differentiating factor in the IoT platform market. Capital goods The IoT platform is well represented by Gartner’s chart below. “an software. 2) enables data aggregation. defined provisioning and initiating of connected assets and products. It incorporates a The IoT platform suite of software that facilitates connection between IoT end points. and data loss prevention. Cybersecurity: authentification. Gartner states. software upgrades. authentication. Some platforms may use such emerging technologies as Blockchain for the encryption process. Management of the IoT devices: provisioning. specialised analysis and application development. identity and access management. such as devices connects and combines and sensors. up from one-third currently. certificate management. data storage IoT platform is an on-premises software suite or a cloud that monitors and may manage systems and enterprise and control various types of endpoints (sensors and devices). etc. often through applications software that business units deploy on the platform.

and connectivity. This allows the prediction of machine failures and need for imminent maintenance before machines fail. 5. including industrial ones such as GE and Siemens. working condition. Some vendors such as SAP also offer machine learning capabilities embedded into their platform. 53 keplercheuvreux. with many partners coming from the IT software and services space. Another. The platform must provide customisation.com . BCG aims to capture this in its definition of required IoT platform capabilities. software development kits (SDKs). applications. which obviously have better software development capabilities than traditional industrial players. storage. SAP also proposes a “digital twin” offering). is to offer primarily the applications developed by the vendor of the platform itself. including IBM and Microsoft. Building of applications: The IoT enables developers to create their own ad- hoc applications by providing them with a range of Application Programming Interfaces (APIs). a comprehensive IoT platform seamlessly connects devices. data collection. less open. along with Dassault Systèmes on the software side. and data and allows customers to focus on the specific context in which the IoT platform will be used. or position. The level of openness of any given platform is another key differentiator. As such. Platforms offering technology agnostic capability are likely be preferred by customers. Siemens places the greatest emphasis on the “openness” of its platform. model. Some vendors. As we have aimed to demonstrate above. and development tools. the real- time 3D virtual model of physical assets with their current status. offer “digital twin” capabilities (i. This seems to be a choice that is currently more developed among traditional software vendors. while for example SAP’s network of developers’ partners looks limited. Capital goods numerous sensors must be analysed in a timely manner to add value to the end-user.e. An open platform will allow many independent developers and partners to create applications integrated into a dedicated marketplace.

the cloud environment also enables the development of applications (PaaS) and the hosting of these applications (SaaS). depending on the vendor. In addition to data storage. Capital goods Chart 47: Core capabilities of IoT platforms Source: Kepler Cheuvreux To perform these tasks. or partner with public cloud providers in order to store the data. This is even truer for platforms that feature machine learning and predictive analytics and they must be able to access large amounts of historical data to identify patterns and predict the repetition of these patterns in the future. or developed internally via the PaaS. This is easier 54 keplercheuvreux.com . Besides these essential capabilities. which may be either pre-packaged (provided by the vendor). purchased through the platform vendor’s marketplace (third-party apps). 2) the operating system with embedded analytics.  Connectivity to enterprise ERP/CRM: The output of the data analysis coming from the platform and applications needs to be integrated into the enterprise’s systems to make the whole system more efficient. IoT platform vendors usually choose to offer access to their own private cloud. On-premises storage is also an option. the platform is made up of three layers: 1) the cloud platform (Platform as a Service or PaaS. and 3) the applications. IoT platforms are usually associated with the following features:  Cloud Infrastructure: The data collected by sensors needs to be stored in order to be analysed. which enables the building of ad-hoc apps and storage of data).

3. 55 keplercheuvreux. IoT Device Management Platforms – systems that provide connectivity and control of devices distributed across the system. Chart 48: IoT platform capabilities Source: Kepler Cheuvreux According to market analysts.e.com . 2. These typically comprise a vital component of the system. closer to the sensors and other hardware equipment in the case of IIoT. Benefits include lower latency and more limited use of bandwidth and of the cloud’s computing power. i. IoT application enablement platforms (AEPs – typically a platform as a enterprise service that enables developers to deploy an IoT application or service and includes communication.  Edge computing: Makes computing run closer to the data sources. analytics and capabilities includes the following: connectivity through an 1. each with a variety of capabilities. with over 450 active providers being tracked by IoT encompassing the full analytics. data storage. The range of IoT platform provider range of software. The following chart presents an alternative visualisation of the relationship of the IoT platform with endpoints through Application Programming Interfaces (APIs). Capital goods to achieve with vendors such as SAP who can leverage their huge installed base of ERP/CRM software and connect it seamlessly with its IoT platform. IoT Cloud Storage Platforms (IaaS). the marketplace for IoT platform providers remains IoT platforms are seen extremely fragmented. The enterprise systems and applications could have been added on top to make it more complete. application building and enablement).

Chart 49: IoT platform companies by revenue The market place for IoT platform providers is currently highly fragmented. Uptake. and to ensure compatibility with as many sensors and chips as possible. we expect the market to gravitate and consolidate around the largest players in the industry. Platforms and systems that facilitate the secure sharing of data between devices and between devices and other components of the entire platform. growth expectations for the next five years are running at between 25% and 40% annually. Microsoft). Capital goods 4. We see a number of differentiators among the IoT platform providers:  Prebuilt apps: Ensure the rapid implementation of IoT platforms for targeted use without the need for developing ad-hoc apps internally.g. as shown in the following chart. IoT Connectivity Backend (Platforms). C3 IoT). Currently. legacy device management and connectivity providers (e.g. IoT Analytics Platforms.  Analytics: We believe that the level of advanced analytics and machine learning capabilities will be the most important factor for IoT platforms’ 56 keplercheuvreux. The market leaders comprise large cloud providers (e.  Ecosystem of partners: A rich ecosystem of partners to enable the development of many different applications. to promote the IoT platform and integrate it at the customer’s premises. with growth rates above this in the current year. limiting future interoperability risk. the market landscape appears highly fragmented. Alcatel- Lucent and Cisco’s Jasper) and Silicon Valley-backed start-ups (e. 5. AWS. to make the platform available to many cloud environments. Reviewing the IoT provider context and considering the strategic nature of selecting an IoT platform.com .g. We expect consolidation in the future Source: IOT Analyticsx Across the market. Only 7% of the companies have revenues in excess of USD10m and the market incorporates a large number of small focused start-ups with revenues of less than USD1m. Platforms and software systems able to analyse and interpret large volume of data created by the devices to provide valuable insights for business.

energy. Capital goods vendors as the market matures and each vendor enriches its partnerships. lower latency and improved scalability. The commercial focus for IoT platforms is concentrating on the business segment rather than consumer and in the segment the most popular areas for investment are manufacturing. and Bosch are offering solutions to the industrial segment alongside providers like IBM. through acquisitions and partnerships. mobility. mobility and healthcare. Schneider. PTC and Microsoft. GE. more limited use of cloud power. while industrial players hold the application knowledge and customer relations and have built capabilities. using the power of local computing such as smartphones. ABB. The relatively small size shows that many companies are currently hesitant to accelerate 57 keplercheuvreux. Companies including Siemens. routers and PCs.  Edge processing capabilities: The ability for the platform to manage edge computing is another key differentiator. 33% CAGR from a low base Industry analysts estimate the market for IoT platforms at USD298m in 2015.com . These are typically key markets for the industrial and capital goods sector. 13% to smart energy applications. and health Source: IoT Analytics. 5% for buildings and 5% for connected health. 6% for agriculture. 13% for connected cars (mobility). The specific customer applications or usage scenarios are predictive maintenance. manufacturing analytics. smart cities. Edge computing capabilities means that a part of data storage and analytics are performed near the source of the data. followed by smart cities. amplifying the importance of IoT platform development for global industrial companies. 20% to smart cities. Note: the data represents the % of the total sample offering application for the designated market A recent survey of 640 IoT projects worldwide confirmed a close match between IoT platform applications and current projects in focus. Benefits include lesser needs for bandwidth. 22% of projects are related to connected industrial applications. Software vendors hold an advantage (IBM with Watson. Market posting a c. energy. Chart 50: Market focus of IoT platform providers Industrial applications are the most popular solutions offered. SAP with HANA) via knowledge of tailoring digital solutions. and remote service. production performance management.

which means that many initial investments are in the pilot phase.800 1. obsolescence. industrial technology companies are seen accounting for 18% of the market (shifting from hardware-centric business models) while internet and telco companies comprise the remaining 28% of the supplier group. Of the 400+ companies mentioned above as active in the IoT platform market.043 1. the early adopters are running the risk of redundancy.6bn by 2021. which in total represents about 50 vendors. 33% CAGR with the market size approaching USD1. the definition for the IoT platform market remains broad and there are many small participants targeting specific niches or segments and a number of well-financed and larger software or industrial groups that appear well-positioned to win in the market segment. In addition.400 1.200 1. recent comments by market participants such as PTC confirm that these growth rates (or higher) are currently being observed. we expect the pace of adoption of IoT platforms and associated software and services to accelerate. IoT platforms: market report 2015-2021 As industry standards and leaders take shape and leadership is formed around specific IT and OT ecosystems.000 792 800 583 600 417 400 298 200 0 2015 2016E 2017E 2018E 2019E 2020E 2021E Market size (USDm) Source: IoT Analytics GmbH. while the definition of market size is hard to exactly pinpoint. Leaders in the IoT platform market As shown above. Capital goods adoption and remain in the pilot phase. since success could allow better access to profitable segments. and IoT start-ups 32%. Currently.331 1. BCG highlights a number of main traits that should ensure success for the industry leaders: 58 keplercheuvreux. A comprehensive review of IoT platform providers suggests that fewer than 15% are able to provide a comprehensive solution. rather than being focused on a small sub- segment of the market. Chart 51: Estimates of the overall market size of the IoT platform (USDm) 1. Industry observers project a c.644 1. BCG estimates that Enterprise Software and Service companies represent 22%. We expect companies to continue to direct a large amount of financial and human capital at becoming a leader in the IoT platform market. including IoT applications and analytics.com . or lack of interoperability of purchased systems. Clearly.600 1.

Key factors will include open source. a large number of developers. Salesforce IoT platform. Other major players include SAP’s Leonardo. Telit. and Zebra. Watson IoT. Relayr. Electric Imp. in a similar fashion to Windows & Mac OS/Andriod & iOS / Playstation & Xbox. We also believe that Siemens’s MindSphere platform will grow to become a leader when it is introduced. Particle. Bosch Software Innovations’ IoT platform. Leading companies in the IoT platform market (as identified by Forrester and IDC Research) include IBM. Microsoft’s Azure. We may possibly see a small number of leaders in the consumer and industrial verticals related to leading application areas. Oracle’s IoT. Capital goods Chart 52: A limited number of vendors offer full platform capabilities Source: Kepler Cheuvreux One of the key factors that will determine the success of the IoT platforms in the marketplace will be the willingness of software developers to use the platform. and Amazon Web services. and Carriot/Altair (a recent acquisition). PTC’s ThingWorx. Teezle. Hewlett Packard Enterprises (HPE). Other IoT providers with a developed offer include Cisco IoT connect. and widespread adoption. potential for income and earnings. Other players include Aeris. availability of APIs. Siemens believes the winners in the segment will be companies able to best turn industry vertical insights into customer productivity and efficiency.com . 59 keplercheuvreux. Ultimately. GE Digital’s Predix. which in turn will determine the number of applications developed. we expect successful IoT platform players to be narrowed down to a small number. and Ayla networks.

their financial weakness often affects stability. IBM. and Microsoft appear largely generic with. we expect leadership to migrate toward those companies able to provide a fully capable platform from a firm financial foundation. First with regards to generic platforms. in some cases. While the four software vendors/cloud providers of this category all share a strong market presence and brand recognition. according to market intelligence agencies. In fact. and Siemens are clearly focused on industrial applications. While start-ups may provide many new. the Watson brand is very well recognised for its strong analytics and machine learning capabilities. Microsoft Azure. In contrast. Augmented reality is also included in IBM’s offering. alongside the ability to fit each industry’s specific needs. and the enablement of Industrie 4. Also. Openness and simplicity in integrating the platforms will also be key. IBM proposes some distinctive and valuable features. 60 keplercheuvreux. we review SAP Leonardo and Siemens MindSphere. those of PTC. IBM looks the strongest to us for now. Capital goods Chart 53: Forrester’s view of IoT platform leaders Chart 54: IDC’s view of IoT platform leaders Source: Forrester Research Source: IDC Ultimately. First. private cloud. Review of the leading and key IoT platform providers In the following section.com . the best innovative and niche start-ups may ultimately be acquired and represent solutions in large company portfolios as the industry consolidates. The platforms from AWS. Thereafter. Finally. Its platform is very open. customers highly value the superior security offering of IBM’s platform. GE Predix. and Amazon Web Services. we review a number of the leading IoT platforms currently offered to the market. dedicated solutions to the manufacturing space. GE Digital. PTC ThingWorx. innovative ideas to the sector. and on premises. IIoT. we review the five leading companies as defined by Forrester and IDC: IBM Watson IoT. allowing for the deployment of its platform in three configurations: public cloud.0. SAP.

in terms of broad acceptance. and is also able to create itself the pre-packaged applications which represent a large part of the value of an IoT platform. we believe that SAP Leonardo is also very well positioned to increase its market share. Microsoft and SAP mean they lag slightly behind in our view. Finally. The two industrial players in the field. IBM’s PaaS. and the fact that they have been developing and testing their respective platforms in- house for concrete applications for months before making them available to the market.000 researchers. developing verticals From its IBM Watson products and APIs. the company announced investments of USD3bn in IoT to complete its solutions and has more than 1. dedicated mainly to Big Data analytics and machine learning. Capital goods The technical capabilities of AWS. according to market intelligence agencies. and 3) drive customer engagement. Also. many pre-packaged apps. GE Digital and Siemens. Of course. With its Watson IoT platform. it is also available in public clouds or on-premises. may need more time to build the necessary ecosystem of partners able to promote. 61 keplercheuvreux. also offer convincing products and are able to leverage on the strength of their installed base in industrial equipment and industrial vertical expertise. The solution includes Software Developments Kits (SDK). as it just rebranded Leonardo from a pure IoT suite of solutions to a “Digital innovation system” on which SAP is counting to fuel future growth. and even “digital twin” capabilities. The platform runs on IBM Bluemix. SAP. developers and designers dedicated specifically to the Watson IoT platform. we would argue that PTC is probably still leading and will continue to lead in the midterm given its established community and recent alliance with GE. the range of applications provided on their platforms looks too limited for now. AWS and Microsoft certainly have very strong datacentre/storage offers. for its part. In the medium term. supported by its large community of developers. However. their principal advantage lies in their knowledge of the industrial sector. sell and integrate its new offering to the market. For platforms focused on the manufacturing space. in October 2014 IBM released Watson IoT Platform. and the community of app developers for ThingWorx looks very active. Its ecosystem of partners is impressive too. However.com . PTC has been able to combine the best of both software and manufacturing worlds: it is very much aware of manufacturers’ precise needs through its years of experience in designing software solutions for the industrial world. while AWS platform’s architecture may look too complicated for the least sophisticated customers. IBM is clearly seen as the leader for IoT platforms by market intelligence companies such as Forrester and IDC. PTC acquired an early market lead. For now. especially SAP. IBM Watson IoT: well positioned for leadership. Microsoft is growing rapidly. with a very broad offering. which of course has played in the company’s favour. However. 2) create new business models. PTC’s platform owns the very capabilities that differentiate an IIoT platform from a generic IoT platform: very strong “digital twin” offering and the best augmented reality capabilities on the market. In April 2015. IBM is currently helping customers transform in three discrete areas: 1) improve operational performance and reducing costs.

with associated device management and data visualisation.  Analytics: predictive and cognitive in addition to edge capabilities (analytics performed at the edge of the network). o Electronics. Since IBM targets specific industry verticals. Chart 55: IBM Watson IoT platform and dedicated applications Source: Kepler Cheuvreux IBM has chosen to vertically and horizontally divide its IoT solutions offering integrated into its platform. which includes various solutions for connected cars and car manufacturing. IBM’s IoT platform capabilities are broad-based. which may be supported by the group’s business services activities. 62 keplercheuvreux.  Risk management enabled by security analytics and anomaly detection.  Connectivity to sensors and devices.com . IBM maybe considered a competitor by some industrial providers. while machine learning and security analytics are add-on products. and organised into four categories.  Solutions by industry: o Automotive.  Information management encompasses storage and data transformation. shown in the chart below. with solutions dedicated mainly to connected homes’ electronics. Capital goods Blockchain and payment processing capabilities into the platform. The comprehensive nature of the offer supported by the financial strength of IBM provides a high probability of long-term success for the platform.

services. IBM Watson IoT platform pros and cons:  (+) Strong market presence with high installed base and geographical presence (175 countries including China) and dedicated employee resources. The pricing of the platform is dynamic and depends on a number of factors including the amount of data ingested. capital project management. supported by one of the largest global datacentre networks. o Retail enables the emergence of connected stores to reduce energy use. space management and energy management.0. reduce warranty costs and optimise maintenance schedule and resources. 63 keplercheuvreux. o Manufacturing utilises analytics and cognitive to improve process and product quality. which looks very robust.com .net/).  (+) Solutions specially dedicated to the IIoT. and improve asset reliability. o Facilities management provides workplace management solution to optimise core facilities maintenance.  (+) Three options of cloud deployments are available (public. The percentage of data analysed by Edge also makes pricing changes. We see this as a positive. o Product development uses IoT to prevent product failures before production. using sensors to put in place predictive maintenance and improve ROA across industries. private cloud. Microsoft Azure IoT Suite: well-placed for leadership Microsoft’s leadership has assigned a high level of priority to developing its industrial software offers including the Azure IoT suite.  Solutions by business application: o Enterprise asset management proposes solutions to optimise asset lifecycle. threat intelligence. maintain integrity. Capital goods o Insurance product provides a view on the policyholders’ assets and situations to provide risk assessment. automate inspections. IBM provides on its website a comprehensive pricing calculator to provide an estimate of the platform’s cost (http://iot-cost-calculator. network and hardware sectors and in various industries.  (-) Low level of coordination between the various teams within IBM. and on-premises). IBM appears to already have developed a large and growing partner network. security analytics dashboard. It is IBM’s solution for Industrie 4.bluemix. analysed and stored as well as the number of devices used. data anonymisation. as pricing clarity is key to customer satisfaction in this market. validate and verify design. maintain product freshness. Partners extend to software.  (+) Superior security strategy with security built into the architecture. according to IDC.  (+) Strong brand recognition of Watson. especially in analytics. lease accounting.ng.

The offer includes pre-configured solutions including:  Connected factory is the preconfigured solution of the Azure IoT platform dedicated to Industrie 4. as well as a range of preconfigured solutions. which span the entire range of IoT platform technology. Capital goods The Azure IoT Suite. It has been one of the leaders of the market since then. and is not especially focused on manufacturing applications. Azure IoT Suite can address various business cases in a number of industries. data storage. Similar to its competitors. several software development kits (SDKs). one of Microsoft’s fastest-growing divisions. Microsoft states that its platform allows customers to “transform their business”. Microsoft’s IoT platform includes the following business capabilities and managed services. Microsoft’s IoT platform. although the company had already launched IoT-related products and services before this date. although it offers a specific solution for the manufacturing sector. was released in September 2015.com . including analytics (Cortana).0. machine learning. 64 keplercheuvreux. data visualisation capabilities. through the insights provided by the analysis of the data collected from sensors. Chart 56: Azure IoT Suite’s range of business capabilities Source: Microsoft. The comprehensive nature of the offer and the potential to include applications and intelligence position Azure as one of the favourites to win as the industry consolidates on leaders. with a large preconfigured offer. Kepler Cheuvreux Microsoft offers various services with its platform. IoT Edge. The high level of financial resources and human capital directed at Azure. ensures that the IoT platform is well-placed for future leadership.

 Connected vehicle provides IoT solutions for connected cars. is another big positive. all accompanied by secure data and interactions. while AWS’s offer seems to leverage on the group’s large existing datacentre service offer. We see preconfigured apps as a key differentiator and think that the addition of more of these apps is a clear positive for Microsoft’s platform. Moreover. Microsoft charges a one-off fee for a preconfigured solution and a subscription depending on the number of messages/devices/amount of storage used. The platform aims to offer a cloud-based system for different devices.  Predictive maintenance helps prevent equipment failure and avoid downtime. AWS now offers device gateways and IoT device SDKs. covering 13 regions including China and Germany.  (-) Complicated pricing. While this is clearly a plus for the most sophisticated potential customers.  (+) Convincing preconfigured apps.  (+) Huge market presence through its installed base and broad geographical reach. it may put off those looking for a more turnkey solution. This model makes Azure IoT platform’s pricing look fairly complicated. Its strong market presence. Preconfigured solutions consisted only of the first three examples provided above.  Smart Buildings helps reduce costs and improve building efficiency. Capital goods  Remote monitoring is dedicated to asset management. a US-based company that had developed an IoT platform. From an architectural point of view. On pricing. due the wide breadth of its offerings and the success of its cloud solutions. and has since been extended to the current five solutions. quite unsurprisingly. AWS’s IoT platform differs from that of many of its competitors due to the high degree of configurability of the platform.com . Its network of partners is deep and global. such as fleet and inventory management for the freight logistics industry. Amazon Web Services IoT platform AWS’s IoT Platform was launched by Amazon in December 2015 following the acquisition of 2lemtery earlier in 2015. Microsoft seems to be ahead of its competition. When it comes to partners. Overall we see the AWS offer as more directed toward consumer- based applications.  (-) The platform is not available in private cloud environments currently. Microsoft Azure IoT Suite pros and cons :  (+) Strong network of partners. AWS’s IoT is mainly focused on increasing the use of AWSl’s managed cloud platform. 65 keplercheuvreux.

com . which ensures that data is never exchanged between devices and AWS IoT without proven identity. Capital goods Chart 57: Overview of AWS IoT Source: AWS Differentiating features include strong authentication and encryption capabilities at all points of connection. Chart 58: AWS IoT platform’s authentication and encryption process Source: AWS 66 keplercheuvreux. Market intelligence agencies all note that customers view security as one of the key strengths of AWS’s IoT platform.

 (+) Large and diverse ecosystem of partners. A message size increment is a 512-byte block of data processed by AWS IoT. the group added augmented reality capabilities to the platform in 2015 after the acquisition of Vuforia.com . 67 keplercheuvreux. in our view. which could otherwise help Amazon differentiate itself from its competitors. ranging from hardware vendors to integrators and software makers. PTC has invested an additional USD1bn in the platform to add new functionalities and to ensure solid and comprehensive capability. PTC’s platform is clearly focused on the Industrial segment and comprises a number of core building blocks that combine to create a comprehensive offer. and has been actively developing its offer since the 2013 acquisition of ThingWorx.  (+) Easy pricing . This certainly represents a threat. PTC dominated the IoT platform market in 2015. and Amazon S3 (storage). Related portfolio offerings include Kinesis (analytics). AWS’s pros and cons:  (+) Amazon’s broad presence in enterprise environments through its range of cloud offerings. Amazon Machine Learning. Pricing looks somewhat simpler than what the competition proposes.  (+) Strong security model. It is based on 1) the number of messages published to AWS IoT. it also displays as partners the names of other IoT platform vendors such as PTC as other IoT platform providers use AWS’s cloud computing services. for 12 months. According to IoT Analytics. In addition. Since the acquisition of ThingWorx. PTC ThingWorx – the benchmark for industrial IoT platforms PTC is one of the leading IoT platforms providers. having been released in March 2011. which may be higher in certain verticals. according to Forrester and IDC. Interestingly. ThingWorx is the oldest IoT platform on the market.  (-) Configurability may prove too complicated for the least sophisticated customers. Following PTC’s acquisition of ThingWorx. as competition can therefore gain access to the architectural elements of AWS IoT solution. the AWS IoT free tier gives access to 250. Capital goods Like all big software players reviewed here. and the number of messages delivered by AWS IoT to devices or applications. AWS’s ecosystem of partners is very rich. with an 18% market share overall.000 free messages per month.

or virtual reality helmet. create. the recent strategic alliance with GE creates a further strengthening of the position.com . It features augmented reality capabilities (from the acquisition of Vuforia in 2015) on top of 3D modelling (“digital twin”). It also includes connection servers. ThingWorx displays on its website a list of more than 130 partners 68 keplercheuvreux.  Analytics enables developers to add real-time pattern and anomaly detection. While it is difficult for now to gauge whether this type of offering really adds value to engineers. similar to the previous platforms we have reviewed before (PTC added capabilities in analytics to its platform after the acquisition of ColdLight in 2015)  Studio is a key differentiator to PTC ThingWorx compared to its competitors. Capital goods Chart 59: ThingWorx’s architecture Source: PTC ThingWorx is built on the following pillars:  Foundation is the end-to-end technology platform which empowers developers to connect. edit and manage business processes related to connected devices. and deploy applications and solutions through DevOps.  Industrial connectivity is the layer in charge of capturing and communicating data from industrial equipment and applications to ThingWorx. It includes pre-defined capabilities in an environment for non-developers to create. Visualisation of 3D data occurs in real-time in an augmented reality environment with the help of a tablet. PTC’s ecosystem of partners looks the broadest and largest of our sample. predictive analytics and simulation to the solutions they build. Moreover. it must at least attract a lot of interest from customers and prospects. device/cloud adapters and Edge connectivity  Utilities are capabilities built into IoT applications to manage the performance of connected products (user-interface component). smartphone.

Accordingly. for both partners and applications available in its marketplace. oil & gas. covering software. who have also been developing their own IoT platform offer. In addition. In terms of ecosystem. connected products. healthcare. Webinars are available too.com/ecosystem/partners/directory/) including the largest vendors in the IT hardware/software/services spaces as well as industrial players such as Bosch. automotive.thingworx. IT. Chart 60: Screenshot from ThingWorx community’s website Source: PTC In addition. it offers academic programmes on IoT. consumer products. PTC looks like the most advanced of all the vendors we have reviewed in the study. agriculture to smart cities. ThingWorx also features a tool called ThingWorx Community. featuring help forums and used by developers and customers to share and learn from their respective experiences with the platform.com . construction. curriculums and projects to help customers develop smart. 69 keplercheuvreux. with regular postings and quick answers as shown in the screenshot below. Capital goods (https://www. PTC is actively fostering the development of the forums. ThingWorx has already developed a marketplace featuring many applications covering all industries from aerospace.

tested Predix and then used it for its own plant is an important differentiator for potential industrial customers.com . enhancing edge to cloud capabilities. wind. GE’s current focus in on scaling its Predix platform. PTC ThingWorx’s pros and cons:  (+) Multitude of applications available in its marketplace.  (+) “First mover” premium. according to IoT Analytics. primarily in GE’s main industrial markets of transportation. It invested more than USD1bn in Predix.  (+) The best augmented reality capabilities. Predix was first built for GE’s own use. early market leader with an 18% market share in 2015.  (+) Numerous delivery models and broad ecosystem of cloud services providers. and analytics to people. water. further developing its digital twin capabilities. The system is a cloud based offer that connects machines to data gathering and analytics offers to product productivity and services benefits to users. just before Siemens MindSphere. PLM). healthcare.  (+) The largest ecosystem of partners among the solutions we have studied. Capital goods Pricing is based on a subscription model and depends on the feature set chosen by the client and the number of users. The platform connects machines. automotive. mining. GE Predix: a leading IIoT platform focused on service GE markets Predix as the world’s first industrial internet platform. power generation and distribution.  (+) Extensive experience in industrial software (CAD. internally. The fact that GE built. manufacturing. data. and providing a strong developer experience. oil & gas. and aviation.  (-) Platform made out of a patchwork of acquisitions means potential integration issues. Use cases by industry promoted by GE are summarised below and illustrate the well proven capabilities of the group’s offer. Chart 61: GE use cases for Predix by industry Source: GE 70 keplercheuvreux. who are able to review proof points. which has been under development for a number of years before being officially released in February 2016.

predictive maintenance and optimisation of industrial asset utilisations.  Connected products: Replace the break-fix model with a predict-and- prevent services approach. 2) Predictive analytics make forecasts based on a model. 3) Prescriptive analytics determine possible actions to move towards a solution that has the largest impact on a company’s bottom line. improving efficiency and performance. according to Forrester. Cognizant. drive productivity and increase efficiencies. Predix supports the building of responsive web. like Siemens again. etc.) and services (Accenture. HCL. which leaves GE focused on service. Microsoft. 71 keplercheuvreux. Predix appears concentrated on its core markets in a similar way to Siemens. reliability throughout the life cycle of assets. mobile. Capital goods GE Predix includes the following capabilities:  Scheduling & logistics: increase asset utilisation with analytics. We consider GE’s platform to be mainly focused on facilitating the monitoring and management of industrial assets supplied by GE to provide customers with productivity and uptime benefits in their own operations. which partly justifies the fact that it is considered by the latter as a leader in the IoT platform market. Two types of data analyses are supported by Predix:  Operational analytics: Data is analysed real time at the edge. TCS.  Industrial Analytics: monitor asset wealth to identify problems. However. It provides software developer kits (SDK) for laptops and smartphones to simplify building of applications. Intel. Wipro. then use predictive analytics to boost productivity. and embedded applications that integrate with smartphones to computers. Oracle. Infosys. by an extensive list of partners ranging from hardware vendors (Cisco.com . etc. etc.) to software (PTC. In terms of apps. This relative scarcity of GE’s pre-packaged apps is offset.  Field Force Management: Give workers the data they need to make repairs and upgrades more effective. Predix offers three types of operational analytics: 1) Descriptive analytics determine what happened and why.) On top of its complete portfolio of analytics offerings. Altran.  Operations optimisation: Use key insights on an enterprise-wide scale to resolve operational issues. Cap Gemini.  Asset Performance Management: Achieve new levels of performance. GE also features the most advanced “digital twin” capability. Dell.  Intelligent Environments: IoT solutions in cities and buildings to enhance everyone’s experience.  Historical analytics: analysis of petabytes of historical data to build predictive models (traditional cloud computing).

It runs on a wide variety of hardware platforms from sensors.overview Source: Kepler Cheuvreux Besides the cloud component. Predix Connectivity. Predrix Connectivity offers secure communications between Predix Edge gateway and controller devices and Predix Cloud over various access networks. to on-premises appliances. monitoring.com . 2. The design and initial deployment of connectivity can typically take 6-12 months. gateways. data collection and edge analysis. Chart 63: Predix connectivity Source: General Electric 72 keplercheuvreux. Capital goods Chart 62: GE Predix Platform . controllers. Predix Machine is GE’s tool for device positioning. Predix Edge is divided into three layers: 1.

energy consumption. Siemens MindSphere targeting leadership in core segments Siemens’s has committed to spend EUR250m+ over the next 18 months to accelerate the development of the industrial IoT platform MindSphere. A central part of Siemens’s strategy is digitalisation. Capital goods 1) Predix EdgeManager provides and centralised view of edge devices that are running Predix Machine. platform tested in-house in various industrial environments. and increased machinery lifetime. Predix Cloud is built on Pivotal’s Cloud Foundry.  (+) Very broad range or partners in the IT hardware/software/services sectors. The system primarily operates on the edge. which is described by the company as “an open IT ecosystem for the manufacturing industry” launched in March 2016.  (+) Best digital twin product in the market. or annually. manufacturing control and automation software and digital testing and modelling software. MindSphere. quarterly.  (+) Advanced analytics. The group’s IoT platform. but is now available through a number of public cloud infrastructure providers including AWS and Microsoft Azure. Billing charges are monthly. It was initially based on the SAP Cloud Platform. The platform is purely dedicated to the industrial and manufacturing space and aligned with Siemens’s core automation and engineering capabilities. 73 keplercheuvreux. Like SAP’s. It is basically the user interface. as according to GE.com . maintenance costs. reduced claims and warranty costs. industrial volumes of data are too large to guarantee a high level of security.  (-) No public cloud option. which also spans industrial design software. Each subscribed service includes a monthly price that will vary based on usage each month. GE has preferred to build its own data centre with its partners. an open-source PaaS. depending on the client’s needs. reduced downtime. industrial software and digital services across each of the group’s verticals.  (-) Few pre-packaged apps. The pricing is based on a pay-as-you-go pricing model whose cost depends on the number of services and amount of usage. MindSphere’s benefits include increased revenues and customer satisfaction. the platform allows the creation of digital models (“digital twins”) of plants with real data from the production assets. Siemens’s existing capabilities in industrial design and testing software and the group’s data monitoring and analysis capabilities ensure that the company is able to provide sophisticated “digital twin” solutions that can improve asset utilisation and reduce time to market for new products by 30-40% and cut engineering costs by 40- 50%. Like other IIoT platforms. GE Predix pros and cons:  (+) Good knowledge of the IIoT. is a central component of this strategy.

3) MindConnect offers secure and encrypted data communication to deliver plug-and-play connection of both Siemens and third-party products to the MindSphere OS (Connectivity layer). The two business activities are expected to grow by close to 8% a year. AWS and Azure (PaaS layer). Capital goods From 2017. 2) MindSphere OS is the interface used to create customer-specific apps and works on a variety of cloud infrastructure including SAP. Atos. and the best will eventually win. Currently. Siemens is expected to generate revenues of over EUR5bn from industrial software business and a further EUR1bn from its digital services vertical. it will be a combination of Siemens and third-party apps. In any case.com . MindSphere is equivalent to the PaaS component of SAP Leonardo.  The aim is to build an expansive industrial app store through which many digital services will be generated. Accordingly. MindSphere is labelled by Siemens as an operating system component of the IIoT platform used to build apps. following organic and inorganic business development. In the US. Chart 64: Siemens’ IoT platform architecture Source: Siemens 74 keplercheuvreux. more than 120 customers are interested and more than 20 customers ar eactually already connected and using MindSphere. demonstrating customer acceptance for the Siemens offer. Apps will basically compete against each other.  On analytics for example. 2-4pp faster than the group. neither IDS nor Forrester incorporate Siemens’ MindSphere in their segment of market leaders. Rather than an IoT platform. Siemen’s platform is made up of three layers: 1) MindApps are apps from Siemens and partners used to deliver asset transparency and analytics insights (SaaS layer where apps are developed):  The layer is open: first beta APIs were released to allow developers to start developing apps.  The platform was started with HANA but is gradually being opened up for various cloud providers to offer choice to the customer.

To increase the range of companies and developers working with Siemens. welcoming many partners on board to develop their own apps. Additional customisation allows the monitoring of the critical variables to reduce inspection and maintenance costs and aims to offer your customers a range of improved services. Manufacturing companies can subscribe to Bluvision’s condition monitoring solutions through the Bluzone app running within MindSphere.MindSphere was initially built on the SAP Cloud Platform and Hana database. Siemens aims to rapidly build a community of app developers and software engineers familiar with the group’s systems.  Atos – to deliver digital services for the platform such as use case evaluation workshop/prototype/integration.  Product Intelligence for MindSphere: Omneo is a SaaS solution for Big Data management providing visibility in both products and supply chains performance.  IBM.  Manage MyMachines: Improves maintenance and servicing and provides transparency on the status of machines. 75 keplercheuvreux.  TCS .developed a suite of applications for MindSphere to enable new digital services such as predictive maintenance or remote condition monitoring. It shows information on the current operation of the machines and recent productivity history.Made available its own IoT solutions on the MindSphere. while furthering its implementation credentials. Siemens is also willing to offer as many options as possible to its customers in its role as cloud provider. the MindSphere network has been extended to include the following that is heavy on large corporate IT services companies that will support implementation of Siemens’s offers:  AWS .Providing cloud infrastructure (data centres) and its services to Siemens.com . At first. the number and range of services provided by the apps developed by Siemens look rather weak. Capital goods The pre-packaged apps offered by Siemens to facilitate customer adoption include the following:  Fleet manager: Provides an overview of the plant assets’ data and monitors them to facilitate improved productivity.  SAP .Will develop applications and digital services for manufacturing customers From this group of partners.  Keep Secure!: monitoring of systems and plants. with security reports generated periodically.  Accenture . Siemens chose to emphasise the openness of its platforms.  Bluvision (subsidiary of Assa Abloy’s HID Global) . To increase the number of available apps.Watson (IBM Analytics) is included to the platform to help MindSphere users access and analyse data from sensors.

and the number of applications employed. 800. SAP committed itself to invest EUR2bn in IoT by 2020. All in all. turbines. it has transformed its SAP Leonardo IoT solutions brand into a digital innovation system encompassing a number of capabilities. Capital goods Chart 65: Siemens’ MindSphere partners Source: Kepler Cheuvreux For go-to-market. SAP Leonardo: focused on leveraging on the existing IT leadership During late 2016. as well as emerging technologies such as Blockchain.  (+) Huge installed base of industrial customers provide easy-to-access potential clients for MindSphere: fleet of 30m automation devices.000 connections for buildings. Pricing will be based on a mixed model and is likely to incorporate both consumption and subscription models. while MindSphere looks like a strong pure IIoT platform for the long-term. It will take time for MindSphere’s partners to develop the right applications. Siemens MindSphere’s pros and cons:  (+) An open platform with large ecosystem of partners and developers which allow the development of various apps made available to all clients. the amount of data used.  (+) Pricing seems transparent and easy to understand.com . Since then. Siemens said it will use both partners/system integrators and its own direct sales force. SAP markets 76 keplercheuvreux.  (-) Apps developed by Siemens look fairly limited. While SAP Leonardo used to the name of SAP’s solutions for the Internet of Things. we believe it will find it hard to gain much momentum short-term because of its number of applications. management has presented Leonardo as a whole “digital innovation system” including all of SAP’s competencies in Big Data and machine learning. since the last SAP user conference (Sapphire) in May 2017. and even more for the best one to stand out from the crowd. which are being further formulated and will be based on the number of assets connected. 70m contracted meters.

Blockchain: It is not yet totally clear what the applications of Blockchain may become for SAP Leonardo. As of today. 3. digital transformation & value optimisation. IoT: Includes pre-packaged applications developed by SAP such as SAP Connected Goods. Amazon AWS and Google Cloud are among SAP’s partners for Leonardo. 4. Big Data . SAP-s consultancy offer. which illustrates the functioning of the platform: 77 keplercheuvreux. an application can learn how to initiate appropriate action without being explicitly programmed – and expand its expertise in each case. financial consolidation). in addition to a bespoke SAP Cloud Platform) or on-premises. It can be run either in the cloud (Microsoft Azure. Predictive Analytics. facilitating implementations. Enterprise Performance Management (strategy management. Deloitte has been designated as a preferred partner. 7. 8. With it. reporting). goes far beyond IoT and includes the following technologies: 1. Each solution designed through SAP Leonardo is called an “Accelerator”. SAP Leonardo is not only focused on industrial applications.SAP Hana platform for big data. dashboards. SAP’s Leonardo suite. 6. We believe it could achieve EUR1bn in the medium term. SAP Asset Intelligence Network. SAP Vehicle Insights. but first uses are tied to the security and encryption of the data received and stored. mobile analytics. Capital goods Leonardo as a system enabling businesses to “rapidly design. prototype. and deploy industry-specific solutions”.com . Data Intelligence: Extracts insights from a large network of anonymised data. Each SAP Leonardo “accelerator” includes a combination of these technologies. automatic learning of customer behaviour to alert to the risk of client churn. as mentioned above. For example: auto-matching of payments to receivables. Analytics: Business Intelligence (data visualisation. monetise data. which are represented in the following chart. 2. SAP Predictive Maintenance and Service. Machine Learning: Empowers software algorithms to learn from history how to handle unstructured data through the recognition of patterns. SAP Cloud Platform: SAP PaaS. although the ramp-up may take 5-10 years. 5. among others application markets. profitability & cost management. SAP Leonardo is set to be running on revenues of around EUR100m. Design Thinking: Business innovation. matching of jobs with candidates (by extracting patterns of past successful hires). but also encompasses solutions for connecting cities and agricultural IoT. posting triple-digit growth. Find ways to solve business problems.

SAP Leonardo connects endpoints to channels (left part). SAP Leonardo Technical Services: technical services of SAP Cloud Platform for SAP Leonardo IoT Portfolio that enables customer platform capabilities to effectively manage their sensors and devices. technical services include device management. SAP decided to create “Innovation Centres” where customers and prospects can test SAP Leonardo and design the apps that address their specific needs. The SAP Leonardo Foundation has two components: 1. and Sao Leopoldo. These are as follows: 78 keplercheuvreux. and real-time analytics. SAP has built six well-advanced categories of applications that leverage the power of IoT in various fields. Capital goods Chart 66: SAP Leonardo .technology overview Source: Kepler Cheuvreux Similar to any other IoT platform as we described earlier. big data connector. Bangalore. applies analytics and machine learning (SAP Leonardo IoT Foundation).com . SAP Leonardo Business Services: reusable microservice framework to enable customers to build their IoT model/apps and connect it with business context from back-end systems leveraging configuration-driven tools 2. integrates data to the enterprise’s systems (right part) and embeds pre-packaged applications (top part). As shown in the following chart. Others will follow in New York. The first innovation centre was opened in Paris on 21 June 2017. SAP is offering six categories of pre-packaged applications while also allowing the development of ad-hoc applications through the company’s PaaS. To promote SAP Leonardo.

-17% lower annual service and maintenance costs. and enhance in-transit inventory management.  Typical results (SAP performance benchmark for organisations adopting preventive and predictive maintenance and service approach compared to organisations practicing reactive maintenance and service): -44% lower unplanned downtime. assets such as pipelines to enhance maintenance. manage construction projects (to deliver on time and within budget by ensuring that materials are in the right place at the right time).  Use of data to manage and maintain properties/buildings.  Connecting vehicles and collect their sensor data to improve the collection of goods. and risk mitigation. safety (driving behaviour).com . delivery process. and allow for more efficient and cost-effective operations. +28% ROA. 79 keplercheuvreux. infrastructure compliance. and maintain all moving assets. 4) Connected infrastructures deliver new forms of digital operational intelligence to transform physical-infrastructure systems to improve service.  Connecting machines. 3) Connected fleets track. Capital goods Chart 67: SAP Leonardo (IoT) connected things Source: SAP 1) Connected products enable end-to-end visibility on product-centric operations and offer the ability to optimise compliance visibility and service availability. optimise energy grids by ensuring visibility of all assets across the grid. 2) Connected assets link production systems and assets with manufacturing and maintenance business processes to reduce operational and maintenance costs and increase asset uptime. analyse. wherever they are in the network. drive economic growth. monitor.

Capital goods 5) Connected markets foster local markets. parking management. Price is therefore defined in advance. SAP has chosen to adopt a fixed-price approach for each business issue. SAP Leonardo’s pros and cons:  (+) Offering is way broader than peers’.  (+) The marketing strategy. congestion. which is offered by both GE and Siemens. and the company commits itself to deliver its SAP Leonardo’s base value proposition within eight weeks. work. fatigue assessments of offshore oil & gas platforms. lighting. 6) Connected people enables improvements to be made to lives. supply chain. SAP is able to provide Leonardo customers with a “digital twin” tool (examples of digital twin uses include dynamic simulations. cities. ports and other infrastructures.  Market insights. Other industrial vendors such as Siemens and GE will typically focus only on the “connected products” and “connected assets” parts. and health by linking people and communities and providing better lifestyle experiences and opportunities for organisations to evolve into new business models. open public spaces. people and homes: connected energy and security systems. Since its acquisition of Fedem Technology. Leonardo can also be integrated to these solutions to make it more efficient. In terms of pricing. coupled with transparent fixed price seems the right one to make business leaders aware of the specific uses of SAP Leonardo. offshore wind and wave power technology. increase farming efficiency by connecting agricultural machines. and protect the environment. which could potentially mean a limited choice of third-party applications and connecting devices 80 keplercheuvreux. yards. it goes beyond pure IIoT only and address fleet management. is the “digital twin”. people and markets as well as products/assets. for urban areas: traffic flow management. connected cities. This range of applications is obviously very broad and goes far beyond typical IIoT. connecting people to the centre.  (-) SAP has been relatively shy so far when it comes to providing a list of partners for applications development/hardware makers.  (+) SAP’s pre-packaged applications for each of its six categories look very solid compared with some of its competitors’.com . which allows for digital medialisation and simulation of an asset.  In healthcare. based on “innovation centres” in various cities worldwide.  (+) An installed base that can be levered to include other SAP products such as CRM/ERP. and urban and rural areas to optimise the utilisation of natural resources and assets. reduce emissions. Another key focus in the IIoT segment. and energy usage. get patients a real health dashboard. vessels and marine systems).

In our coverage of the IT software and services sector. we believe it could represent up to 10% of IT services revenues in five years’ time. machine learning and artificial intelligence. mid to high 20% for Cognizant). we see opportunities raised by the IoT’s expected boom supporting more integration and consulting work. Deloitte. 50% at Accenture (Q3 2017) for what the company calls “the new” (digital. security). depending on the company considered. HCL. traditional.com . A fair estimate. Digital services are growing fast (around 25% for Tata Consulting Services -TCS. in our view. With this figure in mind. The leaders in IoT consulting and systems integrations are… According to IDC. Cognizant. From the headline proclamations of digital service growth. including cloud. would be that IT integrators and consulting players derive 10-20% of their digital revenues from IoT. it is difficult to estimate pure IoT revenues. the IT services players leading in IoT are Accenture. 81 keplercheuvreux. which implies a geographical bias towards North America. Extrapolating the current growth pace in IoT. “strong double-digit” for Accenture. This means that overall IoT could represent 1-5% of IT players total revenues. TCS. and PwC. while the figure reached c. Atos and Cap Gemini are both among the major players. Capital goods For IT services sector. while legacy services are slowing down. we believe IoT is still only marginally influencing IT services players’ financial performance. low value- added services. and as opposed to legacy. This means that their relative importance in IT services companies’ business is growing: TCS said that digital revenue made up 18. IoT is part of the new “digital” kind of service emphasised by large IT service players. Thus. analytics. which we already see as a pretty bullish estimate. we do not expect IoT alone to be a game-changer for IT services companies in the mid-term. It is more the combination of emerging technologies that is changing the sector’s landscape right now. cloud.9% of its Q1 2018 total top line. IoT not a game-changer Mid-term IoT unlikely to boost IT company’s growth profile alone In the IT services sector. especially since “digital” revenues are often a mix of different technologies. IBM. growing at 15-30%. as they are in IDC’s classification.

They are also the ones who talk the most about the “move to digital”. the integration of new technologies. and partner with the IoT platform vendors we reviewed in the previous section. the current leaders in the IT services race are seen as the leaders in IoT integration and consulting. Kepler Cheuvreux Unsurprisingly. 82 keplercheuvreux.com . Capital goods Chart 68: IDC Marketscape worldwide IoT consulting and system integration Source: IDC.

the largest players are set to lead the transition toward outcome- based products and solutions. we expect leading capital goods companies to accelerate the shift towards outcome-based offers. Capital goods Slow-paced disruption underway Despite the hype. Reaching the aspirational operating efficiencies envisaged by the Industrie 4. As the level of interconnectivity and intelligence in products and solutions offered by industrial companies expands and operating and information technologies merge more tightly. Longer term. ensuring that the largest capital goods companies are best-positioned to lead the transition and secure future revenue streams. The first phase of integrating the latest digital technologies will centre on realised promised annual asset efficiency gains of 3-5%. The shorter-term focus is likely to centre on the monetisation of data from each industrial vertical principally through predictive maintenance but also through software-driven service offers and a focus on enhancing operational efficiencies. Chart 69: Adoption and impact path of the industrial internet Source: World Economic Forum 83 keplercheuvreux. thereby increasing service-based revenue streams. we expect capital goods companies to aim to expand the range of service offered. storage and meaningful analysis of the data. Focus to shift from asset utilisation to outcome-based offers The vision for the fourth industrial revolution presented by the members of the World Economic Forum provides a good backdrop with which to picture future business transformation for the capital goods sector. Rather.com . such as product as a service (PaaS). we expect a gradual evolution of business models over 10-15-years that will occur as the penetration of the latest digital technologies permeates throughout each respective industry vertical. As the ubiquitous application of smart sensors allows increased data capture. we do not see digitalisation across the capital goods sector creating a Kodak-like technological disruption.0 concepts is both complex and expensive.

The long-term nature of realising this later shift towards selling measurable outcomes is due to enormity of the task and risks and natural reluctance likely to emerge from customers. This integration process has been led by Siemens. Capital goods The later phases of transition shown in the above chart will take longer to realise and represents a shift towards the outcome-based economy and an integrated human machine workforce. capital goods and IT and software companies will need to build new partnerships. and 2) the focus is on in-service product support and management. these concepts are more aspirational and such transitions are only likely to take shape over a 5-10-year period. which is more closely aligned with IIoT and GE’s initiatives that focus on predictive maintenance. Of the three transitions. During both the first and later phases of development. digitalisation has driven software companies to consolidate and create a full suite of software systems able to accelerate the process of moving from product conception. marketing and product development towards improving customer outcomes rather than solely product optimisation and services. production.0 focuses on the whole of the production supply chain from customer demand through to production and supplier management. and entry into service. we expect the fastest transition toward new business models to happen in the service segment. Today. Along the horizontal channel. A three-pronged transition Across the capital goods sector. and shift their focus from sales. Chart 70: Digitalisation affective horizontal and vertical business development Source: Kepler Cheuvreux 84 keplercheuvreux. Two vertical channels for product creation and support and experiencing change from digitalisation: 1) the concept of Industrie 4. mainly through the acquisitions of UGS and Mentor graphics. the transition driven by digitalisation is taking place along three channels. dynamic control and increasingly providing assets or software as a service. extend their range of capabilities. design.com . which carries less risk of adoption and requires a lower penetration of digitalisation throughout industrial value chains. each with a varying impact on business models.

which demonstrates clearly how competitive boundaries are blurring. IT services and hardware companies. offering an area for accelerating growth.com . What is notable when reviewing predictive maintenance is the mix between ICT. revenue streams The realisation of each of these benefits carries different costs and risks and is dependent on the collection. increased speed to market. enhanced productivity. monitoring. While we would take the projections for the size of the market with caution. Capital goods As stated earlier on. storage and interpretation of data to offer value-added predictive maintenance services. and 3) the creation of new revenue streams through optimisation and new service. Customers to first demand predictive maintenance Surveys from the World economic forum indicate that the prime motivations for Near-term changes investment in digitalisation technologies are. and attracting corporate attention as a growth opportunity. Industry consultant IoT Analytics predicts a market rising from USD2. the drivers behind the adoption of each new approach to business include lower costs. Chart 71: Industrial priority when considering application of IIoT Source: IoT Analytics Companies throughout our industrials coverage universe are already offering the necessary data capture. faster responsiveness to customer demands. 85 keplercheuvreux. as shown in the following chart. We expect this to remain a key focus area. One of the leading value added applications today for industrial customers is predictive maintenance.linked products and services. with a CAGR of nearly 39%. 1) optimisation of asset utilisation. and analysis of data. with note the high level of expected growth. and closer customer relations. communication.2bn in 2017 to USD10. 2) to target asset lower operational costs.9bn by 2022.

Capital goods Chart 72: Predictive maintenance survey Source: Conducted by IOT Analytics. One of the core capabilities that will be required to optimise asset utilisation and generate productivity benefits in the manufacturing environment is data capture. The rise of data analytics and the need for more data scientists in industrial markets is summarised in the following chart. storage and smart analytics. but multiple sectors will benefit Source: IoT Analytics 86 keplercheuvreux. complemented by partnerships. Chart 73: Data analytics to become a critical part of the value proposition Manufacturing and industry represents a huge opportunity.com . The response from capital goods companies is set to be increased investment capabilities of own human resources to capture and use data. Capital goods businesses. with their deep industry knowledge and recognition can use the enabling software and systems to deliver value adding customer solutions.

The first chart below shows how General Electric has shifted its value proposition from solely selling jet engines to fleet optimisation for customers. and 4) the value configuration needs to be expanded to incorporate enablers such as big data storage. GE has broadened the scope of capabilities to airline fleet optimisation. enhanced customisation and outcome relations based offers. Two examples of digitalisation in action In these examples. adjustments to cost structures are likely to be limited.com . connectivity solutions and sensors. 2) core competencies of employees need to be enhanced within the digital sphere and IT and software capabilities need to be increased through partnerships. Capital goods Four areas of the business model set for change We provide the classic overview for a business model applicable to capital goods Adaption of business companies in the chart below. Then by combining enlarged data capture and analysis tools. 87 keplercheuvreux. Initially as digital capabilities evolved GE expanded revenue streams by providing preventive maintenance capabilities. Chart 74: Core elements of business model Source: Kepler Cheuvreux. core revenue model. Moreover. assets as a service. JVs and co-operation. core competencies capital goods companies is being enlarged to incorporate more digital features such and customer as predictive maintenance. GE and Claas are using their extensive knowledge of the equipment they produce with expertise gained from customer operations to enhance the value proposition being offered. Osterwalder. and target customers. we expect limited change in the distribution channels. Pigneur & Tucci For capital goods companies. both deepening the customer relationship and extending the duration of revenues toward a continuous service offer. 3) customer relationships will be deepened as capital goods companies move into customer asset management and optimisation. data analysis and artificial intelligence. Across the various components we see four areas models to centre on where we expect business models to alter and change: 1) the value proposition of value propositions.

artificial intelligence and data visualisation. most companies are seeking partners to assist in developing the backbone of data management (the IoT Platform or IIoT Platform).com . data storage big data management and analysis. a transition that has required Class to expand its range of capabilities to encompass remote diagnostics. location and chemicals data. traditional manufacturers Outcome economy evolution a long-term phenomenon Capital goods companies have historically built their reputation on supplying high- quality products and systems at competitive prices while satisfying customer needs. communications. With the exception of a number of major global industrial companies. machine monitoring and incorporation of multiple weather. We are seeing capital goods companies forming partnerships with global technology A key long-term shift companies like Microsoft. Digitalisation is creating enhanced product connectivity and functionality. beyond the existing skillsets. including General Electric and Siemens. which in turn is greatly expanding the capabilities that capital goods companies can offer. The exploitation of the installed base of production and solutions has provided a complementary service revenue stream. and Amazon Web Services. The most important additional skills will include data capture. to provide cloud-based in the market will open IoT platforms that encourage the widest possible number of software centre on a shift to the developers and data scientists to create industry-specific applications and analytics outcome-based economy and an programmes. Capital goods The second chart below shows how Claas has shifted its business from selling farm equipment to providing farms with target crop yields on their land. the capital goods sector needs to incorporate new capabilities. Chart 75: General Electric engine support Chart 76: Claas tractors target yield Source: Kepler Cheuvreux Source: Kepler Cheuvreux Partnerships set to be critical in future To facilitate the shift into more services and asset optimisation for customers. 88 keplercheuvreux. IBM. Partnerships are also being expanded with artificial intelligence increase in “As a providers like IBM and Google and leaders in communication such as Cisco and service“ offers from Alcatel Lucent.

We have aimed to highlight this above. 89 keplercheuvreux. The surrender of core competencies to equipment vendors creates multiple risks and will delay the adoption of the outcome economy. IaaS. pricing. Other examples of forward integration include plant optimisation. in many cases this shift toward solutions selling will involve undertaking operations than many customers consider core operations. platform. Traditional capital goods companies will be forced to review their value proposition and may need to bring additional partnerships into business relations. It aligns suppliers with the ultimate goal of greater productivity and flexibility within the value chain. In addition. Capital goods Forward-looking industrials are seeking to align themselves more closely with customers by searching for ways to better address customer’s business performance by looking forward in the value chain to providing specific outcomes for customers. It is contingent on the marketing.com . etc. and selling of goods and services based on the results or outcomes they produce for customers. infrastructure and everything as a service (SaaS. Guarantees to maintain factory uptimes. However. increased efficiency of transportation networks. PaaS. high power analytics and connectivity. The outcome economy is a world where capital goods companies compete to deliver quantifiable results that matter to customers at a specific time and place. However. contracting to energy savings in buildings or assuring higher farm crop yields will shift risk profiles and will hinge on increased asset connectivity and real-time operational performance. and raised farm yields. not on the item’s service or face value.) will increase. we do not see these types of changes in the value proposition for industrial companies occurring on a broad basis over the next ten years. As monitoring capabilities of software and hardware providers increases we expect the prominence of software. there is likely to be a further blurring of the competitive boundaries between traditional capital goods companies. digital technologies. We see the shift enabled by widened business partnerships. It will undoubtedly force traditional capital goods companies to critically examine their business models and may require increased skills and partnerships. software and ICT companies and smaller start-ups.

trade unions. Japanese industry also leads in the field of next- generation automation and robotics but appears less motivated to drive standardisation. 1) the digitalisation of the horizontal value stream of product development. internet. leveraging on the ICT revolution. Industrial Internet of Things (IIOT) or Industrie 4.com . The focus in China and South Korea is more on accelerating the adoption of smart manufacturing technologies and automation to enhance productivity and the competitive position of the industrial base. Cisco. manufacture and supply and in life service a field being led by German and European companies. with SAP. government. We review initiatives in ten key nations where there is co-operation between business. flexibility and quality gains China Government directed approach to adopt 20 decades of rapid development in A few large global leaders and a huge SME best in class technologies to increase value manufacturing. Siemens.0 is occurring in two main areas of the value chain. software and systems driving increased digitalisation is occurring concurrently across private and public bodies worldwide. software. GE. We conclude that national policies in Germany and the US are at the forefront of defining standards and driving the adoption of digital technologies. and 2) smart monitoring of equipment through interconnected sensors creating new service-based business models. trade associations. analytics and these capabilities of innovative SMEs service models. Microsoft and large industrials physical world to leverage capabilities in Today's culture and mindset built around leading the change. which has shifted to an increase in automation US Target to bring digital innovation to the US companies led the ICT revolution. albeit based on differing approaches. which is being promoted more aggressively by US-based companies and championed by GE. reflecting differing industrial and cultural starting positions. Capital goods National initiatives speed up digitalisation The development of industrial automation hardware. Schneider Electric. Table 7: Overview of national iniatives Lead countries Key features Historical context Corporate landscape Germany Nation focused on retaining global Leading high tech manufacturing nation Global leader in automation and equipment leadership in next-generation factory and intent on leadership in the production supported by ecosystem of governmental value chain automation. automation and adoption and setting Japanese biased robotics aligning the country with Germany standards rather than US Source: Kepler Cheuvreux 90 keplercheuvreux. National governments are incentivising public and private sectors to make technological advances to increase national productivity and competitiveness and to foster reindustrialisation. Notable differences by nation are apparent. and Dassault Systèmes at the forefront. focused excellence equipment and control and academic support in production processes to deliver productivity. Japan Leaders in advanced automation and Japanese conglomerates leaders in 4-5 global majors leading the trend to robotics advanced manufacturing. supported by multitude big data. National initiatives capitalise on regional and local strengths The pace of adoption of digitalisation. but largely through low base that has low adoption of technology added in manufacturing across key sectors cost labour. and academia.

key focus to following the trend ascent. Table 8: Key countries in transition to Industrie 4. we review a number of other important countries below.0 adoption efforts support a manufacturing revival offers a chance for revival of the sector South Korea Manufacturing a leading part of national Rise of South Korea within the OECD Driven by Chaebol. 91 keplercheuvreux. I4.0 Key regions and Key features Historical context Corporate landscape countries EU EU focused on encouraging national EU central mandate to support technology Leader among global companies in EU adoption to support renaissance in and industrial development across EU working closely to support EU and national manufacturing member states initiatives Italy Many technically advanced SMEs looking Italian manufacturers lead in product Many SMEs being financially incentivised to increase digitalisation. industrial internet applications.0. which is considered an ambitious target. Recognising the potential emergence of a fourth industrial revolution the European Parliament published a policy document on Industrie 4. big data. In 2014. Adoption is most significant in Germany. with suppliers GDP. and services. the European commission’s industrial policy communication was spotlighting technologies linked to Industrie 4. robotics and 3D printing will all contribute to enhance European productivity through the creation of new business models.com . the EU parliament recognised emerging digital technologies including cloud computing. government driving adoption to support national income enhance national productivity India National government keen to leverage Recent growth of IT service sector offers Reliance on overseas expertise. where industrial production accounts for over 30% of GDP. Ecosystems in each country will define the speed of implementation and the ability of respective nations to achieve gains in productivity in the industrial sector as digitalisation is rolled out further. lack global leader for industrial to adopt latest technology government France Government driving multiple actions to More of an adopter of industrial Large nations biased towards adoption of increase capabilities and adoption of technology. supported by design.0 at the end of 2015. country in crosshairs of China's supported by manufacturing. Leading foreign companies leading strategy around key technologies and emphasised relative to services. software and low cost opportunity manufacturing. The combined efforts of the EU aim to support a recovery of industry as a share of GDP back toward 20%. Beyond the key countries mentioned above. from 15-16%. rather than leader technologies industry UK UK government formulating an industrial UK manufacturing has been de. products. Created Make in India initiative Source: xxx Western Europe dominated by German efforts As early as 2012. strength in IT. The European government is directing funds to enhance digital skillsets among students and employees. Capital goods The engagement of national associations and government bodies plays an important role in technological development for large corporations and SMEs. exemplified by the Frauhofer institute in Germany.

SAP. Italy. Schneider. rather than consumer digital platforms. are sponsoring initiatives.0 Government focus Source: Kepler Cheuvreux 92 keplercheuvreux. Capital goods Chart 77: Summary of European national initiatives Source: European Commission A number of member states. Europe has a number of guiding bodies that we summarise in the table below: Table 9: Overview of Industrie 4. ABB.0 initiatives Region/Country Programme Comment Europe EFFRA European Factories of the Future Research Association. the UK.0 Sponsored by Germany Federal Republic France Nouvelle France Industrielle French government initiatives UK 4IR UK Manufacturer's organisation + Innovate UK Italy Fabbrica Intelligenta A number of Government and Industry initiatives Spain Industria Conectada Government and industry working together on multiple actions Netherlands Smart Industry Government-led Belgium MADE DIFFERENT Government focus Sweden Producktion 2030 Government focus Czech Republic Prumysl 4. and France. Dassault Systèmes. The efforts are supported and guided by large multination corporations including Siemens. and Atos. Bosch. explored in more detail below. Germany Plattform Industrie 4.com . including Germany. Europe’s efforts are largely directed towards industrial and professional platforms.

Industrie 4. the UK maybe best-positioned to benefit from e-commerce based software and services. UK policymakers are searching for a way to reverse the trend. Industrie 4. VDA. export and research policy.0. The UK’s catapult centres aim to bring researchers and companies together to create products and systems that are applicable to Industrie 4. A number of centres in the UK including the Manufacturing Technology Centre and the Advanced Manufacturing Research Centre are active promoting the fourth industrial revolution. UK working to catch up with Europe’s co-ordination After a 20% decline in the contribution of UK manufacturing to GDP between 2001 and 2012. but will need to encourage adoption of Industrie 4. Germany’s goals include the creation of a reference architecture. applied research centres and the provision of tax incentives for investment in technology start-ups. In contrast to the US. Capital goods Germany a center of the fourth industrial revolution Industrial contribution to German GDP at 31% is one of the highest in Europe. flexibility. UK manufacturing accounts for c. VDMA. small companies. The initiatives incorporate German policymakers. price.0 offers a strong technology-based vision of the future. the dismantling of the automation pyramid. with actions lacking a strong centralised co-ordination and direction. the customised production to “batch size one” (personalised manufacturing). The German government.0 technologies to enhance productivity across the manufacturing base. interoperability. and technologies for smart services and devices. Bitkom.com . and the ZVEI. large government multinationals. Despite these initiatives.0 can be traced back the Federal Ministry of Education’s document: Recommendations for implementing the strategic initiative Industrie 4. According to Acatech (The German National Academy of Science and Engineering) Germany is currently 2-3 years ahead of other nations in the area of Industrie 4. focused on optimising production processes to improve quality. In a similar way to the US. actions are underway with a number of industrial bodies including the BDEW. To support these goals. the UK’s Department of Business Innovation & Skills appears less developed in its approach than other European countries. BDI. The government is following an active industrial. aiming to spend GBP6bn on science by 2021 and have identified around ten areas to accelerate capability with investments.0 is a national action plan sponsored at the federal level and includes the financing of company projects.0 in 2013. 10% of national GDP. and academia all working together to better develop standards that will speed up adoption. and financial returns. Ultimately. plug and produce and semantic processes. 93 keplercheuvreux. the government wishes to maintain Germany’s strength in the area of manufacturing and mechanical engineering. we consider the initiative under funded by the government. The widespread use of the term Industrie 4. in combination with a series of globally leading private and academic institutions. we see less focus on the development of new business models and smart products. is co-ordinating a concurrent approach to the widespread development and adoption of technologies and skills necessary to succeed in the fourth industrial revolution. In comparison to other European nations.0.

Capital goods France showing a concerted governmental drive In April 2015.0 programme.0 by manufacturing companies in Spain. The Spanish government supports the Industria Conectada 4. Italy’s main challenge is the absence of large industrial groups of ICT companies to lead Italian transformation and a heavy reliance on small and mid-sized companies and a strong global reputation for finished product design.0 technologies and is driven by the government. which are supported by Banco Santander. French manufacturing accounts for c. Spanish industry accounts for 13% of GDP and 11% of the workforce. Italy also expects funding of up to EUR900m directed towards increased skills in the workforce. Italian value-added manufacturing accounts for c. the Italian Ministry of Economic Development presented the Industria 4. To meet this challenge. the scheme aims to release EUR24bn of funds to enhance the capabilities of Italian manufacturers. EUR1bn of loans are being made available to SMEs that target robotics. and Indra. and foster innovation. 94 keplercheuvreux. big data.0 adoption The Spanish government’s approach is directed toward adopting the Industrie 4. cloud computing. Industria 4. Telefonica. The programme promotes the digital transformation of Spanish industry through co- ordination between the public and private sectors and aligns with two other national initiatives: the Digital Agenda and Agenda for the strengthening of the Industrial Sector. There are a number of industrial support plans for robotics. supported by close collaboration between public and private bodies. The Italian government has formulated a range of targets including a step-up in innovation investment and education support to boost skills. Italy making a large commitment to SMEs At the end of 2016. France launched its Industrie du Futur initiative. digitalisation or energy efficiency projects. and augmented reality. 11% of GDP. which is a reindustrialisation plan that includes investments in Industrie 4. 16% of GDP. tax credits for research.com . and support. preferential financing for SMEs and mid-tiers. increase investment.0 competence centres.0 targets a range of direct and indirect measures to raise awareness.0 national plan which combines a range of public and private bodies and academic institutions and the unions. Spain actively driving Industrie 4. tax incentives. high-performance computing. 3) promote digitalisation and support for technology companies. the Internet of Things. and project financing. Italy is directing effort toward digital innovation hubs and I4. The incentive measures include tax incentives for private investment. which offers financial and educational support for industry in four areas: 1) ensure suitable knowledge and skills. and 4) support industrial adoption of Industrie 4. These are supported by direct and indirect financial incentives including subsidies. These target some specific product areas including energy-efficient cars and electric aircraft. The plan centres on creation of demonstration centres to showcase products and services. In total. 2) encourage multidisciplinary collaboration.0 initiative emanating from Germany.

smart production and the industrial internet all being used. the US is playing a central role in shaping the development of the industrial internet. transport technology or ecosystem Source: Kepler Cheuvreux 95 keplercheuvreux. lower operating costs. The US is the largest market for German exports and Germany is the most important trading partner in Europe for the US. Table 10: Review of US industrial internet initiatives Initiative Objective Promoter Industrial Internet Consortium (IIC) World’s leading organisation transforming business and society by accelerating the Corporate Industrial Internet of Things (IIoT). The US is the largest importer and the second- largest exporter of goods globally. universities.0. Industrie 4. Mission is to deliver a trustworthy IIoT in which the world’s systems and devices are securely connected and controlled to deliver transformational outcomes National Network for A network of research institutes in the United States that focuses on developing and Corporate Manufacturing Innovation commercializing manufacturing technologies through public-private partnerships between U. Industrie 4. Corporate services and apps that comprise the Internet of Things. and federal government agencies Smart Manufacturing Leadership Building the nation’s first Open Smart Manufacturing Platform for collaborative industrial. industry.com . This makes the US approach more market- driven in contrast to a more technology-driven approach in Germany. an open-source implementation and a certification program allowing devices to communicate regardless of form factor. In the US. Capital goods US focused on commercial solutions The central government’s main initiative is Manufacturing USA. the concept is focused on the convergence of machines and intelligent data to transform a multitude of industries through intelligent and interconnected objects to improve performance. which incorporates a network of private institutions and laboratories established by large ICT players. as previously mentioned.0 is conceptualised as a much more broadly-based subject in the US than in Germany. with interchangeable terms including the Internet of Things. Government Coalition networked information applications through at-scale demonstrations Allseen Alliance a cross-industry consortium dedicated to enabling the interoperability of billions of devices. Both nations are focused on the importance of manufacturing. but encouraged by the government and financed by public-private partnerships. Surveys have shown that US company interest is focus on creating new business models and offering smart services. 21% of US GDP. Open Connectivity Foundation Dedicated to ensuring secure interoperability for consumers. a bridging specification. the German concept is more focused on factories and the optimisation of associated vertical and horizontal value chains. As the world’s largest economy and a leader of the third industrial revolution.0 is considered to focus on manufacturing expertise. The IIC is seen as holding cross-industry knowledge of the industrial internet. operating system. service provider. and increase reliability. which accounts for c. leveraging on prior ICT leadership.S. In contrast. businesses and industries by Corporate delivering a standard communications platform. and platform Industrie 4. The disparity between the two interpretations is evident from a review of the respective descriptions of the industrial internet from the US Industrial Internet Consortium (IIC) and the German platform. Promotion of the concept of the industrial internet has been largely driven by the private sector in the US rather than the public sector.

energy saving vehicles. with many still introducing ICT integrated manufacturing. the contribution of industrial production to Chinese GDP makes the sector critical to national development. Chart 78: US development of Industrie 4. at 43%. high tech maritime and railway equipment. these builds on US strengths building innovative internet. both major US and German consortia are targeting the interoperability between the two developing industrial internet architectures. Capital goods Reviewing the communication of US companies and the initiatives with various consortia. big data. This is being conducted beneath the umbrella of Industrie 4. Both the Chinese government and industry remain committed to strengthening engagement with Germany.com . machinery. medical devices and information technology. National policy is well-formulated and focused on advancing the country’s manufacturers in the global marketplace by increasing added-value. Nonetheless. robotics. aviation. Policymakers have taken swift and concerted action to develop plans that will strengthen the position of China’s industry.0. Sany and Huawei. data analytics sensors and wireless technology. spanning sophisticated large multinationals such as Haier.0 initiatives Source: acatech study China driving structured march towards higher added value China is a specific and important country for the fourth Industrial revolution. Nonetheless. China’s actions taken with a long-term view The industrial landscape in China is seen as very diverse. US companies are targeting growth opportunities in data storage. The strategy specifically targets high-tech industries that contribute to growth including automotive. which is 96 keplercheuvreux. quality and efficiency across a multitude of industry verticals through the application of innovative manufacturing technologies. and large and small companies with almost no automation. software and service business models.

To drive the change. and eastern European manufacturers. The advancement of China’s producers up the technology curve represents an initial threat to countries. Japan. machines. which aims to enhance the contribution in a number of key manufacturing sectors. including South Korea. and research suggests that ERP. Mercer China’s commitment to increasing the level of added value in manufacturing is reflected in Made in China 2025. marine equipment. Capital goods partly reflected in the existing industrial cooperation and foreign direct investment that Germany has seen. robotics. Such measures have accelerated technology transfer.0. power equipment. agricultural machinery. materials and high-end medical equipment sectors. rail. The modernisation of China’s manufacturers has a long way to go. aerospace. 97 keplercheuvreux. aviation. electric mobility. initiatives including Smart Factory 1. MES and PLM software penetration hovers close to 60%.com . Chart 79: Roadmap of Chinese plans to implement smart manufacturing Source: Kepler Cheuvreux. Smart Cities and the Internet of Things are all targeted at enhancing capabilities in areas including IT.

which are critical customers for many SME suppliers. While the country has a leading manufacturing network and IT backbone. and the Smart Factory initiative. family-owned business conglomerates).0 rather than being a prime provider of automation and communication technologies. 38% to GDP. Policymakers are intent on bolstering the competitive position of South Korea’s manufacturers to retain strength versus Chinese producers. the South Korean government is promoting Manufacturing 3. Capital goods Chart 80: China’s Industrie 4. which targets the ability of SMEs to increase production through the use of smart factory technologies. Since South Korea lacks any major automation equipment suppliers. It is very hierarchical and structured around chaebols (large. Other programmes in South Korea include the Korean Smart Factory Foundation. Japan: set to build on automation strength Japan’s well-established capabilities in advanced manufacturing and automation technologies make the country a natural adopter of Industrie 4. South Korea’s manufacturing sector contributes c. the focus of many companies is on exploiting data-driven business models in areas such as smart cities. 98 keplercheuvreux. To drive transformation.000 highly productive factories by 2020.0. South Korea aims to create up to 10.com . South Korean appears more focused on capitalising on the potential benefits of manufacturing technology evolving with Industrie 4. the industry is seen as weak in software development and sensors.0 evolution Source: acatech study South Korea: focused on maintaining an edge South Korea is in the crosshairs of China’s planned advance in smart and higher tech manufacturing.0 technologies and capabilities while being a beneficiary of the sale of automation and network technologies. the Smart City Testbed Initiative.

less than 2% now).0 In 2014. while GE also claims to have invested USD200m in smart manufacturing in India. The initiative to combine India’s ICT strengths and the government’s target of creating 100 smart cities is targeted at supporting smarter Indian manufacturing. and promote technological evolution. The programme aims to minimise the country’s reliance on imports. electronics and semiconductors. as stated above). Manufacturing is likely to account for 25% of Indian GDP by 2025 (vs. the Indian prime minister launched Make in India. enhance job opportunities (250m people are expected to enter the Indian workforce over the next 15 years). The main industries targeted are automotive. Chart 81: Japan’s evolution in the area of Industrie 4. This overarching programme aims to increase adoption of Industrie 4. National skills are being fostered by Boeing’s construction of a smart factory in Bengaluru and Bosch’s intent to build 15 smart manufacturing centres.0 Source: acatech study India promoting adoption of Industrie 4. expand infrastructure (through Smart Cities.com . 99 keplercheuvreux. less than 15% now) and the country could reach 4% of global manufacturing output (vs. According to the Reserve Bank of India (RBI).0 technologies and processes across Indian industry. and pharmaceutical and chemicals. defense and aerospace. Capital goods The Japanese government plays a significant role in funding. and both companies and the government appear comfortable working towards own standards and methods rather than promoting international standards. The Make in India programme is based on FDI (Foreign Direct Investments) in manufacturing to grow.

utility and metals and mining) and infrastructure (logistics. Chart 82: Digitalisation across industries Source: ABB Group 100 keplercheuvreux. chemical. healthcare and building) end market sectors. available technology. sectors such as automotive and retail have already advanced levels of sensor utilisation. Our reviews show that the pace of adoption across industry verticals varies greatly. Adoption levels can be seen to differ significantly. greater profitability and strengthened competitive advantage. data collection and analysis. In contrast. depending on the current levels of digitalisation and potential benefits. Industrial digitalisation promises all of these improvements. gas. Process industries and infrastructure in most need Companies in the capital goods sector derive their demand from investment and demand patterns across 25-30 subsectors that can be condensed into 10-12 end markets. ABB shows these in the following chart alongside levels of digitalisation.com . and use of industrial software. We identify the greatest structural opportunity in the process industries (oil. Capital goods Digitalisation trends across industries All industries are in pursuit of enhanced productivity. petrochemical. and the underlying potential to secure competitive advantage through technological investment. Rates of growth in digitalisation for each sector are dependent on structural trends.

usage in industry and in the labour force. healthcare and construction.com . Industries with a relatively low level of digitalisation. by sector and across assets. Chart 83: McKinsey reflects the opportunities for growth Source: McKinsey 101 keplercheuvreux. utilities. Capital goods ABB’s view of digitalisation by end market should be compared to McKinsey’s analysis by sector and business area. set out below. mining. that offer the greatest opportunity for demand growth of digital solutions include oil & gas. transport and logistics. The chart splits the level of digitalisation into two dimensions. chemicals and pharmaceuticals.

and the underlying growth potential. 102 keplercheuvreux. Capital goods Drivers and facilitators in each sector offer structural growth potential For each of the key sectors identified above. greater speed to market. smaller. All industries to increase digital focus to a greater or lesser extent All the leading consultancies have conducted surveys and reviews of industry verticals and specific companies to estimate the target areas of spending and the level of commitment from industrial companies to raise spending for digitalisation. ABB. making them key long- term partners. as summarised for the key industries in the following table. and underlying growth potential. We expect the promise of gains from productivity. there are a number of key drivers than will support the adoption of digital technologies. facilitating technology. automation and sensors to their customers while partnering with software companies to broaden the products and solutions on offer. and Schneider Electric are all set to benefit from a degree of improved growth. data analysis software. The next two tables provide an overview of a number of the key trends we are observing by industrial segment. industrial software.com . Many of the capital goods companies highlighted in this report play a vital role it facilitating the transition to full digitalisation through the provision of connected devices. We see numerous software and hardware technologies being applied. new revenue opportunities and closer customer relations to support increased spending in each of the industrial verticals highlighted above. more focused groups such as Datalogic and Hexagon remain well-placed to benefit from a shift in customer investment patterns. For each of the key market segments identified above we review the key trends. The expansion of digital capabilities and new service models is also pushing capital goods companies towards closer integration with customers. The leading electrical equipment companies such as Siemens. the facilitating technologies. and services. In addition. automation and control technology. General Electric. as they offer the necessary tools.

ABB. Aspen Technologies. Yokogawa.com Digitalisation Sector Key trends Key terms / targets Facilitiating technology and suppliers Underlying growth potential importance level • Pressure to raise service levels and reduce • Control software for network management and monitoring • Highest growth for predictive maintenance and smart production costs Smart Grids to reduce opex & minimise outages grid controls • Incorporate of new loads (EV) demand for Predictive maintenance • Sensors. GE. Aspen Technologies. Honeywell. Emerson market needs reduced time to market • Minimisation of capital investment needs via Electric. Schneider Electric. Honeywell. Schneider Electric. Yokogawa. minimize downtime. sensors and analysis segments to lower maintenance costs improved planning and execution/modelling Hexagon see step-up in structural demand Predictive maintenance • Control software for network management and monitoring • Long cycle investment sector. Emerson responsiveness • Vendor managed inventory and supply chain higher traceability Electric. highest growth for • Digitial mapping and inspection of mines Predicitive maintenance mapping and monitoring predictive maintenance and asset management • Asset integration and monitoring for predictive asset optimisation • Data collection and analysis to provide predictive • expect increased sensor use. AVEVA. facilitating technologies and growth potential (I) 103 keplercheuvreux. ABB. • Industrial software. Siemens. Honeywell. ABB. Atlas Copco. highest growth for • Optimisation of process control via increases higher productivity to reduce opex & minimise outages predictive maintenance and asset management use of sensors and process management reduction inventory holding • Sensors. data collection and analysis to provide predictive • Overall growth to be greater for T&D networks than Utilities Mid/high smarter grids & energy storage increased productivity. • Control software for network management and monitoring • Highest growth for predictive maintenance and asset Predictive maintenance flexibility to adjust capacity to reduce opex & minimise outages management higher productivity • Closer upstream and downstream collaboration • Sensors. • Industrial software. sensors and analysis segments to optimisation via digital technologies lower maintenance costs Hexagon see step-up in structural demand • Machine sensors and equipment monitoring and mining • Long cycle investment sector. data collection and analysis to provide predictive • expect increased sensor use. Siemens. • Industrial software. Hexagon Source: Kepler Cheuvreux . downstrean to optimise responsiveness to price realisation) costs price/demand • Key suppliers: GE. GE period Capital goods • Optimise asset utilisation. Yokogawa. data capture and Mining Mid/High maintenance and repair remote operations / maintenace and mine optimisation along value chain analysis to optimise mine and machinery use • Inventory management and total production productivity • Key suppliers: Sandvik. AVEVA. Chart 84: Trends by industrial segment. data collection and analysis to provide predictive • Upstream investment to target productivity and Mid (greater focus on reduction inventory holding Oil & Gas to optimise production levels with market maintenace and production optimisation along value chain output. ABB.100bps incresase in investment over 5 year renewables into the mix • Key supplier: Siemens. Siemens. Schneider Electric. see step-up in structural demand Aspen Technologies. Rockwell Automation AVEVA. data capture and • Higher uptime via predictive maintenance and Chemcials High costs maintenace and production optimisation along value chain analysis to optimise through put and market asset optimisation reduced time to market • Key suppliers: GE. Emerson Electric. sensors and analysis segments to quality control supply chain management Schneider Electric. transmission generation assets • Rising complexity from incorporate of volatile uptime and distribution • A 50. higher maintenace and service for energy production.

Krones. GEA • Industrial software. Additive manufacture printing. • Highly profitable sector willing to invest in improved • Accomodating rising need for tailored therapies • Process management controls and software. highest growth in equipment for machine flexibility.the move to batch size one monitoring and control software reduced batch sizes. and control • Digital sales and direct service and and maintenance Honeywell. machine performance integration along supply chain tracking/accountability monitoring and control software • expect increased sensor use. data collection and analysis. patient data. hybrid manufacturing production flexibility investments • Effective track & trace systems to limit drug controls and automation. increased speed patients. building modelling. data collection and analysis and product quality. enhanced planning digital surveying analytics. Digitalisation of hosptial processes and Personalised healthcare • Wearable monitoring devices. hospital management. Johnson Controls. Eaton. ABB. Chart 85: Trends by industrial segment. Healthcare Mid/high patient monitoring analysis. Philips. EV infrastructure • Increase spend on building monitoring and controls • Enhanced logistics and working capital supply chain management and • Building monitoring and control product for electrics. facilitating technologies and growth potential (II) 104 keplercheuvreux. Siemens. sensors and analysis segments to monitoring and predictive maintenance see step-up in structural demand. ABB. Siemens. drone surveillance. leverage AI. Dassault Systems. Draeger. bio • Higher spend along value chain for drug delivery. uptime and • Production and demand matching via digitial Capital goods Supply chain • Process management controls and software. healthcare data leveraging patient records. communication tracking/performance with remote monitoring and logistics value chain asset tracking and monitoring gateways data analysis • Digitial workflow. track & trace and customer • Expect slight increase in spending with bias toward counterfeiting • Key suppliers: Schneider Electric. data capture and • Effective track & trace systems to ensure food Food & Beverage HIgh machine optimisation • Sensors. Siemens. home healthcare • Continued steady increase in IT and digital spend throughout value chain • 3d design printing. Siemens. ThermoFisher. procurement management and supplier qualification and security and water management • Increase spend on data analysis and asset monitoring supplier evaluation Through life asset monitoring • Key suppliers: Hexagon. data capture and cloud based • Increase customer proximity for healthcare. remote • digitial diagnostics machines. data collection and analysis. allowing parcel tracking and travel system monitoring • Data analytics to increase customer service • Key suppliers: Alstom. plus remote monitoring. increased • Increased use of data capture and analysis and Pharmaceuticals High • Optimisation of complex supply chain • Sensors. track & trace.com Digitalisation Sector Key trends Key terms / targets Facilitiating technology and suppliers Underlying growth potential importance level Improvement supply chain co. hybrid manufacturing analysis to optimise through put and market quality production flexibility / controls and automation. software algorythums for • Rising spend on network and system information robotics performance predictive maintenance. warehouse Rail & Road Logistics High enhanced customer service • data collection and analysis. customer tracking and tracability • Expect focus on increased sensors and asset • Internal operational improvements along the Supply chain optimisation • Equipment sensors and monitoring systems. Siemens support enhancement digital technology and applications • Short/mid cycle investment sector. personalised healthcare management home healthcare. GE • continued high spend on IT by logistics and travel offers and account management companies and logitistics businesses • Rising digital healthcare monitoring equipment for • Shift to mass customisatioin. Bombardier. responsiveness and predictive machine maintenance • Production system optimisation via machine individualisation • Key suppliers: Schneider Electric. • Remote patient care and monitoring. enhanced care cycle management costs Danaher diagnostics. Schneider Electric infrastructure/building management Source: Kepler Cheuvreux . HVAC equipment Building and Infrastructure Mid/High management. machine ordination process technologies to deliver uptime and flexibility . software 3d design and modelling and • 3d design and model software. reduced through care cycle • Key suppliers: GE. digital simulation and design.

40 SKF 3.73 Rosenbauer 1.33 Outotec 2.27 Rexel 1. While all companies are aware of the issues related to digitalisation at board level.47 Legrand 2.13 Husqvarna 1.com .13 Stabilus 1.60 TKH Group 2.60 Wacker Neuson 1. external relations.53 Osram Licht 2. We have identified six key dimensions of corporate development that reflect advancement in the field of Industrie 4.40 Electrolux 2.87 Dormakaba 3.67 Zumtobel 1.20 Nexans 1.0 or the Industrial Internet of Things for internal corporate activities.67 Trelleborg 2.13 Wartsila 3.00 NIBE 1.73 Siemens 4. we have undertaken a detailed review of each company’s capabilities in the framework of a structured survey.13 Zehnder Group 1.80 Kone 3. we find that the degree of digitalisation for each company is closely related to end market and size.73 Bucher 1.40 SFS Group 1.00 Sandvik 3. Chart 86: Large caps ranking Chart 87: SMID caps ranking Hexagon 4.53 Krones 3.60 Gamesa 2.73 KION Group AG 3.13 Konecranes 3.13 Schoeller-Bleckmann 1.20 Belimo 1.07 Geberit 1.20 Nordex 2.87 Alstom 2.40 Koenig & Bauer 2.40 Bauer 1.00 Atlas Copco 3. Headline results are shown below.13 Hexpol 1.27 KUKA 3.13 Schindler 3.80 Andritz 2.00 Semperit 1.00 Cargotec 3. with best-in-class companies typically active in the most high-tech and largest industries.73 SGL CARBON 1.53 Schneider Electric 4. Capital goods Ranking digitalisation across the sector Based on the insight and knowledge of nine analysts covering 66 capital goods- related companies.53 Aalberts 1.93 SAF-Holland 1.73 Jungheinrich 3.40 KSB 1.07 Kendrion 1.80 Datalogic 2.33 Vossloh 0.80 Georg Fischer 2.27 RHI 1.93 Metso 3.93 Sulzer 1.47 Arbonia 2. and product capabilities.87 Source: Kepler Cheuvreux Source: Kepler Cheuvreux 105 keplercheuvreux.53 Dürr 3.87 ABB 3.93 Vestas Wind Systems 3.07 Assa Abloy 3.00 Palfinger 1.13 Philips Lighting 1.73 GEA Group 2.60 FLSmidth 2.60 Valmet 2.

and Datalogic. which provides a string of grades by company. Among the smaller companies. Our methodology has been to grade each of these from 0 to 5 (from no action to best-in-class).0 guideline. Siemens. the best-positioned large caps are Hexagon. Cargotec. We review each of the dimensions separately. Implementation of the ideas will lead to much greater connectivity and co-ordination between all business areas. which provides an overall result for each of the six dimensions and gives a reference (or average) for the total sector. Chart 88: Spider chart and table of overall sector performance Source: Kepler Cheuvreux Note that the fourth industrial revolution (as it is described) is based on digitalisation and connectivity levels across an entire firm. Nescranes. These grades are separated across the six dimensions.com .0 readiness white paper and VDMA’s Industrie 4. As shown above. there are a number of sub-sectors we call arguments (15 in total). Summary of findings for the sector Below we show the aggregate result of our survey for the whole sector. and Schneider Electric. For example: 106 keplercheuvreux. we see Duerr. Capital goods We developed this methodology after reviewing Impuls’s Industrie 4. In each of the dimensions we highlight above. which provides a good basis for corporate self-appraisal. We present these results in the following radar charts for each sub-segment and discuss in more detail the performance in each of the six digitalisation dimensions. KUKA. across the coverage universe of capital goods companies.

0 is not only about improving existing products and processes through digital technologies.0 solutions.  R&D Management: We look at the development of Industrie 4. investments.0 in the company’s overall strategy. For example. To assign an overall grade to each firm in the sector. Reviewing dimensional results Dimension 1: Strategy and organisation As we stated previously. we believe the results provide a good overall picture. companies under our coverage perform well following this criterion:  Strategy: We analyse the place of Industrie 4. a Smart Products grade of 4. Overall. giving it a Strategy grade of 4.0 strategies. Smart factories will receive a weight of 3.5.0 leader. a Smart Operations grade of 3.com . etc.  Investments: We asked our analysts to estimate or state the percentage of R&D or sales directed directly to the development of Industrie 4. Chart 89: Chart of best five large and SMID companies for strategy and organisation Source: Kepler Cheuvreux 107 keplercheuvreux. This is why strategy at the company level is important and crucial to become an Industrie 4. The same method is applied to all dimensions.3. we calculate a weighted average based on the number of arguments of each dimension: Strategy will receive a weight of 3. and an Employees grade of 3. and what importance it gives it. 7. a Data- driven services grade of 2. leaving us with six dimension grades.7.7. We look more closely at the companies’ Industrie 4.5.7 based on a Strategy grade of 4. This then gives us the final grade for a firm. Capital goods Schneider Electric scored 5. While we are conscious that there is scope for bias from each of our analysts and the level of disclosure by company also varies (which limits our ability to make a strong judgement). Smart operations a weight of 4. and how they direct their R&D management. Schneider Electric received an overall grade of 3.0 technologies or applications both in the internal and external value chains. it is also about creating new business models. a Smart Factory grade of 3. 4 and 5 in Strategy and Organisation’s three arguments. Industrie 4.0. The results may also incorporate more bias toward OT (automation) or IT (cloud and edge networking). The best performers in the large and small company categories in the context of strategy and organisation are shown in the following chart.

Dimension 2: Smart factory This dimension of the survey targets the level of intelligence and connectivity of a firm’s factories and plants. and if so at what level within the firm. Chart 90: Top-ranking companies in the smart factory dimension Source: Kepler Cheuvreux 108 keplercheuvreux. and PLM. This includes ERP. Large caps scored 3. This process is likely to be evident over the next 5-10 years. we look at interconnectivity between the software solutions. The intention is reflected in the high grade achieved by this dimension. We conclude that most European capital goods companies acknowledged the need to change and are starting to implement actions across divisions and products. Capital goods Change management is driven by strategy. the three criteria we asked our analysts in relation to companies under their coverage included equipment infrastructure. Furthermore.  IT systems: In this subsection/question. During the ICT revolution over 1980- 2000. The difference in this dimension between large caps and SMIDs is very clear: on average. A key component of the smart factory we also look at is the integration and self-regulation of processes.com . data usage. Therefore. SCM) and smart products or production lines. there was a clear lag between strategic intent and implementation. and IT systems:  Equipment Infrastructure: We look at the companies’ installation of sensors and other data capturing objects as well as the overall automation of factories.2 while SMIDs were lower at 2. Machine-to-Machine (M2M) communications fit into this category. Interesting points include interconnectivity between overlying IT systems (MES. at 2. MES. we ask our analysts where their companies stand regarding the use of management software.  Data usage: We look at the amount of data used in a company’s decision- making.7. ERP.1. SCM. We also analyse if the decisions are locally made or at a more global level depending on the amount of data used at the firm. The goal is to see if the software products are being used. The placement of sensors on factory lines to analyse the distribution and situation of processes allows a company to gather more data and enables better decision-making. it is the second-highest grade.

 IT security: Cybersecurity is key.1. petrochemical. Through processes and automation combined. not only at management level but across the entire firm. While automation is usually already in place. the benefits of connectivity to the Cloud or the Edge have not yet been captured by manufacturers. This trade also works the other way round: when the companies under our coverage have access to their customers’ operations. a production line can now be fully autonomous. are often lacking on the shop floor. With a few exceptions. Smart operations also include the supplier and customer’s operations. SMIDs scored a mere 2.  Cloud usage: We looked for a company’s use of the cloud. etc. as more data will be gathered and transferred along value chains. The potential of predictive maintenance has been analysed and targeted through strategies (as seen previously) but is not always in place in factories. which creates more entry points for hackers. we see that new technologies and connectivity. 109 keplercheuvreux. While large caps logically scored better (2. We attempt to understand the companies’ IT security evolution over time and the importance it has in the company’s IT strategy. Cybersecurity is set to become a key issue in the coming years.4 on this part of the survey. enabling direct communication between factories and management. This includes the likes of alarms to prevent downtime through predictive maintenance and software systems preventing design flaws. healthcare.). Capital goods We believe that many companies in the capital goods sector are lagging compared to other sectors (autos.  Autonomous processes: Here.com . This horizontal integration enables better supply/demand management and more efficient production lines and supply chains. beyond traditional ERP systems. they will be able to adjust their production line intensity.7).  Information sharing: The insights that arise from a company’s operations will allow both customers and suppliers to have a better view and therefore prepare to adjust their demand/supply balance. we analyse the company’s production lines and identify its levels of autonomy. Cloud usage is also tested in this dimension along with the use of an IoT platform encompassing data analysis tools and management solutions mentioned previously. Our coverage scored an average of 2. Dimension 3: Smart operations Smart operations relate to the horizontal integration of digitalisation along the value chain and specifically the connectivity between supplier and customers.

Linking up to a customer’s operations is a good way to gain insight into future needs and analyse unmet needs in other fields to enable cross-selling. our capital goods coverage scored an average of 2. with large caps at 2. The importance of data in this part of the capital goods companies’ businesses is not yet apparent in the full implementation of relevant technologies. Smart products are CPS (Cyber-Physical systems). Intelligent CPSs then enable smart factories and operations through full automation and autonomy. Capital goods Chart 91: Leaders in the sphere of smart operations Source: Kepler Cheuvreux Across the capital goods sector. recording their environment and status through sensors.3. before its collection enters a larger scale. the more it will be considered intelligent. Connectivity at group level enables the collection of data to analyse the supply chain situation and take better decisions to reduce costs. physical objects equipped with ICT. Dimension 4: Smart products They are the foundation for the smart operations and smart factories.  ICT add-on functionalities: We analyse to what extent a product is connected and what functionalities it offers. improving on-time deliveries and working capital cycles.8. so that they can interact with their environment. the widespread integration of suppliers’ and customers’ information networks has not yet happened.com . It makes them uniquely identifiable. a company will first start gathering small batches of data without using it.  Data analytics: We investigate companies’ data issued by sensor-equipped products across the factory. The advantages of having access to the operations of both ends of the supply chain enable companies to have a better view on supply/demand ratios. The installation of analysis tools on premises or in the cloud is recommended to use the information collected. The digitalisation of operations linked to the cloud could therefore enable sales teams to target certain customers with new products and solutions. 110 keplercheuvreux. In this dimension. The more functionalities a CPS will offer.6 and SMIDs below the 2-point threshold at 1. In the shift towards full digitalisation.

com . As in the previous argument. To answer this question. software and services to enable customers in each market vertical to accelerate their own digitalisation journey. they are invited to share their used data/collected data ratios. While large companies score better (3.  Share of data used: To what extent is the gathered data used. we aim to determine what revenue streams can be generated from the collection and analysis of data to empower a company’s customers. in line with operations and factories. the production of smart products is obviously affected. This directly relates to predictive maintenance services and offer. and SMIDs score a low 1. we review companies’ ability to supply smart- connected products. with the lagging operations and factories to follow this trend.0). the overall average stands at 2.4. However. we grade it using a ratio: Data-driven revenues/revenues.  Share of revenues: We look at the top-line contribution of data-driven services. Dimension 5: Data-driven services With this dimension. and what is the complexity of the purposes it serves? Analysts are thus able to gauge a company’s real use of data and the appeal it has for existing or potential customers. Capital goods Chart 92: Best-performing companies in the dimension of smart products Source: Kepler Cheuvreux Within the smart product dimensions.6. OEMs are able to use the Internet of Things to operate their production lines and collect data to be used in data analysis tools. 111 keplercheuvreux. while other companies will also be able to generate new revenues from the sale of data-related services. Certain companies will have the potential to leverage their installed base with new products.

The grading of this dimension/argument is based on the level of digital qualifications of a company’s employees along with the development opportunities offered by the firm. Dimension 6: Employees Employees will be the most affected by the shift towards a digital strategy. Offering those possibilities to the different end-markets allows the development of new future potential sales to the same customers.6. In other cases. having access to this level of data from a customer gives companies a competitive edge and enables better targeted selling. robots. The low level of this grade shows its potential for development. We discuss corporate positions in the company section at the end of this report. However.com . where large caps are averaging at 2. Furthermore. on a global average of our coverage. scoring a very low 2. Their working environment will be altered and they will thus have to develop new skills and obtain new qualifications. It is critical for companies to understand the changes their employees will face through digitalisation. 112 keplercheuvreux. Capital goods Chart 93: Top corporate rankings for data-driven services Source: Kepler Cheuvreux Across the coverage.0. We believe the development of data-driven services has clear potential to be a catalyst for future top-line growth at capital goods firms in our coverage. this is where the capital goods sector hit the rocks. companies have adapted or transformed their software and products (sensors. The most advanced companies are the large ones. machines) to fit an existing IoT platform (usually Amazon AWS or Microsoft Azure). The industry leaders have used early-adopting models to exploit data services through software solutions and in-house developed IoT platforms (MindSphere from Siemens is a good example).2 and SMIDs at 1. some firms have already started offering and selling data- driven services for a variety of applications.

with large caps at 2. Accordingly. as companies in the capital goods space disclose little to no information about employee training and development in the Industrie 4.0 strategy and therefore this dimension will have to be reviewed further down the road.3. 113 keplercheuvreux.5 and SMIDs at 2. its weight was the lowest in our overall calculations. As for the uncertainty of the results of this dimension. Employee competence will be critical for the implementation of the Industrie 4. Capital goods Chart 94: Top corporate rankings for employee capability Source: Kepler Cheuvreux The Employees dimension was in the average of the overall results. we are left with the analysts’ own impressions.com .1. It is hard to determine to what extent this dimension is accurately graded.0 space. Companies across our capital goods coverage scored an average of 2.

announced future investment needs. and assessment of digitalisation capabilities. For each we provide a brief overview. The second part includes a similar review for each of those companies under coverage.0 strategy. Capital goods Company section We have split the following section into two parts.com . 114 keplercheuvreux. assessment of the IIoT and I4. The first part includes comments on those companies not covered by Kepler Cheuvreux.

with 27% top-line growth YOY in 2016. AWS has since grown into a proper business segment for the firm. data analysis and data spreading through the firm’s cloud and edge.2% of the firm’s total operating income. from bare data centre/data storage to IoT services and Analytics tools. AWS (Amazon Web Services) added USD12. users can shape data as needed. generating operating income of USD3. It is a pay-as-you-go solution enabling data collection from sensors. Amazon has been acquiring data analytics companies as well as software developers to broaden its simple storage offer. growing by 55% due to increased customer take-up.987m and net income of USD2.219m to the company’s total revenues in 2016. AWS works as an open-source platform and allows its partners and external developers to produce generic. IIoT strategy Amazon’s AWS comprises all of its cloud solutions. Among those tools. Capital goods Amazon (AWS) United States | Information Technology Renting free space has proven to be a smart strategy Amazon is a 23-year-old company that went public three years after it was founded by multi-entrepreneur Jeff Bezos. Jeff Bezos then had the idea of renting out the server space and provide services to companies located around Amazon’s data centres at a competitive cost. 115 keplercheuvreux. although this growth has been tempered somewhat by pricing changes. the company has developed AWS Analytics and more specifically Kinesis. Users can then choose which tools are more appropriate for their business or can develop a new solution. Through Kinesis. Its solutions are accessible from anywhere around the world. pre-crunched applications as well as tailor-made entities.371m. AWS now includes Cloud and Edge functionalities linked through an IoT Platform.108m or 74. Through the development of AWS and the extended R&D in machine-learning and AI assistance (Alexa). the company is set to improve the level of digitalisation among consumers and companies in an era of perpetual change. Its IoT and cloud platforms can compete with any of its peers through the open-source- based solutions. Amazon’s launched its data service in the mid-2000s when it had no idea what to do with the extra space left in its data centres once the Christmas period was over. prices are reviewed every semester or year in response to the competition. In this increasingly competitive environment. As a whole.com . Amazon has always been an extremely customer-centric company with a strong technological backbone that helps it to deliver value to its customers. It generated sales of USD135. To develop this potential goldmine. meaning that they can collect relevant and unstructured data and analyse it using predefined processes.

AWS is an open-source service and any partner of the firm can develop applications to enhance its portfolio. Greengrass was part of this development and was the first real step towards IIoT for the firm. With the Material Management software. After extensive research we discovered the industrials-specific solution from the cloud provider. at the plant level. the firm will try to make its solutions more specific for each sector including the industrials. Intelligent Worker Assistance.: when all devices are listed as part of a certain group) and the Greengrass core software is installed on the physical device. treatment and analysis. Greengrass is IoT software which facilitates the connection of a group of devices to the cloud and between them. a solutions editor. Other competitors like PTC are more focussed on sector verticals and on providing core solutions for them. AWS is developing rapidly and so are its revenues and operating margins. Real-Time Material Management. AWS already represents 75% of the company’s EBIT. and Manual Material Tracking. Competing with the likes of PTC and IBM. Batch Tracking. and Smart Quality Inspections. While Microsoft plays a neutral role. Capital goods AWS’ most important contribution to Industrie 4.0-related applications on AWS’s IoT platform. Actyx offers different software solutions to capital goods companies such as Real-Time Production Management.0 development initiatives AWS addresses the existence and development of Industrie 4. Once the group is defined in the cloud (i. If Amazon is able to forge more partnerships of this sort with specialised software editors. the communication of data and other information is possible.0 on its website but does not directly mention Greengrass. AWS will have to extend its network of partners to stay in the same league as those firms. 116 keplercheuvreux. it already allows companies to benefit from M2M communications on the shop floor as well as data collection. Actyx EOS.0 is its Greengrass solution.e. AWS also designs its own applications and software. users can also access different functionalities including Material Identification.com . This enables communications on the edge of the network and therefore directly on the users’ premises. has based all of its Industrie 4. Devices can communicate to the cloud. Through increased R&D. Advanced Work Instructions. The company’s presence at the Hannover Messe is a way to further develop its ties with the industrial sector. through the cloud with each other but also together when they are disconnected from the cloud. The latter offers different functionalities such as Standard Work Instructions. Although Greengrass and the company’s regular presence at the Hannover Messe shows its willingness to further expand its offer to the Industrials sector. Through similar partnerships. AWS and its services remain generalist in nature and target companies in all the sectors. AWS will be able to further develop its customer network. Combined with Kinesis. Industrie 4. AWS will have a strong impact on the IIoT platform market.

The company is entering two new regions this year with two new data centres located in the UK and in South Korea. Ranking of Industrie 4. Threats: Amazon will face growing competition from its fiercest Chinese competitor. SWOT analysis Strengths: With AWS. The company has unrivalled customer knowledge as it is a customer-focused company.com . Through partnerships. The technology infrastructure costs included under this item are principally allocated to AWS. 117 keplercheuvreux. the company will be able to offer a state-of-the-art solution to its industrial clients as well as to other business verticals. It is one of the best generalist IoT platform services according to Gartner research.0 arena. Through AWS Edge and Cloudfront. Most of the costs associated with AWS stem from T&C thanks to the unit’s ability to leverage the same IT infrastructure that supports both the company’s internal technology requirements and customer sales. The company has the scale to further develop with large firms in different business verticals. the company is growing its asset base (mainly data centres). Capital goods Announced future investment needs The company is constantly increasing its Research & Development spending (Technology and Content on their Income Statement) which grew from USD2bn in 2010 to USD16bn in 2016. The company has addressed the existence and the investments it makes in IIoT but does not consider this to be a central focus of AWS maintaining that growth is not necessary in this business vertical. the company provides powerful generalist solutions and services and the ongoing developments in data analytics help it to serve a large and growing pool of customers. However. the IoT platform and applications are available in all of the world’s largest cities. Weaknesses: The company faces more prepared and focused competitors in the Industrie 4. and Amazon lacks effective software for the IIoT Opportunities: AWS can grow its revenues further by carrying out more R&D related to the development of specific business applications. Technology and content accounted for 10% of sales in 2014 and 12% since 2015. IBM. Through R&D. boosting data capacities to appeal to new customers. the development of Greengrass and new partnerships could support future profit growth in this business vertical. Its extensive knowledge and strong relationships with customers will allow AWS to learn more about the sectors it serves and what the company can improve upon in terms of its services and software solutions. Its rival has been investing more and is expanding its cloud business. Microsoft and PTC have stronger equipment on hand to serve the IIoT market.0. Alibaba whose revenues doubled in 2016.0 capabilities The company still lags behind competitors in Industrie 4. Expenses should continue to grow in order to further develop and reap the full potential of AWS. Its data analysis software could also help many capital goods companies to deliver strong and intelligent treated data.

analyse and distribute data directly through the company’s switches and routers. data centres. the company is targeting customers who are shifting towards Industrie 4. Cisco operates at all levels of the communication network.com . Overall. Data Centre (7%). Its leadership in the ICT sector makes it one of the strongest enablers of Industie 4. ONE automatically updates and upgrades the network while managing and deploying licenses around the firm. ONE brings down costs and TCO (Total Cost of Ownership).0. 118 keplercheuvreux. Capital goods Cisco United States | Information Technology The leading backbone provider Cisco is the market leader in cloud. and Services (24%). and enterprise and multimedia networks. It helps make buying. Cisco then began including edge networking capabilities. The company also offers strategic. enterprise and multimedia networks and generated USD49. Japan and China) for 15%. with the top line growing by a total of 14% in the past 5 five years. the company is a market leader in communication infrastructure. Industrie 4. as it is not tied to any specific hardware and can be applied to the next generation of devices. managing. offers software that allows Java and Python-based containers to collect. Sales in the Americas account for USD29. communicate and collaborate. IIoT and IoT have been areas of focus for the company since their inception. NGN Routing (17%). The company’s business divisions are: Switching (30% of revenues). The company’s mission statement is to help companies transform how people connect. rising 31% over the last ten years representing 12. Industrie 4.8% of sales in 2016. Through its new products. operational and technical consulting services along with its products. and upgrading network and infrastructure software easier. Regarding specifically Industrie 4. The company has been able to expand internationally and now generates 40% of its sales overseas.247m in revenues and USD10.0.0 development initiatives The company has developed ONE Software. The company enables communications between objects at the shop floor level and at the edge of the network. The company’s investments in R&D have been growing at a low but stable pace.0 or planning to do so.0. IIoT strategy The company is a global leader in network and communications equipment. Service Provider Video (4%). Wireless (5%). enabling customers to integrate all of its levels from shop floor to top management through data control levels.392m. Cisco has developed communication components which help integrate IT and automation. Once the software is installed. Security (4%). a solution designed to facilitate the integration of new software into a company. Collaboration (9%).739m in net income in 2016. Over the years. data centre. among which EMEA is accountable for 25% and APJC (Asia- Pacific.

0.0 devices and accumulate larger amounts of data. Since 2014. the company is considered one of the best positioned to become a global market leader in connectivity services for Industrie 4. a customer can develop its own data collection and analysis application (using Java or Python-based containers) and keep it deployed on the router rather than in the cloud. Edge computing has also become a larger part of the company’s product and service offering. the company is strongly positioned to attain its objectives. Cisco developed Cisco Connected Factory. an all-in-one solution that includes Cisco ONE Software. an initiative to improve integration of the physical and digital worlds. along with Nokia Alcatel- Lucent. Ranking of Industrie 4. and building confidence around new and innovative approaches to security. With such a strategy. Edge computing through Cisco’s solutions offers machine data normalisation. Through various partnerships and new product lines. Through the IOx. routers and switches. the company is expected to at least partially change its business model. data centre. facilitating open forums to share and exchange real-world ideas. wireless products. This strategy would fully restructure the company’s business model but also bring it closer than ever to its customers with repeated revenue flows. The overall objective is to accelerate reliable access to Big Data and encourage innovation by developing and influencing the global standards development process for Internet and Industrial systems. The company will therefore continue its usual R&D investment levels to make sure it is capable of securing a leadership position through the ONE Software programme.0 capabilities For the time being. lessons and insights. Cisco has joined forces with AT&T. The service provides a network that is ready to integrate Industrie 4. Capital goods Furthermore. the company is showing its commitment to this segment of the market. It is a global leader in cloud. practices. The company can also add management solutions and tools to deal with manufacturing complexity and cost-cutting strategies (through partnerships with companies such as AeroScout and its asset location tools). At the moment. Through the development of new solutions and its historical investments in R&D. end-to-end security and Cisco services. an open development platform based on the company’s routers. Finally. Cisco is expected to further innovate in the field of digitalisation. the company is targeting a move towards a Product-as-a-Service (XaaS) strategy in the future. Announced future investment needs As stated above. Ericsson and Nortel. following the likes of Rolls-Royce and its jet engines.com . GE and IBM to form the Industrial Internet Consortium. customers will have access to the company’s updated products and services and the company will have a more secure revenue stream in line with the cross-sector trend towards XaaS. 119 keplercheuvreux. enterprise and multimedia network technology.

solutions. Threats: Alcatel-Lucent was building a strong position in Europe using a similar strategy.com . the company is likely to continue demonstrating its strengths in communications and networking. it has put in place a strategy to recruit as many clients as possible. Opportunities: The company should continue to develop partnerships with key players within the growing trend. while further expanding to Western European customers eager to move forward with the changes of the potential fourth industrial revolution.0 and edge networking. Its presence throughout the value chain and unique software tools make it a turnkey solution for customers.0 trend. the company is a strong leader in North America. and services to serve the Industrie 4. the company offers consulting services to help customers or prospective customers to implement an Industrie 4. Capital goods Not only has the company shown interest in the segment. 120 keplercheuvreux. Through its services branch. Weaknesses: Size means Cisco may miss smaller. The company will be competing fiercely with Alcatel-Lucent for leadership in this area. Choosing IBM as a partner was a wise choice. The company recently acquired and integrated Nokia and is looking to become a connectivity leader to bring its customers and revenue line to a new level.0 strategy. more targeted ICT solutions. SWOT analysis Strengths: The company is constantly launching new products. By continuing R&D efforts in ONE Software and continuing to develop routers to support the transition to Industrie 4. Through its knowledge and technical capacities at the Edge of the Network (Fog).

Within the Automation Solutions business. Europe (16%). The Commercial & Residential Solutions segment also has Industrie 4. Sensors. Pervasive Sensing. followed by Asia (20%). while ClosetMaid should be sold this year. IIoT strategy Thanks to the restructuring plan described above. and acquisitions). Both businesses will thrive from the emergence of connectivity.0-linked growth drivers: Refrigeration Lifecycle Services. realised in 2016. the company sees multiple market growth drivers relating to the IIoT: Lifecycle Services.5bn). Controls and Connectivity. While the Automation segment generated 62% of the group’s sales (or USD9bn). The repositioning included the complete divestment of the Network Power and the Motor & Drives/Power Generation businesses. Energy Management. Industrie 4. Emerson acquired Pentair V&C last year and expects to decrease its restructuring costs by 25-45% this year depending on its integration. cloud platforms and edge networks. The company’s market growth drivers are present in both of its businesses and it will be able to achieve growth through further investments in IIoT and greater connectivity. Hybrid and Discrete Automation. The company is undergoing a restructuring phase to rebuild a core and more focused business in order to reach a USD20bn top line.0 and connectivity trends are growing across all of Emerson’s Automation end-markets. Integrated Coordination and Control. Pipeline Management. the Middle East and Africa (7%). For this reason. an IIoT platform that harnesses the power of its applications to expand digital intelligence to the entire manufacturing enterprise and help its customers achieve Operational Certainty.com . Plantweb has adopted and developed a partnership with Microsoft’s Windows 10 IoT technology both for its intelligent Edge (Windows) and intelligent cloud (Azure). Food and Pharma Transport Solutions. Emerson launched Plantweb.522m in 2016 (down by 11% versus the previous year’s results) and USD1. and Latin America (6%). The potential size of the Automation Solutions market is nearing USD200bn. the company is setting its strategic segments around industrial internet-based segments. Sales by region are dominated by the US and Canada (51% of sales in 2016). Wireless Solutions. It aims to do this by 2021 in three steps (restructuring. 121 keplercheuvreux. repositioning. while the Commercial & Residential Solutions markets have reached USD30bn. the Commercial and Residential Segment generated 38% in 2016 (USD5.635m in net profits (- 40% YOY). Reliability and Safety. Capital goods Emerson Electric United States | Capital Goods Restructuring to digitalise Emerson is an industry leader in the Automation Solutions and Commercial and Residential solutions segments that generated sales of USD14.

IIoT enables new deployment models for operational excellence applications and expertise. Data diodes then physically disable the inbound path creating an air gap for inbound communications. companies can reach diverse. the Edge gateway converts protocols and provides secure data transfer to the IT systems. safety and optimisation. The Field gateways collect the data from the OT systems and convert it into protocols supporting unidirectional flows. the company has been able to digitalise its foundational solutions: Intelligent Field Devices. Through the use of a Logic Analytics Modelling software based on Plantweb. Security and Applications. The new solutions that transfer those skills include. Control & Safety Systems/Asset Management. Through Emerson’s products and software applications supported by edge devices and the cloud. in the same order. Capital goods The company is promoting the use of its IIoT platform and the development and integration of sensors to further analyse energy. and Services & Consulting. customers can now. and its data analysis platform.com . the cloud and its storage. reliability. Data. The company uses three main components: a Field gateway. Industrie 4. a Data diode. 122 keplercheuvreux.0. rich data sets. have full access to the capacities of Industrie 4.0 development initiatives Focusing on the Automation solutions for Emerson. Through Plantweb. through just one firm. Chart 95: Plantweb devices and software map Source: Emerson Investors Day 2017 Presentation The Secure First Mile is an in-house developed approach to securely connect OT and IT Systems. an Edge gateway. from bottom to top. Finally.

0 capabilities Emerson has completely rebalanced its portfolio. Plantweb Advisor offers robust enterprise software with statistical analysis for energy. or 2% of revenues. steam traps. corrosion and valves with minimal business integration and low-barrier ROI. it offers asset-specific apps and analysis tools that enable better decision making and operational efficiency. Ranking of Industrie 4. Announced future investment needs The company is following up on its restructuring plan. Capital goods Chart 96: Secure First Mile Source: Emerson Investors Day 2017 presentation Emerson’s suite of applications is set on the cloud. With the proceeds of divestments. which could lead to further investments. Plantweb Insight enables the use of analytics for pumps. It now serves two main business streams that are both impacted by the digitalisation of the value chain. and offer further collaboration and services. The data is collected on premise and then transferred to Emerson’s Monitoring centre. Through Plantweb Insight and Plantweb Advisor.com . past and upcoming. where capex reached USD447m (3% of revenues). On the other hand. Research and Development costs amounted to USD320m in 2016. which can then determine if maintenance is necessary or not. the company plans to make further acquisitions. Emerson’s connected services allow both vertical and horizontal communications. Further developments are to be expected on its IIoT platform to fit new customers and further digitalisation needs. health and performance with a potential scalability to reach thousands of assets across facilities. The company’s portfolio of products is being revamped and actualised when necessary. refocussing its business around core activities and its presence along the vertical value chain of the two segments we previously mentioned. in line with the new strategy. Through a 123 keplercheuvreux.

we see how Emerson has been able to change in order to resolve the key problems of the fourth industrial revolution. Weaknesses: Emerson is in the middle of a restructuring programme and it announced its IIoT platform late to the market. Threats: Competitors such as Honeywell. Capital goods concentrated focus on the Automation solutions segment. 124 keplercheuvreux. Customer acquisition could become expensive. Opportunities: Further development of the applications along with smart acquisitions to fill the gaps in its two businesses will allow Emerson to thrive and remain an industry leader.com . Furthermore. which may have cost the company some key accounts. and GE have also equipped themselves with strong IoT platforms and digitalisation solutions for the entire value chain. SWOT analysis Strengths: Emerson deployed its own IoT platform responding to its customers’ issues with a tailor-made suite of applications. the solutions are not fully developed yet. Siemens.

230m in 2016. the company was able to foresee the need to develop IIoT solutions to optimise the use of the edge network and introduce machine-to-machine (M2M) communications. which generated revenues of EUR4.0” world or meet basic requirements today. Through partnerships with Cisco. The company offers the widest range of robots in the world and specialises in collaborative robots. The ultimate objective for its clients according to the group is to rapidly boost productivity while saving on energy and material costs. To complement its human- to-machine interface (HMI). storage systems and equipment to network with each other to exchange information while constantly adapting to production requirements. the company has been able to develop its FIELD (FANUC Intelligent Edge Link and Drive) system and project “ZDT”: 125 keplercheuvreux. meaning they are collaborative robots requiring humans and robots to operate. Japan accounts for 19% of sales the rest of Asia for 42%. The Robomachine division comprises heavier machinery with three ranges of products: the Robodrill (small machining centre). All of these businesses are constantly developing to improve their capacities and efficiency. which are the widest range of robots in the world. America for 22% and Europe for 15% of the group’s revenues. Capital goods Fanuc Japan | Capital Goods Japanese robot specialist undergoing changes FANUC is a 59-year-old Japanese firm. The company is a global leader in industrial automation and has installed 3. which is a global market leader in the development of Computer Numerical Control (CNC) equipment (27% of sales). Roboshots (electric injection moulding machines). These robots are also considered to be “cobots”.0 development initiatives FANUC has invested in R&D and partnerships to develop its offering around its core products.800m and profits of EUR1. Its revenues have grown by 40% over the last five years. The Robot segment includes the company’s robot arms.6m CNC systems worldwide. and Robocuts (wire- cut electric discharge machines). the company has successfully developed two other business segments: Robot (30% of sales) and Robomachine (29% of sales). Through those three business divisions. Industrie 4.0. It its view.com . IIoT strategy FANUC is well prepared for Industrie 4. 60% of the world’s precision machine tools use FANUC’s CNC. FANUC has developed solutions that can be integrated into an “Industrie 4. Rockwell and Preferred Networks. the main goal is to allow machines. It has added sensors to its robots and has prepared for the advent of vision in robotics for the past 25 years.

FANUC has also developed flexible software modules connected to sensors based on “intelligent input” for the robot. The focus is on adding IIoT capacities to its entire line of products and solutions to allow companies to work more on the edge of the network and cut costs. peripheral devices and sensors in an effort to deliver analytics that optimise manufacturing production. To provide further support to its customers. Both technologies will be crucial to optimise productivity in the automotive industry. Capital goods  FIELD connects CNCs. FANUC’s total commitment to Preferred Networks is JPY900m (or EUR6. allowing its partners and customers to develop tailor-made applications on it with open source tools.72m. the company was an early mover. This partnership’s second project is to increase uptime for connected machines. robots. machines and CNCs.0 capabilities Compared to its local peers and international competitors (KUKA and European peers). “dual safety check” and “learning vibration control” provide additional data to the client but also to the machine. Through a capital tie-up in September 2015. as of September 2015) for a 6% share of the company’s share capital. The system will proactively detect any issue and send out an alert to prevent downtime. nine laboratories have opened their doors to serve the companies’ three business segments and the future models or technologies the company plans to offer to businesses in the coming years. Ranking of Industrie 4.com . FANUC has also developed operations management software on its own: FANUC MT-LINKi. to ease the integration of its suite of products. The partnership will focus on machine learning and deep learning technologies which intelligently process big data at the edge of the network (fogging). in real time and enable a high level of automation at manufacturing sites such as machine tools and robotics. which connects its equipment to meet the growing demand for industrial IoT connectivity. The final aim is to create machine tools and robotics that are capable of self-learning and cooperation and self-detection of deficiencies and self-repair. the company recently developed a “servo” and control system called OneCommon. The partnership with Preferred Networks will also target potential innovation through “deep learning”. Finally. Maintenance can then address the issue during a planned outage without impacting production.  Project “ZDT” (Zero Downtime) relies on CNC connectivity to allow real- time data flows through the network. Connected to the upper host system (such as a manufacturing execution system or MES) and to the PLC. It has already carried out the digitalisation of its entire value chain and has consistently developed better solutions for its 126 keplercheuvreux. Announced future investment needs FANUC has invested in several laboratories in the recent years to further develop its technological leadership through R&D. it enables edge networking management and optimises data flows into the Cloud. FIELD acts as an Industrial App Store making it the most open technology the company has ever produced. In addition. which can learn from previous events. Over the years.

Strong partnerships with leaders in their sectors and large customer base (including GM). Involved in the use and development of sensors since the 1990s. allowing companies to communicate better with their suppliers and customers and ensuring greater efficiency. Capital goods customers. With larger investment pools and cloud computing excellence. punctuality and larger productivity gains for its clients and the company itself. This was an important stepping stone for the company when it decided to open up to partnerships and allow external developers to access its coding platform and applications. Opportunities: Integrating its IIoT solutions into its products to create new revenue streams and safeguard its large customer base.com . Its leadership in the sector has prompted competitors to catch up such as Mitsubishi Electric and Yaskawa with some success.0 and the Industrial IoT. SWOT analysis Strengths: Market leader in CNCs and strong implementation of its robots. Weaknesses: The company’s focused technology and concentration in hardware limits its development and revenue growth opportunities in comprehensive factory solutions.0 both in terms of its internal processes and the use of IoT platforms to control its value chain more precisely with real-time data. the development of solutions to connect its products together as well as improve HMIs. The integration of the horizontal value chain seemed obvious. the company uses visual sensors to improve its robots’ precision and overall capacities. they are developing smart factory solutions and could pose a threat to installed machine and CNC providers. Cisco. Its historical performance and long-term vision makes it a leader in the development of Industrie 4. We see FANUC as one of the best-positioned Japanese companies to benefit from Industrie 4. 127 keplercheuvreux. and Preferred Networks to develop similar systems through partnerships. Its FIELD system has inspired US giants and Japanese peers such as Rockwell Automation. Threats: Large software developers and IoT platform providers could capture some of its existing M2M communications business. Its extensive knowledge of CNCs and connectivity in general has helped the company embrace the shift towards wireless connections and the use of IoT on the shop floor. tools and services.

The company says it has invested nearly USD5bn since 2011 in digital and the cloud. It has rapidly increased in prominence. GE Digital generated revenues of USD4bn in 2016. will be central to expansion. Capital goods General Electric United States | Capital Goods The IIoT service play GE’s digital rollout began on a small scale. and the company is set to book USD5bn of business this year. If its targets are realised. 128 keplercheuvreux. As one of the leading US industrials. GE is well- positioned to leverage on its huge installed base and breadth of customer relations to build one of the leading industrial operating platforms for apps that enhance the efficiency of operating assets. GE’s solution is Predix.based operating system. Ambitious 2020 strategy to realign the group The outgoing CEO’s ambition to be become a top-ten US software company by 2020 looks within reach if growth of digital capabilities is sustained at current rates. a large set step forwards on the way to realising its ambition of becoming a top-ten software company by 2020. focused on predictive maintenance in 2011. utilising using deep strong industrial customer ties and vertical knowledge. If the group’s high targets are reached. and wind turbines. compressors. Predix operating platform taking a leadership position Multiple IoT operating platforms are being offered to industrial customers. which differentiate it from traditional tech companies. Predix. GE set to become a leading IIoT provider In contrast to tech competitors. GE is uniquely positioned to leverage its 400+ factories and huge installed base of equipment as proof-of-concept points. Its open structure. Expansion of software offers and digital services is expected to drive 25% growth in digital revenues in 2017. GE is looking to treble business by 2020 to revenues of USD15bn. and its performance was broken out separately. GE is set to become “the” IIoT leader. the group’s open web-based industrial operating system. GE Digital growing rapidly with proven benefits From almost a standing start in 2011. Predix. By demonstrating its ability to realise efficiency gains in target industries. rapidly growing network of partners. including jet engines.com . This sets the group on course to meet its 2020 target of achieving digital revenues of USD15bn by 2020. and GE’s ability to test the system internally to provide proof-points to customers should help GE achieve a leadership position.

fulfilment and product management and the construction of a strong cloud-based open operating system known as Predix. where data services.6bn. the GE Digital business unit was split out from the group’s reporting GE Digital unit broken structure. a business by 25% in 2017 as seen growing from USD300m to USD1bn revenues between 2016 and 2020. Moreover.com . Energy Connections. adoption accelerates GE Digital is focused on software design. The rollout has centred on the internal application of solutions and subsequent marketing to customers. GE targets its digital services and software revenues to 129 keplercheuvreux. Looking at FY 2016. began in 2011. which today is a cloud-based open operating system. mainly linked to the service business. In 2016. driven by expansion within Power. Data from industrial processes is becoming more valuable. and we estimate that 70% of group profits were generated from the sale of will be critical to future success services.000 software developers and engineers. The unit’s organic expansion from San Ramon California. up 16%. GE estimates that data collection from its and others’ machines will increase 100x by 2020. Expansion in digital began in earnest in 2011. mainly applied to aviation and power applications. During rapid growth the early phase of build-out for GE’s digital capabilities. Revenues for the business area include internal software. The strategy at GE is both externally and internally focused. Lighting & Oil & Gas. leveraging the importance of data analytics. and the control and correct application of that data is likely to create more value than the sale of equipment in the future. GE’s ambition to be a top-ten software company by 2020 makes perfect sense. set for over 1. Orders in 2016 reached USD4bn. Capital goods IIoT strategy The importance of developing GE’s digital strategy is clear. USD4bn to build its analytics software and machine 2016 expected to rise learning capability and a further USD2bn to build additive manufacturing.400 of the 2. GE stated USD4bn orders in the company invested c. interpretation and utilisation to enhance the operating efficiency of the installed asset base are critical to the long-term success of GE’s ability to continue to harvest value from the installed base of its complex machinery. when William Ruh was hired from Rapid growth of Cisco to head GE’s industrial internet strategy. the focus was on predictive maintenance. At the end of Q2 2017. In 2016. In 2016. In 2016. Digital revenues were aggregated at USD3. aimed at combining GE’s physical digital started in assets with the digital world. and after a multi-billion investment. For 2017. GE Digital has evolved as a core centre of digital excellence and its centrepiece offer is Predix. 46% of group revenues were derived from services. up 22%. but this has expanded into other areas across the GE portfolio. which provides the fuel for data analytics and digital service business. hardware and software solutions (akin to digital services at Siemens). We estimate 70% 74% of GE’s order backlog stemmed from services. but broken out for visibility. which houses out in 2016. Revenues are generated within GE’s operating businesses and consolidated in the divisional results. while 50% of the order intake industrial profits from was from services. With this prospect in mind. Data capture. the group spent USD400m internally to enhance operations and claims USD700m of productivity benefits were realised. USD1bn of productivity gains are targeted internally. GE formed GE Digital. By late 2013 2015. From USD4bn of orders in 2016.

control and optimisation of industrial assets and fleets should targeted by 2020 increasingly enable GE to shift its sales approach from the classical equipment + spares package towards selling business outcomes for customers that includes uptime. Diversification into other end-market looking for digital verticals accelerated in 2013. this ability to capture huge volumes of data. and 3) we see GE Digital selling software and services into other industrial settings. but for industrial end markets. In turn. is set to change the nature of equipment sales and increase the amount of physical “product as a service” business. the expansion has been rapid. auto production lines or consumer goods inventories. and GE’s urgency seems partly prompted by the threat solutions to optimise of US tech companies seeking to leverage their internet connectivity into the use of industrial assets industrial markets. 2) selling Predix applications into the installed base across the power. Widening the adoption of Predix across the industrial sector is being encouraged by expanding the number of external partners and independent app developers that can operate in the system with the aim of improving the efficiency of industrial assets in areas such as gas turbines. with the goal of reaching USD1bn of productivity by 2020. Predix platform at heart of strategy Predix is an open cloud-based software platform targeted at collection and analysis Predix aims to be of data from industrial machines. against an industrial internet market that some USD4bn orders in consultants have placed at USD225bn by 2020. 2016 and digital revenues of USD15bn Additional monitoring. GE Digital is being rolled out in three phases: 1) internally focused improvements. transport. wind turbines. availability and productivity gains. including commercial and residential building systems. 130 keplercheuvreux. The open nature of the platform broadens the appeal of the platform as much as possible.com . healthcare and other industrial systems (aviation already well advanced). which can be interpreted for valuable customer insights. in this regard. Capital goods reach USD15bn by 2020. From its origins as a brand of software used to “the” operating system for industrial service GE’s equipment. and oil & gas processing plants. GE Digital is a key part of the “Brilliant Factory” productivity programme across GE’s 400+ plants. GE’s hiring of leading Silicon Valley players sees Predix being positioned as an operating system similar to Apple’s iOS . focused on the aviation segment supporting GE’s aero customers when engines.

GE stated that there were already 670 “digital twins” created on the platform and 250 software applications. while Tata Consultancy already has over 50 Predix-based apps. 131 keplercheuvreux. and utilities. targeting aircraft makers. hospitals and utilities. software resellers. By the end of 2016. Capital goods Chart 97: GE Predix platform placed at the centre of GE’s IIoT strategy Source: Kepler Cheuvreux We estimate that GE has spent over USD1bn on developing the platform. Bringing customers to the platform is also being driven by Predix conferences (1. oil companies. The Predix ecosystem now has over 400 partners and 22.200 developers in Las Vegas) and leverage of the installed base (a third of energy is built on GE machines). and technical partners. and this has been further enhanced through acquisitions that incorporate additional technologies and capabilities.com . management’s target is to see Predix used by over 100 airlines by the end of 2017. rail operators. often through buyouts from GE’s own venture capital network. For example. with the 25% growth driven by acquisitions and organic expansion. including system integrators. Microsoft is including Predix as a key platform on Azure. GE states that Predix-powered software orders reached USD4bn in 2016 and are seen rising to over USD5bn during 2017. alongside hospitals.000 developers.

acquiring small companies that complement the Digital offer.0 concepts requires a more compete industrial automation and control product line- up and capability. There are already over 250 apps developed on the platform to enhance asset performance. manufacturing. through specific apps. GE has been one of the most active venture capital funds in the IoT space over the past two years. can collect.0 GE’s investment is directed towards building a very strong and comprehensive secure internet-based operating platform. food & beverage. 132 keplercheuvreux. and recent acquisitions have been from the pool of companies where GE has made previous investments. GE sees the digitalisation of field services as the cornerstone of a successful digital strategy. The entire Predix system is able to provide the connection of physical assets at the edge of a network. the fulfilment of efforts to deliver a strategy centred on Industrie 4. and analyse data to formulate methods of enhancing the operating performance of industrial assets across a range of end markets including oil & gas. since then GE has been more active. Asset performance management is the greatest area of expertise. Capital goods GE sells the Predix platform as offering greater security than onsite datacentres and able to support the creation of “digital twins” (a conceptual representation of an operating asset that uses a digital thread to monitor performance against a baseline level of expected performance).0. and GE’s participation in the US-based Industrial Internet on building capabilities linked to Consortium. aviation and automotive. rather than Industrie 4. collection and modelling of data. IIoT and Industrie 4. IIoT conceptions leaves GE’s focus on IIoT concepts rather than on Industrie 4. chemical. the expansion of Predix as an open GE is clearly focused operating platform. In contrast. which is more optimally suited for competitors including Rockwell Automation and Siemens. which. coupled with GE’s focus on the energy. Announced future investment needs GE claims to have invested nearly USD5bn to date in developing GE Digital capabilities. store. The Predix offer incorporates edge devices that run algorithms and analyse data and the ability to work within the cloud or onsite enterprise systems. many of which are used in the Brilliant Factory programme. healthcare. allowing for the creation of over 18 showcase sites by the end of 2017. construction of analytics tools and the visualisation of outcomes all within a secure environment. transport. power & utilities. While this was largely organic up to 2015.0 development initiatives A combination of a focus on service activities. aviation and oil & gas sectors.com . In fact.

Threats: Beyond traditional competitors such as Rockwell Automation or Siemens. achieve the goal of becoming a top-ten software company. lower value added. healthcare and energy equipment markets. which are also looking to leverage capabilities to achieve growth in the industrial internet service market. Opportunities: With a new incoming CEO. Success in the expansion of the digital business will require a sustained shift in mindset throughout management. and further streamline the mature. With decades of long-term relations with global industrial customers. 133 keplercheuvreux. The group has traditionally been a supplier of large complex highly engineering equipment and associated spares.com . GE is in one of the best positions to leverage these relations and specific industry vertical knowledge to expand the digital product and service offer. and GE may also see an escalation of competitive threats from smaller start-up companies. Capital goods SWOT analysis Strengths: GE’s global scale. GE could accelerate the group’s move towards even greater volumes of software and service business. to align itself with new business models. aviation. installed base and capital strength can be leveraged to drive growth of the digital offer across the areas of domain strength such as the oil & gas. the group may see increased competitive pressure from tech giants such as Intel and IBM. Weaknesses: A lack of cultural agility represents one of the greatest challenges for GE. industrial business. We are seeing an increase in the amount of venture capital finance being directed toward IoT platforms. sales and production.

and Thales. Safety and Productivity solutions are engaged in providing products. petrochemicals and renewable fuels for the petroleum refining. and Zebra Technologies. The aerospace business supplies products. Performance Materials and Technologies (24%). Honeywell competes in this segment alongside 3M. Kion Group. smart and secure collaboration. Its main competitors are Borg-Warner. aircraft operators. and Schneider Electric. GE. It operates primarily in the US (46% of revenues). process technologies and automation solutions. Its main competitors include Albemarle. BASF. The company operates in four business segments: Aerospace (38% of revenues in 2016). Garmin. Dupont. the company competes mainly with Emerson Electric. and asset performance. In this segment. workplace safety. airlines. and energy use and enables commercial building owners and occupants to ensure that their facilities are safe and productive. software. software and services for aircraft and vehicles that it sells to OEMs and other customers in a range of markets.com . the Americas ex-US (8%). gas processing and other industries. and Safety and Productivity Solutions (12%).8bn in Net Income in 2016. and Emerson. jet fuel. analytics. defence and space contractors and automotive and truck manufacturers. Europe (25%). and connected solutions to customers that manage productivity. including air freight. Dow. It is also ready to deploy technology across all elements of the industrial internet: smart and connected assets and devices. Cote led the implementation of key processes and unified the business segments’ culture. Honeywell focuses on optimising users’ existing automation equipment. The Home and Building Technologies segment provides products. In terms of Industrie 4.3bn in revenues and USD4. TE Connectivity. The company has changed completely since 2002 and David Cote’s appointment as chairman and CEO. data management and onsite control. Performance and Material Technologies aid in the development and manufacturing of materials. Capital goods Honeywell United States | Industrial Conglomerate Looking for new revenue streams Honeywell is a global industrial player that generated USD39. diesel. China (5%). security. Middle East (4%) and India (2%).0 and the industrial internet. Home and Building Technologies (27%). The products include catalysts and adsorbents. equipment and consulting services that enable customers to produce petrol. Rockwell Collins. Johnson Controls. 134 keplercheuvreux. Siemens. software solutions and technologies that help homeowners to remain connected and in control of their comfort.

As seen in the technology section of this report. It expects 77% of growth from breakthrough initiatives involving embedded. In the aerospace segment. allowing real-time information about the location and condition of freight while in transit. Capital goods IIoT strategy The company has achieved its digitalisation through the inclusion of software and smart processes throughout its value chain. mobility and cloud-based software. safer as well as more efficient. The company has developed new partnerships and obtained new contracts in Q2. networking. Honeywell spent more than USD6bn on software-focused acquisitions in 2015. Through all of its business segments. Furthermore. Through the development of predictive maintenance and remote monitoring. Its main objective now is to bring connectivity to its clients. and reliable. Honeywell is already able to connect its engines and products to its aftermarket services. including HOS Gold (Honeywell Operating System Gold) and HUE (Honeywell User Experience). Honeywell underlines the importance of connectivity and digitalisation.0 development initiatives Honeywell participates each year in the Hannover Messe. 135 keplercheuvreux. the edge and the existing communications between both environments.com . it sold its connected maintenance system to Cathay Pacific. Predictive maintenance allows the company to plan repairs with clients. It implements solutions in various areas such as connected workers. enabling lower maintenance and downtime costs for its customer.0 was first clearly defined. In the safety and productivity solutions business. By securing the cloud. The company has developed IIoT-specific solutions. The company aims to offer its customers productivity gains and reposition them for growth. Honeywell underlined the importance of its cybersecurity solutions at the fair in 2016. The group showcased its broad portfolio of cyber-secure automation software and hardware designed to make industry smarter. productive. Both solutions help Honeywell to create and deploy leaner processes for its customers to make their experience increasingly seamless. it introduced connected freight to the public. home of industrial innovation and the place where the term Industrie 4. there is less risk of hacking and downtime is therefore avoided. both enabling the company to rapidly develop and deploy cyber-secure and digitally enabled solutions. connected buildings and IIoT. The company offers fast and seamless processes to companies along with energy savings and predictive maintenance. Honeywell has acquired Nextnine to further develop its cybersecurity activities. cybersecurity is key to companies’ development of IoT. Industrie 4.

Its R&D efforts are greater than its peers’. It has digitalised its lines and promoted digitalisation among its customers. Among a myriad of other services. This includes customer-sponsored R&D investments. Ranking of Industrie 4. Honeywell has developed its own IIoT platform.com . Further promotion is to be expected as well as further innovation and development of existing solutions. analysis. R&D costs represent 5% of sales annually: USD2. reducing the risk of critical incidents and downtime). cloud-based interface to monitor performance vs. USD1. All of Honeywell’s connected services can be linked to the customer’s IIoT platform to develop leaner operations. the platform offers real-time analytics (collection. and translation of data). and most importantly.0 capabilities Honeywell is one of the better positioned companies in the industrials sector. it has been able to address the emergence of IoT with a 136 keplercheuvreux. PLM (roadmap with predictable costs to keep applicable systems current and IT-compliant). dynamic tasking (prioritisation of maintenance tasks to mitigate downtime risks and improve operational efficiencies).143m in 2016. Announced future investment needs The company has been investing heavily to develop its software and platform offer in recent years.856m in 2015 and USD1. KPIs). coming mainly from the US government. With its wealth of experience. Sentience is at the core of Honeywell’s latest offerings and delivers secure and robust big data capabilities for all of the company’s solutions. a performance dashboard and reports (easy-to-use.892m in 2014. and continuous service improvement (systematic reviews conducted to promote the prevention and eradication of problems. Capital goods Chart 98: Sentience IIOT platform structure Source: Honeywell Finally.

detailed and comprehensible information is hard to come by. This focus on cybersecurity and the recent development of its own IoT platform make Honeywell a strong competitor in the IIoT space. SWOT analysis Strengths: The company offers its own IIoT platform. only Siemens and GE do this within the industrials sector to date). 137 keplercheuvreux. optimise maintenance and realise productivity gains. and platforms in some cases. helping them to prevent downtime. The connectivity it brings to its products and services are beneficial for clients. software products. which is still rare (off the top of our head. Weaknesses: At an investor level. Security and productivity levels have always been central to the company’s strategy and across its segments.com . making it hard to understand the company’s position on the subject. Keeping development at its current level and not furthering it is a risk. Capital goods focus on security. Opportunities: Further development of applications and the potential transformation of the sector towards Platform-as-a-Service (PaaS) and Product-as- a-Service (XaaS) are interesting directions Honeywell can take to further develop and digitalise its business. Threats: Competitors are gearing up to develop their own applications. Sentience. to the market.

down 10% YOY. Technology Services & Cloud Platforms (44%). revenues have declined as Watson is having a hard time making a place for itself.872m. IBM Systems has been struggling recently. and another USD6bn on acquisitions in 2016. an AI platform that won the Jeopardy! game against two champions in 2011. On the other hand. and the company thinks it will reach USD40bn within the next year. The company built its revenue stream around four main business segments: Cogntive Solutions (23% of revenues). As a whole. and Systems (10%). The firm is going through a lot of changes. IIoT strategy Through Watson’s IoT platform. followed by EMEA (31%) and Asia-Pacific (22%). The development of those applications is accomplished by the company’s network of partners. the company spent USD6bn on R&D. with sales down 10% YOY. Global Business Services (21%). including industrials and healthcare. Watson is due to reach 1bn users (direct and indirect) in 2017. The firm says that Watson IoT has more than 6. trying to set its AI provider as a strong leader in its field. IBM quickly turned Watson into an umbrella brand that includes a myriad of applications for different sectors. Watson AI accomplished one of the greatest challenges of artificial intelligence: making sense of language.919m in revenues in 2016 down 2% YoY and a net profit of USD11. The company has been struggling in recent years to maintain revenue levels. IBM offers key applications for the industrial sector. 138 keplercheuvreux. In 2016. Since then. the company’s new businesses (including cloud platforms and AIs) generated sales of USD33bn. The firm has still not revealed the financials of the Watson business. With its dramatic win on Jeopardy!. but claims that it is growing. The company’s largest market remains the Americas (47% of revenues). USD4bn on capex. After this. IBM has also been signing partnership agreements with companies across various sectors. AI services. Watson has expanded to include IoT platforms.000+ developers working on the unit. Over the past 21 quarters. predictive maintenance and the development of applications related to those environments.com . Capital goods IBM United States | Information Technology An endangered heavyweight IBM is an IT player that emerged as an industry leader at the beginning of the computer era. The firm generated USD79.000 clients and 50. The company has based its future growth and strategy on IBM Watson. Most of the acquisitions were designed to expand Watson’s portfolio.

Australia. better productivity on the manufacturing line. a European carmaker was able to increase its overall productivity by 25% through cognitive operations that enabled an increased yield from manufacturing operations and processes. increase OEE. machine operators will obtain greater value from production assets and processes. solutions. concepts. In the meantime. IBM has long been a digital enabler for its clients. Clearly. process and product quality. and platforms. it seems that Watson is an umbrella for multiple ideas. and fast equipment repairs using predictive maintenance. With analytics and cognitive capabilities to help improve quality. we know that its IoT platform is already being used by large corporate clients and its applications are functional and efficient.com . Europe. Watson IoT also optimises production resources. automate inspections. has been focusing a lot on Watson lately. As stated above. Through IBM’s systems. China. has been able to access and develop 13 private data centres connected to IBM’s Milan data centre to collect and analyse data as well as benefit from IBM’s cloud solutions. For example. Finally. and reduced energy consumption. data collection and analysis is translated into a comprehensive and minable corpus of information leading to new patterns of data enabling remote monitoring and predictive maintenance. 139 keplercheuvreux. she addresses the brand’s potential and specific applications. it looks from the outside like she has put all her eggs in one basket. Virginia Rometty. However. reduce warranty costs and optimise maintenance schedules and resources. Capital goods IBM’s CEO. With IBM IoT for manufacturing. Recent resultsat the firm include a 34% decrease in downtime for a global car manufacturer through the prevention of production delays and improvement in line performance. Fincantieri. the Watson community is growing as are developers trying to improve it. Similarly. sold to Lenovo. Industrie 4. software. However. one of our capital goods companies. Watson is still at the developmental stage. The company’s data centres are numerous and located in key regions such as Brazil. The company is focusing on software and wants to reach as far as it can with Watson’s potential. India. This reduced energy and resource costs by 8% at a manufacturing facility through improved worker safety and workforce management. increased worker productivity and expertise. Its data centre and cloud capabilities make it a strong candidate to further develop this skill through the IloT. although some of its applications are already state-of-the-art technologies. operations and maitenance. less equipment downtime and better process efficiency. and obviously the US. and expedite service calls and repairs reducing the warranty costs. Through her shareholder letters. This mainly constitutes an after-market service for IBM’s clients and an added service for customers.0 development initiatives It is hard from the outside to clearly see where the Watson business is heading. The company has also divested most of its hardware businesses including its famous ThinkPad computer brand. companies will be able to improve asset reliability.

and it is not clear to outsiders how it can be used. Without information on Watson’s financial performance except statements from the company’s management that it is growing. Watson has already built a strong community around itself and offers the largest array of applications we have seen.0 capabilities With a better structure. Ranking of Industrie 4. Capital goods Watson IoT and IBM are already serving supporting Industrie 4. IBM has always been able to adapt its flagship solutions to all sectors. From bartender applications to healthcare solutions. we are certain that Watson can become a strong player. Microsoft.0 by helping customers increase productivity and decrease costs. Opportunities: A better structure will offer the company’s salesforce a strong product to offer to its existing clients. Threats: SAP. but we also see the company investing in better marketing. SWOT analysis Strengths: The company understands its end-markets’ expectations and businesses. With better structuring. the company can offer a better and more targeted product that will not only serve the industrial sector but a whole range of industries. and a clear direction. Announced future investment needs The company has acquired and developed a plethora of solutions under Watson.com . the array of possibilities is vast. We therefore see the firm trying to further develop solutions. we believe that IBM is having a hard time generating margins that are aligned with its expectations. The firm has had 21 straight disappointing quarters and has still not reported Watson’s financial performance. making objects smarter and more connected. Amazon and PTC (more Industrials sector specific) are all equipped to address growing demand for IoT and IoT-related solutions. Weaknesses: Watson has a poor structure. What we see lacking here is probably an impact on its customers’ top line. IBM has a strong brand famous for the excellence of its solutions. 140 keplercheuvreux.

Strategically. and more specifically customers to be constantly aware of robot movements. Further innovations are expected in the electronics. e- commerce/retail. In the energy business. The company has always pursued innovation. Capex accounted for 3% of the company’s sales in 2016 (EUR100m) and R&D costs reached EUR127m in 2016. KUKA is investing in research to achieve operational optimisation through the use of larger data volumes. It has formed key 141 keplercheuvreux. IIoT strategy KUKA is a firm believer that Industrie 4. a move that fits with the government’s Made in China 2025 strategy. aerospace.com .0 pioneer The company has identified fundamental changes in the production line through the impact of digitalisation. the company has decided to partner with numerous firms to spread out its R&D expenses and keep them in line with previous years. although the market is still sceptical about the potential benefits of this trend. Growth expected in every business segment KUKA is a major automotive industry automation provider which also serves other businesses. as well as in Europe.0 needs. Additional R&D spending announced after Midea acquisition KUKA is expected to increase its R&D investments to continue to revamp and develop its existing products and upcoming software and hardware solutions to meet Industrie 4. Industrie 4. and healthcare segments. The firm has partnered with many IT companies to offer digital capacities to its customers. consumer goods. maintenance requirements and other metrics at any time with real-time data. It is seen as a pioneer of Industrie 4. thereby broadening its market appeal. or 4% of KUKA’s sales last year. producing its first arm robot in 1973.0 capabilities as well as its connectivity and cloud-access capacities. It was acquired by Midea in 2016. This is at the centre of its strategy.0 is a revolution for the manufacturing environment.0 in its home country. Capital goods KUKA Germany | Capital Goods Best-in-class robotics provider KUKA is one of the world’s leading suppliers of robotics and plant manufacturing and system technology. SAP and in Nebbiolo technologies) to develop its Industrie 4. It has therefore fully digitalised its line of products and itself. Germany. The introduction of data analysis in the metal transformation industry is crucial and enables unrivalled precision levels. thus enabling suppliers. Numerous partnerships in different applications KUKA has partnered and invested with Salesforce. Robot-based automation along with data analysis and cooperative networking is a key investment today for the industrial sector and KUKA is well-positioned to serve this growing need. failures.

Latency times will be further reduced within the cloud and the edge. Huawei. As a whole. It will pave the way for the development and integration of 5G technology to manufacturing robots for swifter and leaner communication. The Huawei-KUKA partnership is focused on R&D investment. The former will allow for optimal adjustments to its existing and future customers’ requirements and KUKA will support them throughout their digital transformation. Nebbiolo is focused on the development of Fogging (which refers to the edge of the network). these partnerships and others will contribute to KUKA’s leading position in the robotics and systems industries. Nebbiolo enables companies to connect all smart objects to the cloud and then control them within the cloud through their warehouse management system and their fleet manager system. The companies will also work together on the deployment of Huawei’s infrastructure-as-a-service (IaaS) solutions to further develop cloud- connected smart manufacturing services. BEET.com . The company’s partnership with SAP started at the Hannover Messe in 2017 when SAO integrated KUKA’s robots in its digital manufacturing showcase. coupled with its Industrie 4. Finally. Furthermore. the company also enables the transmission of real-time data from the robots to the ERP. KUKA has signed a VAR (value added reseller) agreement with BEET to leverage its IoT technology as another tool in its digital ecosystem. Each partnership takes a different angle to tackle the issues related to the industrial internet. will put the firm in a strong position to win contracts in smart manufacturing.0 platform provided by the start-up company of the same name. The connectivity level of the firm’s robots allows it to produce entirely automated production lines. The next step to add further value 142 keplercheuvreux. KUKA and Huawei will jointly set up an intuitive robot programming team to explore the immediate potential of deep learning in manufacturing environments. the partnership will make a significant contribution to the integration of the top floor and shop floor in manufacturing. The partnership will be focused mainly on the construction of mid-sized machines. and Nebbiolo Technologies. SAP’s technology components and business applications will supplement KUKA’s Connyun Industrie 4. Its automation levels. BEET enables overall equipment efficiency (OEE). end-to-end management enables distributed networking and computing systems assets.0 dynamics and connectivity. This is supported by a rich software stack on each CPU subsystem which allows for fast and secure solution deployment. KUKA complements SAP’s Leonardo technology through its expertise in intelligent automation. With the use of flexible. modular and high performance gateways. Through the seamless integration of automation solutions from KUKA and solutions from the Leonardo IoT platform and SAP connected manufacturing software. In addition. software and applications. ENVISION Technology (BEET-developed) collects. processes and presents down to the motion of each device of a production line. BEET Technology is a predictive maintenance enabler. Capital goods partnerships with SAP.

metal industry. e-commerce/retail. This allows Midea to promote new robotics solutions to a wide range of potential customers in China and their highly automatable factories and production lines which could benefit KUKA’s top line and future development. KUKA’s key value to Midea is its capacity to ally and align digital and physical technologies. 143 keplercheuvreux. Each of those business segments can be further developed to reach M2M communications for the targeted product lines as well as specific software applications to collect. KUKA ArcTech. Industrie 4. Further investments in R&D are expected. which is a pioneer itself. Announced future investment needs The firm has analysed its end-markets and identified in a white paper the innovations it must invest in to maintain its market position in the automotive.0 partnerships and innovations. it was essentially to make a strong push to exploit China’s Made in China 2025 macro-strategic plan. the firm’s Industrie 4. Connyun is an IoT platform which ensures particularly strong security for its customers. electronics. consumer goods.0 developments meet the Chinese government’s expectations.0 technology which works with pin-point accuracy. The benefits of the plan and the size of the potential market in its home country convinced the firm that strong organic growth could be achieved at KUKA . KUKA SeamTech or ROBOTstar System software are innovative software technologies allowing for fast configuration and evaluation of welds and data. This allows for the acquisition and analysis of real time data.0 start-ups. KUKA provides the keys to developing smart factories. In the metal industry. the firm was a pioneer in developing Industrie 4. Overall. The platform enables the connection of assets through networking and communication. This allows the operator to conduct quality checks during the production cycle. It helps speed up the interval between the initial concept and market launch.0 capacities directed towards its robotics and systems products in Germany. availability and greater throughput. through its increasing investments in dedicated Industrie 4. the objective is to invest further in R&D. Capital goods will be the optimisation of downtimes and the pursuit of faster transmission of data for real-time shop floor management from the cloud. These two pillars of the Smart Factory strategy are developed in both hardware and software solutions to achieve maximum variability. For the automotive Industry. Excluding its acquisition. analyse and deliver specific real-time data. while strategically targeting Industrie 4. the difficult production conditions and extreme time pressure cannot impact the defects ratio. Now. Intelligently networked value chains enable less downtime through predictive maintenance and machine-to-machine (M2M) communications. the firm is strengthening its portfolio of industrial internet capacities. Finally.0 development initiatives When Midea decided to acquire KUKA. KUKA intervenes to supply Industrie 4. and healthcare segments. energy.com . such as Connyun.

the ratio of robots to employees in China is among the lowest in the world (and even lower in India). Globally. Furthermore. Since 2013. Finally. As stated above. the smallest of the company’s four regions. with the development of a new customer base. Chart 101: Revenues and non-current assets per location Source: KUKA 144 keplercheuvreux. large investments are expected in this region. the rest of the data is in line with robot installations and justifies the need for assets in those regions. 15% of the firm’s employees are in Asia/Other regions. KUKA’s sales in Other Regions (including China) represent less than 20% of the group’s total sales. Capital goods On the other hand. which shows the potential for change in the region. Chart 99: Robot installation by region Chart 100: Employees by region Source: KUKA Source: KUKA To further assess the company’s presence in China. the firm has invested to develop production in China as well as sales. we can expect an increase in SG&A expenses. Chart 3 shows that the firm’s non-current assets in other regions (including China) are extremely low (4%) compared to the other regions.com . and some of them could also stem from synergies with Midea’s capacities.

Compared to Fanuc. the firm is one of the strongest players in Europe as an enabler of Industrie 4. The firm is a good benchmark to assess its peers. It will compete with these firms to capture market share in China and India. The company also shows strong levels of competitiveness versus its Japanese peers. Yaskawa. Industrie 4.com .0 solutions for its Automotive and Metal Industry Robots and System businesses. China shows the most potential for KUKA.0 capacities KUKA has showed its capacity to develop Industrie 4. two countries that are lagging behind in their digitalisation efforts. SWOT analysis Strengths: KUKA is ahead of its European competition in terms of digitalisation. ultimately it will be well-positioned to remain a leader and a pioneer among its peers. This should help KUKA secure new market shares. It is both an enabler and a respected innovator. Further innovations are expected in the remaining end markets it serves. meaning that KUKA made a smart call when it decided to invest in this end market first. If the company reaches similar levels of digitalisation and connectivity in other end- markets. As stated above. Threats: KUKA’s main competitors are based Japan and could therefore make it harder to secure new customers in Asia and in very large markets such as China or India. Opportunities: The acquisition is an exceptional opportunity to develop sales in China. Overall.0 capacity at OEMs and automotive manufacturers. in Asia (India potentially) and EM. further investments are expected to bring the other end markets to an equal or higher level of digitalisation. Weaknesses: The firm has a limited presence in EM countries which are likely to face growing demand for digitalisation of their production lines. The automotive business is the most robotised industry of all. along with the metal industry and in particular arc welding. the hardware and software offered by the firm are at similar levels.0 is likely to be used in all of its end-markets. 145 keplercheuvreux. after the acquisition by Midea and in terms of the potential benefits from the Made in China 2025 plan. and Omron. Capital goods Ranking of Industrie 4.

com . Capital goods Chart 102: KUKA internal survey grading Strategy & operation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 146 keplercheuvreux.

and Skype for Business. the More Personal Computer segment consists of a portfolio of products and services aimed at end-users. developers. and information services. as well as Office Consumer Services (which includes Skype. Oultook. and Premium Subscriptions. For now. the group’s cloud platform. Overseas sales therefore account for USD44.com . Windows embedded.320m and net income of USD16. the company seems to have gotten back on track. Microsoft Azure. whereby the software is paid for by subscription rather than purchased from a store. Intelligent Cloud (28%). The Productivity and Business Processes unit includes several offerings targeting productivity. as well as its 365 strategy. Microsoft Dynamics business solutions including includes Dynamics ERP on-premises. and 147 keplercheuvreux.com. Finally. up by more than 50% YOY. which offers licensing and subscriptions to Office 365 for products such as Office. the company has been able to swiftly change its business model to take advantage of the emergence of cloud technology. communication. Dynamics CRM on-premises. MSN display advertising. and Dynamics 365 (a set of cloud-based applications across for ERP and CRM). for example. The subscription system model allows subscribers to access the latest software updates and new features.742m (52% of the company’s total sales). The shift towards corporations and the cloud started earlier. the company is present in more than 200 countries through its various and numerous subsidiaries. and other Windows Commercial offerings.578m and 48% in the US. and IT professionals. versus USD40. The company expects to generate annualised sales of USD20bn in FY 2018E in its commercial cloud sub-segment. Since Satya Nadella assumed the position of CEO. Office Consumer. it also includes LinkedIn with its Talent Solutions. Marketing Solutions. Exchange. SharePoint. Finally. The product and services offer includes Office Commercial. patent licensing. This segment includes four categories: 1) Windows (which includes Windows original equipment manufacturer licensing) Windows Commercial (with volume licensing of the operating system) Windows Cloud services. the company has achieved an annualised rate of USD12. The group is split into three divisions: Productivity and Business Processes (29% of revenues). and More Personal Computing (44%). and OneDrive).1bn in 2016. saw its revenues grow by triple-digits. which meanwhile.798m in 2015.. Geographically. Through ingenuous strategies and a strong vision. consists of the retail version of the Office (through retail) productivity suite and the Office 365 consumer subscription service. Capital goods Microsoft United States | Information Technology The leading cloud and IoT partner Microsoft is a 42-year-old global IT & and software leader that generated revenues of USD85.

and encourages salespeople to lever their existing client base to migrate to the cloud. These integrations demonstrate Microsoft’s ability to scale its operations. the company has developed a suite of products including a CRM and an ERP solution that can be deployed both on. including not only developed markets but emerging ones such as Brazil. making it an exceptional competitor in the sector.8% of total revenues) gives the firm a position in two markets that will only grow in importance in the future. This flexible approach has already made Microsoft a key player in IIoT and industrial digitalisation. and India. Its gaming business (Xbox accounts for sales of USD9. 11% of the group) and devices category (the Surface and phone categories generated a combined USD7. With Office Dynamics 365. IIoT strategy The company has acknowledged the importance of the cloud for its large customers.5bn. All key countries have been addressed.and off-premises. China. which includes the Xbox platform and software and services such as live transactions. 2) the devices business.com . as well as to customise solutions. Microsoft has the world’s largest data centre network. which includes the Microsoft Surface. 3) gaming. Through regular R&D investment (14% of sales in 2016) and capital expenditure (10%). develop open-source products. phones and PC accessories. To grow its partner network. rather than developing them in-house. Through its integration with the cloud. video games. 148 keplercheuvreux. The group positions itself as a neutral player looking to develop more partnerships with software solutions providers. Customised solutions can then be developed for or by industry- vertical specialists. Microsoft has not only made its cloud solution open source. Clients can access the products at different times and different sites. it has decided to incentivise its Microsoft Azure salesforce.3bn. and 4) Bing’s search advertising business. Microsoft Azure is an open-source cloud platform that allows external developers to create and update generic solutions for other potential customers. and third-party video game royalties. Capital goods Windows Phone licensing. advertising. 8. This encourages both Microsoft and its channel partners to develop more applications and sell the product through their consulting services. subscriptions. and partner with other providers. The size of the company’s network ensures that clients can reach their data at all times from anywhere in the world. the suite can be accessed from either the cloud or the edge of a network or both simultaneously. Hardware has played an increasingly important role in the company’s strategy over the past few years. Microsoft has been able to build a global network of data centres across the world.

hybrid capabilities. Microsoft is becoming a key player for companies looking to adopt an Industrie 4. along with the services related to them. CEO Satya Nadella said that any product or service can be digitised and bring more value to clients through cloud integration and network-edge.0 and Industrial Internet applications and could generate new revenues from this vertical through new or existing customers.0 capabilities The company has been a global market leader since it produced its first operating system. the company has created a cross-sector adaptable base for commercial customers.and off-premises deployment. Future investment needs The company is already a worldwide data centre player. the development of its intelligent cloud business. the company partnered with GE. It has understood and adapted to the arrival of the cloud and data centre. Adopting an open-source model for its Azure business has enabled the business to develop across all sectors. Microsoft has already planned its future strategy and given companies a reason to choose Office 365. With the emergence of Azure. and advanced developer and data services. By developing Dynamics 365 and applications targeting on. With Azure. The partnership relies on the fact that Azure will offer Predix customers access to its cloud services (the largest cloud presence currently available) along with data sovereignty. By integrating the Office suite (and many other business apps) with the cloud. cloud and edge usage. Furthermore. Ranking of Industrie 4. the company’s network of data centres across the globe makes it one of the most accessible and useful cloud service providers on the market. The company is basing its strategy on new partnerships. which will likely give it access to new customers. Recently. including capital goods. Through this partnership. and the growth of intelligent edge. Microsoft has taken a step closer towards Industrie 4. Microsoft is becoming a key partner for companies in our coverage universe and 149 keplercheuvreux.0 development initiatives The firm offers digitalisation services to its clients both directly and through its growing partner network. It will likely seek to extend its reach further with more data storage volume and more facilities to enable the acquisition of new customers. The company is further developing its intelligent cloud and is trying to become a strong player in the intelligent edge business. In addition. By partnering with digitalisation companies and integrating its cloud and business solutions. Capital goods Industrie 4. The group seems to have adopted the right strategy to answer to future needs of existing and potential customers.com . Its ability to migrate enterprise customers to the cloud suggests it should be able to capture a significant chunk of the industrial market with its Azure and Dynamics services. it is extending its ability to help enterprises reach their digital goals. the partners plan to integrate Predix with Azure IoT and Cortana Intelligence as well as Microsoft business applications such as Office 365 and Dynamics 365 to connect industrial data with business processes and analytics.0 strategy.

Threats: Amazon has the potential to surpass Microsoft’s data centre scale. Azure is accessible from both the network edge and the cloud. Opportunities: The company can further develop its existing technology and infrastructure. a niche Amazon is also trying to occupy. Regulatory and architecture issues on both its data centre and cloud/edge businesses could grow overtime. saying that any product or service will have a digital element and connection. Nadella said he plans to make CPS commonplace. and can intelligently guide and make data accessible to users accessing it from either point. developing its core business around the idea of serving its partners and commercial customers. it will be able to bring more value to its existing customers. integration and adoption will be relatively long. This allows it to sell its solutions worldwide offer data services its competitors cannot. it will be able to maintain a leadership position serving global businesses looking for the best and cheapest solutions. Microsoft is an enabler and seems to be leading the way among its peers. Capital goods beyond.com . Weaknesses: Due to its large customer base. The emergence of Azure as an open-source platform allows an infinite number of applications to be developed from generic apps to apps customised for a specific company or factory. Through the intelligent cloud. 150 keplercheuvreux. intelligent edge and sound partnerships. SWOT analysis Strengths: The company has the largest and most international data centre network at the moment. Through the development of data centre infrastructure.

Targets for 2017 Omron expects to generate sales of JPY810bn this year. along with operating profits of JPY100bn. In 2016. This includes developing Deep Sensing technology to extract data and images from the interior of objects and convert it into valuable information. Output. the firm is looking to reach JPY1trn in sales by the end of 2020. factory automation systems.0 plan. and Others (8%). 13%). and component technology to provide the optimum components for value creation under different restrictive conditions. 151 keplercheuvreux. 19% from China (JPY148bn). an ROE of over 10%. while 14% came from the Americas (JPY112bn). Logic. sensor-based technology to obtain flexible. 8%). an ROIC of greater than 10%. 42% of revenues). Capital goods Omron Japan | Capital Goods The third Japanese player Omron is a Japanese manufacturer of control equipment. The group’s policy is to achieve self-driven growth through technological innovation. driven by IAB and HCB while AEC should hit top-line growth. the firm’s R&D expenses reached 6% of its revenues. 13% from Europe (JPY102bn). To do so. Automotive Electronic Components (AEC. The company’s revenues are separated into six business segments: Industrial Automation Business (IAB. and 12% from the rest of Asia including Australia (JPY92bn). it plans to strengthen its ILOR+S (Input. We estimate sales of JPY810bn for 2017. sales in Japan accounted for 43% of total sales in 2016 (JPY340bn). Robot. Upcoming innovations The company aims to leverage its AI technologies and knowledge to strengthen three technical fields within OMRON’s core Sensing & Control + Think technology. 17%). New mid-term management plan Through its new VG2. and net income amounted to JPY46bn last year. and EPS of more than JPY300. slightly higher than in 2015. electric components. Geographically. Healthcare Business (HCB. Electronic and Mechanical Components (EMC. automotive electronics. Social Systems.com . Safety) operations through the innovation of production lines by integrating control application software at high speed and with a great degree of precision. Solutions and Services Business (SSB. The focus is on further investment in research and development. real-time control based on sensor/device data. and other equipment that generated sales of JPY794bn in 2016. 12%).

Through Adept. it launched the Omron Mobile Robot. carry and drop off product batches. Overall. The company brings automation and IoT technology to customers through data collection and analysis. Both segments aim to develop and promote the use of sensors. Omron’s value proposition for customers is to support data gathering with systems that are easy to design and use. since the 1980s. 152 keplercheuvreux. companies can discover bottlenecks and weaknesses in their production lines. Work in Process (WIP) (moving functional parts of a production line’s process). Omron is developing control software that can use data to adapt and optimise production lines. Like Yaskawa and Fanuc.0 development initiatives The company is particularly active in two of its business verticals: IAB and HCB. claims will transform manufacturing and logistics floors. The primary use of the Transporter is to handle carts. part of the company’s ILOR+S strategy. The group believes that by collecting production data can help companies to measure their Overall Equipment Effectiveness (OEE) and meet increasing legal requirements for reporting. line side. a new module for Adept’s robot. Omron’s group strategy is in line with the Industrie 4. Industrie 4. With software development.0 strategy overlaps with its VG2. Furthermore.0 developments of its IAB customers. data recording and data analysis. Omron is expected to further develop its robotics offering. The product is designed to help companies achieve productivity and efficiency gains and improve safety. which it hopes will help industrial clients implement more automation and connectivity technology on their shop floors. Omron promoted the idea that data integration is a key enabler for companies to minimise costs and customise final products to be better aligned with customer preferences. Capital goods IIoT strategy Through its presence at Hannover Messe. By measuring OEE. The company sold AI robots by Adept (the Lynx Cart Transporter) to Tesla for its GigaFactory. It has also developed the Lynx Cart Transporter. the company is creating a new revenue stream that could help it reach its JPY1tn sales target in 2020. The primary goal of VG2. and Finished Goods Inventory (FGI). Omron has also developed one-armed robots for manufacturing lines.0 strategic plan and long-term plan. The firm’s overall Industrie 4. With ILOR+S. enabling them to predict problems with key components before they become critical issues. among other benefits. By developing software to run on its robots.0 is to grow sales in IAB and HCB. The robots are independent and able to pick up. Omron has been developing Adept. an intelligent robotics brand.com . the firm can help customers to pre-program them for specific tasks and use machine learning abilities to help them become more independent. Recently. improving production efficiency and predictive maintenance.

It already offers Tesla fully automated logistics solutions with remote guidance. Ranking of Industrie 4. the group helps customers reduce downtime on their production lines and improve production efficiency. Even though its software applications and products are supported by some platforms. Opportunities: Opportunities arise from the further development of AI and connectivity in its IAB product range. Tesla’s Elon Musk aims to build a fully automated GigaFactory to produce car batteries. Future investment needs The firm expects to increase its R&D. Multiple platforms support both those products and the firm’s software solutions for Adept and data collection. monitoring and predictive maintenance. Omron has the opportunity to move forward. With its predictive maintenance services. 153 keplercheuvreux. the firm has been working on advanced AI technology through its Adept business. The convergence of IT and OT has been a trending topic since the beginning of the decade. This is based on the fact that the firm does not offer an IoT platform to its customers and seems less digitalised than Fanuc. the firm is more like Yaskawa with regard to its IIoT capacities. The firm does not offer its own IoT platform and has not partnered with any particular platform provider. but already provides multiple IoT devices. Weaknesses: The company is missing a proper IoT platform or partner. including sensors. Capital goods The company has also developed an HMI. through an Industrial PC platform (IPC). Through ILOR+S. It could invest further in the developing software and a devoted IoT Platform or in partnership with an IoT platform provider. The group says it will help innovate manufacturing processes through IoT utilisation and high-speed. The company has been investing in robotics and sensor development for 30 years. capex.0 capabilities Omron is well positioned to provide IIoT equipment and solutions to manufacturers. and M&A spending to reach its medium- term goals. Predictive maintenance along with remote monitoring and data analysis are key elements of the Industrie 4. The firm is also rapidly developing in HCB.0 revolution. As a reminder. The integration of predictive maintenance has become almost commonplace for robots and product line manufacturers. The IPC is designed to support the growing innovative manufacturing trend (IoT. Big Data.com . advanced AI technology and connected sensors. robots and HMIs. Robotics). This is part of the company’s strategy to further develop its IAB. high-precision automation. meaning we could expect more from such a firm. The product helps address the market’s need for greater efficiency in manufacturing processes. this could become an issue. It is an enabler of IIoT strategies at customer companies. the firm expects to strengthen its position in IAB and HCB to achieve its strategy and guidance. Compared to national peers Fanuc and Yaskawa. Through acquisitions and organic growth. However. SWOT analysis Strengths: The firm offers independent robots.

Omron could find itself lagging in the end. allowing them to allocate more capital to developing Industrie 4. Capital goods Threats: Omron’s national peers have identical geographical exposure but are more focused on factory and industrial automation. 154 keplercheuvreux.0 solutions.com .

The shift was much quicker than anticipated by PTC. It started investing in the field early and acquired Axeda and ThingWorx in 2014 to build an IoT platform. which has seen perpetual licence revenues drop by -40% YOY to USD173m. while non-GAAP operating income reached USD172. Based on its first-mover advantage and its broad group of partners. combined with its “first-mover” advantage will continue to provide the company with a critical advantage in the IIoT field.com . Capital goods PTC United States | IT Software & Services Well-positioned to continue to lead PTC is a CAD/PLM player that posted revenues of USD1.14bn in FY 2016 (ended in September 2016 -9. Subscription mix weighing on short-term performance PTC is far more advanced than Dassault Systèmes in the shift from a perpetual licence model to a subscription model. a market we believe PTC is currently leading (1. we believe PTC is likely to be among the software vendors that benefit the most worldwide from the rise of IIoT. as investments in IoT should lead to higher growth opportunities. digital twin) and openness (all delivery models available). including ThingWorx. PTC was one of the first movers in IoT: it has acquired several companies in the field. Our take PTC’s position in IIoT looks very convincing. 155 keplercheuvreux. The most important pillar of the company’s strategy to drive this kind of growth is to capitalise on the IIoT opportunity. thanks to an unmatched ecosystem of partners (partners currently account for one- third of IoT deals). causing margins to fall by 9.1%.200 customers as of November 2016). PTC is facing a tough transition due to its choice to shift its business from perpetual licences to subscriptions. an IoT platform company.7m (15.1% YOY). PTC believes it can grow its business in the low double digits. IoT business at PTC currently runs at an annual run-rate of USD100m and is losing money (breakeven seen at USD200m of revenues). Its aim is to grow it at a 40% CAGR though to 2021 and reach a double- digit operating margin by then. both in terms of its market share and technology.1pp YOY to 15. FY 2016 was a tough year for PTC. The company is expected to return to modest growth in FY 2017.1% margin. which forced the group to revise down its FY 2016 guidance several times. Betting on IoT to fuel growth PTC sees IoT as its main growth driver for the years to come. strong technology (analytics. and we believe its strong offering. while subscriptions went up by 81% to USD118m. a market PTC claims to be leading. Indeed. -910bps YOY). augmented reality.

the company explains how smart manufacturing will transform companies’ productivity and operations. one common goal The company serves six sectors: automotive. Rockwell’s strength is its domain expertise. as well as scalability of computing and mass availability of data. Capital goods Rockwell Automation United States | Capital goods The connected enterprise partner Rockwell is a leading provider of power. and strong focused culture. leading partnerships. Customer research is not significant. the company has an in-depth knowledge of existing infrastructure in each business vertical and knows what has to be changed and how to go about it. IIOT strategy The company’s growth prospects are driven by the declining cost of connectivity. scalable architecture and integrated control and information. control and information solutions. Different business verticals. the company spent USD319m on R&D (5% of sales).com . the offer of a secure. Smart manufacturing and the IIoT The company is strongly encouraging its clients to move to digitalised factories and operations. Thirty years of experience providing factory-floor software makes Rockwell an important player in the smart factory market. large installed base. the ongoing OT-IT convergence. life sciences. Growing R&D expenses In 2016. standard open ethernet. O&G. The group’s established position in the smart factory environment stems from 30 years of experience providing factory floor software. F&B. metals & cement. It is a key technology provider for critical industry verticals. Rockwell’s main differentiating features are its innovative strength. Over 60% of the group’s 156 keplercheuvreux. a strong market access model. Rockwell Automation has developed The Connected Enterprise. within the context of the fourth industrial revolution. The Connected Enterprise To promote its products and solutions. Rockwell is also becoming a strong advisor in risk and security. optimised and monitored devices and processes. Through connected. Rockwell is set to play a role at the centre of transformation as a key technology provider for critical industry verticals. a wide portfolio of devices. a 6% drop YOY. In addition to these longer-term drivers.000 people across 80 countries and is a leading provider of power. mining. software. control and information solutions and is a single integrated business that generated sales of USD5. global presence. and wastewater. In research papers and product presentations. lower than the company’s top line (7%). manufacturing is set to become highly connected and knowledge-enabled.9bn in 2016 with 22. By installing routers and switches through IO linking to industrial software.

reducing downtime through predictive maintenance. increased productivity. The company’s two core products are its ThinManager and Relevance software. improve production (quantity. The company’s products and software allow its clients to further connect their devices with each other and create an internet of things. Through this partnership and solution development. performance and security. It has developed cloud-based solutions. Rockwell can help stabilise operations. enhance customer satisfaction. the company has partnered up with Microsoft Azure to use its services in its customers’ fields. For the IoT platform. Rockwell’s goal is help its customers improve quality. secure infrastructure. Rockwell is also building up a competitive edge with easier development and faster time-to-market with new features. application software and information solutions. it bought Automation Control Products (ACP). quality and margins). remote desktop and server management software. supports the industrial deveoplemnt of smart manufacturing.0. with 1. and a perceived lack of ROI. hone business skills. which 157 keplercheuvreux. visualisation software.com . a specialist in centralised thin-client. and help refine designs and processes to prevent those failures in the future.000 more at the company’s partners. and accelerated business growth. It is an enabler of Industrie 4. expand market opportunities. sensors and devices to predict equipment failure along the supply chain.0 development initiatives Rockwell has carried out several acquisitions over the past few years to strengthen its software portfolio and prepare the strategy shift towards the industrial internet and the smart factory. The Connected Enterprise is the foundation of Rockwell’s smart manufacturing solutions. along with others. mitigate labour shortages. the compnay is targeting customers that rely on antiquated technology. both Rockwell and its customers will benefit from improved access to production and supply chain data worldwide. through a highly scalable cloud platform. where devices and processes are optimsed to serve productivity. a talent shortage. Rockwell believes the key to IIoT is M2M communication as well as M2E (Machine 2 Enterprise) communication. Here. corporate misalignement. which aim to achieve greater connectivity and information sharing. and expand market opportunities. The company acknowledges and promotes the creation of value from smart manufacturing. Overall. Rockwell has based its strategy on the deployment of smart manufacturing at its customers’ installations. track its performance in real time. increase productivity. This programme. Capital goods development engineers are software engineers. and allow compnaies to make better decisions as a whole. Software usage ranges from embedded software in devices to programming tools. Industrie 4. using software. In September 2016.

increase the utilisation of assets. with the installation of Rockwell’s devices. to expand its domain knowledge and deliver innovative control and information solutions to customers in three of its business verticals: Chemicals. there has been a positive effect from digitalisation at the company. Simplification will drive productivity. 158 keplercheuvreux. Rockwell aims to understand customer applications and define the best opportunities for productivity. This enables productivity gains for customers and a full digitalisation of the value chain. With data collection. improved inventory from 120 to 82 days. It says that it is not as automated as many of the group’s customers are. Rockwell wants to ensure that it will be able to bring the product to the market faster. The company has always worked in the fields of control devices and control processes. To develop its software knowledge. To serve its customers fully. Announced future investment needs Rockwell sees a global installed base of legacy automation plants worth USD65bn. customers will be able to gather more data than ever. seen a 30% improvement in capital avoidance. investments will be key. a leading systems integrator. To this knowledge. Rockwell acquired Maverick Technologies. reduced supply chain lead times by 50%. A few days later. with the gathered data. it has added software and connectivity to its product and solutions portfolio. translation. Rockwell strengthened its connected enterprise strategy in order to meet customers’ demands in the industrial internet era. this has resulted in productivity gains of 4-5%. Moreover. and comply with regulation and architecture requirements. It will make technology innovation and expertise a key element of the company. analysis and gathering.com . companies will be able to keep their suppliers and customers informed in real-time about delays and needs. F&B. This will be applied through design. as 20% of manufacturers have suffered losses of IP addresses in the last year. and Oil & Gas. Overall. and through analysis be more aware of its factory floor performance than ever before. help to lower TCO. and more precisely cybersecurity. It has developed value stream mapped processes. Future partnerships with ICTs are to be expected as well as future acquisitions. However. and increased deliveries by 16%. Through these two acquisitions. performance tools can be developed to enhance a company’s productivity. The focus in the upcoming months and years will be on security. commissioning and lifecycle support. Furthermore. Rockwell has looked at how to apply the concepts and technology to its other facilities. Capital goods help to manage information and streamline workflows in connected manufacturing environments.

a key feature of capital goods companies these days. 159 keplercheuvreux. along with the software mean the company enables predictive maintenance. four central pillars of the digitalisation of companies. and therefore could face different competition in each.com . Its devices and processes. Opportunities: Further acquisitions in the domain of software technology will strengthen its position in this area. and we think it will be able to further develop its customer base through the acquisitions made in 2016. Capital goods Ranking of Industrie 4. which makes us think it can cross-sell its products . Through intelligent acquisitions and sound marketing. Weaknesses: The company serves six different sub-industries. Rockwell compares well with peers. it has been able to position itself as a key player in the development of its customers. SWOT analysis Strengths: The company offers both devices and software to its customers. Threats: Six different sectors to serve allow six times smaller and leaner competitors to appear. remote monitoring. facing more specialised and more adaptable companies. data analysis and M2M communications.0 capabilities Rockwell is one of the enablers of the industrial internet era.

the Americas (21%) and Europe (13%). The company is implementing its Vision 25 strategy after completing the Realize 100 programme which led to the transformation of its existing businesses and the creation of a new one. It plans to adapt mechatronics to meet the needs of its end markets: agriculture and food. and healthcare. growth of distributed power usage. Challenge 25 over 2019-22. and has grown by 38% over the past five years. its biggest market was Japan (33% of sales). rising birth rates in developing countries and a decline in the developed ones). The company is divided into three main business segments: Motion Control (46% of revenues).0”). and 3) the ICT Industrial Revolution (IoT. and System Engineering (11%). Robotics (36%). Controllers. Yaskawa aims to address three societal and business issues: 1) structural changes in the population (aging population. Its main goals are to empower innovation through new ventures in nascent technologies. followed by the rest of Asia (33%). and to improve the general quality of life of its clients through new technologies. The new strategy will be divided into three phases: Dash 25 over 2016-18. IIoT strategy The company aims to achieve global leadership in the motion control and robotics segments. 2) rising energy consumption (expansion of environmental protection measures. and Industrial Robots along with an expanding range of new solutions that permit its existing technologies to be used to the fullest. it wants to become a challenger in the Medical and Welfare sector with improved technology and robots. Its core businesses are Servo Motors.0.2m in 2015.7m and net income of EUR172.166.com . AC Drives. Its CEO aims to contribute to the evolution of society and its welfare. Finally. Capital goods Yaskawa Japan | Capital Goods Automation follower lacking scale Yaskawa is a 102 year-old company that defines itself as a mechatronics company. by developing cutting-edge mechatronics and ICT technology to provide brand new solutions that will pave the way for automation. “Industrie 4. and Realise 25 over 2023-25. and will allow the company to build and expand its energy creation and storage application business to respond to environmental issues. Vision 25 is a broad strategy to meet the requirements of and more importantly to prepare its product line for Industrie 4. BtO (Build to Order). In 2015. It is making the transition towards becoming a mechatronics company. increase in renewable energy supply). Its overseas sales ratio grew from 53% in 2011 to 67% in 2015 thanks to its efforts to become a “glocal” (globally local) company. It generated revenues of EUR3. Its R&D expenses 160 keplercheuvreux. With this strategy.

161 keplercheuvreux. Announced future investment needs The first phase of the Vision 2025 plan (which started in 2016) is to move towards the company’s major realisations and potential market leadership. The company is a latecomer compared to its peers in the transition towards Industrie 4. It is developing MOTOMAN and MOTOMAN-Cloud which should connect its robots. energy. Yaskawa uses open-source innovation. tracking of vehicles and goods during transportation. the first leg of the plan. In its other end-market. controllers and drives through the internet of things and the cloud. The company is trying to forge partnerships with major players in the ICT industry. Dash 25. packing/shipping). Ultimately. The company is moving forward with the installation of sensors to collect more data from its products but seems to be lagging behind its national peers. To do so. especially those involved in the cloud and fog business. traffic. security and factories. logistics. it needs to reach full cultivation control along with harvest automation. According to the company. focused on the development of new products in each business segment. infrastructure. To achieve its first goal. Industrie 4. the company is expanding its portfolio of components for humatronics devices and accelerating the commercialisation of the latter through alliances with governments and universities. Each of them have enhanced functions compared to their predecessors but they do not yet have proper IIoT capabilities such as M2M communication. Yaskawa intends to introduce collaborative production lines using robots and humans through the entire food production process (processing/preparation. By acquiring low- cost production and sales through partnerships. and product marketing based on usage data. Robots and Drives. loading/layout. it will have to develop connectivity in its core business. and therefore install M2M communications between its Servos. IoT and M2M solutions will drive business innovations in various application areas: permitting remote maintenance of products. it will appeal to myriad end-receivers in healthcare. Its capacities are still limited as it does not provide predictive maintenance but only monitoring of its devices. Capital goods have grown along with its revenues.com . accounting for around 4% of the group’s revenues.0. When the raw product reaches the factory. Importance is placed on implementing these solutions through the edge of the network to allow faster communication and less data entering the cloud.0 development initiatives The company aims to facilitate full automation of the production chain in the agriculture and food Industry. The company sees the Smart Factory as the nexus of interaction between robots and humans where IIoT technology will allow the workers to gain access to data in real time along with predictive maintenance and remote monitoring.

Yaskawa seems to have entered the race later than the other competitors. Yaskawa’s solution appears to be weaker. This very Japanese term reflects the company’s objective to extend its market reach and revenue lines to the US. It also has the opportunity to partner with strong players in other fields to develop its customer portfolio and IIoT capacities. Opportunities: Through swift decisions. It has yet to bring its new product lines to life to respond to the lack of IIoT solutions in its portfolio. Its robotics and connectivity knowledge will not be able to compensate for fleeing customers looking for more connected robots and CNCs able to integrate an IoT environment.0 developments. Yaskawa seems to have missed the transition towards Industrie 4. SWOT analysis Strengths: The company is implementing a new strategy that finally addresses the IoT topic and the potential of M2M communications. the company can get around this lack of answers to market demand. This strategy has been implemented by many of its Japanese peers throughout the sector and has always been a typical characteristic of Japanese companies. Europe and other developed countries as well as China while remaining a purely Japanese company with Japanese management overseeing all of its branches. the company addresses the emergence of IIoT and therefore tries to bring new products to respond to the growing demand. Japanese companies remain technology leaders developing best-in-practice robots and general technology. either through developing better and stronger partnerships or via higher investments in ventures with competent startups that can offer technology that is ready to use or ready to implement. rapid actions and strong additions to its core products. However.com . Through its new strategies (Vision 25 encompassing all of them). 162 keplercheuvreux. Yet. If we compare the company to Fanuc. The Realisation 100 strategy yielded mixed results as it was too ambitious and missing out key investments to develop solutions to push sales of its products and create new revenue streams. Ranking of Industrie 4. The company is focused on a long-term strategy to become a “glocal” company (globally local). Capital goods It must invest more in the field of connectivity. Yaskawa took a risk when it decided to show up late to the show. we can see that it has not put the same effort into Industrie 4. Weaknesses: Yaskawa seems to have started late compared to its national peers. Secluded as they are.0 and the Industrial Internet.0 capabilities Compared to national peers. while Fanuc has been working for 30 years on vision sensors. Threats: With a growing presence and product SKUs in the field of IIoT and robotics.

5 ABB is set to leverage on its robotics business and should expand within Aug 16 Nov 16 Feb 17 May 17 discrete automation markets after the B&R acquisition.0 Expect digital strategy to align toward IIoT approach 22. a strategic No.1 EV/EBITDA 10. Net fin. The range of valuations Consensus EPS 1.1 12.3 0.9% software products and systems existing in the group’s portfolio.0 24.394 multiples-based valuations. Avg. In Q4 2016.4% 6.489 5.9 ABB’s long-standing leading technology and market leadership in its key 15+ end markets provide crucial domain knowledge to develop digital 25.5 23.83/19. The target is built on multiples applied to 2018 FCF (m) 2. of shares outstanding (m) 2.4.8 The Q4 2016 launch of ABB Ability and the prior appointment of a chief EV/EBIT 12.0% 2.91 devices to enhance the value proposition offered to customers.499 1.1 14.3 0.88 spans from CHF22 to CHF27.0 efficiency and productivity and hence generate incremental revenues.2 digital officer have created a focal point for ABB’s future digital initiatives FCF yield 5.62 2018. and fully dil.075 3. 23.debt/EBITDA 0.84 0. This is likely to entail forming a wider array of partnerships and 20. debt (m) 1.1 YTD abs performance 2. FY to 31/12 (USD) 12/17E 12/18E 12/19E Digital strategy now centred on ABB Ability P/E adj and ful.26 1.829 35. 20.266 4.406 forecasts. based on FY to 31/12 (USD) 12/17E 12/18E 12/19E its deep domain knowledge in over 15 end markets.5 10.80 0. We see scope for ABB Sales (m) 33.5 developing more targeted software. ABB offers an array of highly advanced control software suites and Free float 92% also connected devices.7% 3.338 blended average of six valuation approaches: a DCF.4% 7.0 19.6% 2.com .2% 9. we have not seen ABB make any large capital commitments to its digital strategy.50 Current Price CHF 21.494 to enhance growth in the medium term by promoting the efficiency and EBITDA adj (m) 5.5 We expect ABB to develop its strategy towards one focused on optimising 22. daily volume (CHFm) 277. Our target price is built from a EBIT adj (m) 4. dil.8 9. EPS adj. We wait to see how targeted software and partners will form to provide solutions that stand strongly against competition. In the field of discrete manufacturing. edge control and central Dividend yield 3.885 robots.697 5.996 3. the launch of ABB Ability.9bn Target Price CHF 24.0 21.995 productivity gains it can achieve for clients.034 5.106 36.50 ReportT ype$ $Com panyRe gion$ ABB Hold Switzerland | Capital goods | Mcap CHFCHF 46.com +44 (0) 207 621 5183 As the world’s leading supplier of distributed control systems for process Market data and hybrid manufacturing environments and the second producer of Bloomberg: ABBN VX Reuters: ABBN.8 8.0 market. 1. created a clear direction for the company.169 Net profit adj (m) 2.9% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E Finally pulling the threads together William Mackie Head of Capital Goods wmackie@keplercheuvreux. hence creating our 12-month forward figure.42 1.0% pulling together the threads of ABB’s software expertise and connected 52-week high/low (CHF) 24. with the implied 2018 year-end target discounted back to mid.1 16. with a mid-point of CHF24. and a number of Net fin.2% Strong customer relations and in-depth domain knowledge ROIC EV/IC 12.625 3.4% 1.0 13.2 1.6% 11.5 solutions that generate actionable operating strategies to raise asset 24. Price DJ Stoxx 600 (rebased) Investment levels restrained Unlike peers.2% and pull together the multitude of smart products. Equity Research $:m: m:m:m: 24. 163 keplercheuvreux.S Market cap (CHFm) 46.7 11.631 1.141 digital drive across the group.6 Net dividend 0.90 Up/downside 11.4 1.5 asset performance from its installed base of connected devices in each 21.2 Gearing 10.5% 3. 18.697 2.

transport & infrastructure and the group’s installed base of 70m connected devices and 70. review and interpret the data. who has 20 years’ experience in the field of device connectivity. which could drive a USD20bn annual business opportunity for ABB. Kepler Cheuvreux ABB already claims that 55% of sales are generated from software and digitally enabled devices. this had not been captured in a central strategy until late 2016. The ABB stack. automotive. 164 keplercheuvreux. industry. In essence. Chart 103: ABB’s current penetration in digital factories Appointment of high level dedicated leadership creates a focus throughout the organisation Source: ABB. By applying the full range of capabilities from partners and from within ABB. The combination aims to leverage on ABB’s domain knowledge within utilities. as chief digital officer. a large Leadership in the installed base of devices and equipment and the deep understanding of the control market for distributed control systems is a loop. As part of stage 3 of ABB’s Next Level strategy. ABB Ability combines the portfolio of digital solutions and services across all segments while leveraging the Microsoft Azures cloud platform. simulate. and improve operating performance. mining. a number of the party framing its years behind other leading industrial groups. ABB has a number of capabilities required to create value within digital. the drive at ABB follows a similar path to other electric equipment suppliers: capture data from devices. predict and optimise the environment. marine and building. With this. To lead this new drive. management estimates it could tap USD988bn of savings across 15 of the group’s main end markets. ABB already delivered digital offers to digitalisation opportunity verticals including utilities.000 control systems to build a large industrial cloud platform.com . digital and connected devices of knowledge and into one initiative spanning connection of device installation and enhancement of capability throughout control systems and collection and interpretation of data on local servers or the the group cloud. ABB Hold TP CHF 24.50 ABB’s digital strategy While there have been many pockets of software and control expertise within the ABB has been late to group. Recent efforts are directed at pooling the entire digital and software offer. which conceptually shows ABB’s capabilities. management branded its digital There is a huge wealth drive “ABB Ability”. ABB hired Guido Jouret. ABB has sought to build a strong partner network starting with key strength leverage of the Microsoft Azure platform and IBMs cognitive capabilities. pulling together past software. is shown below.

ranging from small systems in markets such as food production through to and determining complex distributed control systems spanning entire petrochemical processing value added outcome plants. Decades of leadership within the market for distributed control systems also provide strength in the development of solutions from the process industry customers. IIoT ABB already has extensive knowledge in markets including mining. utilities and marine. thereby supporting development of Industrie 4. ABB’s larger robot offering is already extremely connected and smart. chemicals. particularly within the automotive sector. Smart predictive and preventative maintenance provides a further IIoT-based opportunity. drivers and actuators. in contrast to competitors. albeit at a slow pace. Size and direction of investment for digitalisation ABB’s specific investment in ABB Ability has largely been limited to marketing spend for the launch of the programme. We see the group As the global leading supplier of distributed control systems for the process more biased to industries with one of the largest installed bases of electrical equipment. The robotics portfolio within ABB provides scope for the group to participate in development and construction of increasingly smart and interconnected factories. which is in contrast to a number of other leading electrical equipment makers. flexibility and productivity. We expect that capabilities in the area will continue to be expanded. There appears to be limited development of a partner network of software and app developers that work on solutions for ABB’s 165 keplercheuvreux. Over the opportunity by past decades. Digitalisation SWOT Strengths ABB’s breadth and depth of market vertical customer relationships provide strong sector expertise and process knowledge. oil & gas and ABB has the greatest petrochemicals. Moreover expansion of the partner network appears relatively limited below Microsoft and IBM. automotive production. Many of these devices are connected to control systems that ABB has customers’ industrial assets.0. Weaknesses ABB has been late in creating an umbrella strategy to pull together its digital capabilities.com . ABB Hold TP CHF 24. There have been no specific software-focused acquisitions to increase the group’s capability and no announcements of a dedicated ramp-up of investment in software and connected capabilities. collecting data supplied. ABB is supporting extremely well positioned to development IIoT-based solutions targeted at development of IIoT based gains with improving asset utilisation of customer equipment. This creates the chance for ABB customers rather than to develop new outcome-based business models aimed at capturing value for development of I4. increasing the level of all critical to industrial operations and consuming resources in the form of electricity connectivity across and service. it has sold over 100m devices including motors.0 s customers based on the savings ABB can achieve for customers. which will be critical as the group devises the optimal means of improving customer efficiency. but its application is being expanded to other end markets where its supports the development of smart manufacturing.0 concepts.50 Positioning for Industrie 4.

ABB Hold TP CHF 24.com . Chart 104: ABB’s Internal Survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 166 keplercheuvreux. ABB is smaller than the industry leaders. software companies design and develop solutions for ABB’s core process industry customers faster than ABB and overcome ABB’s advantage of existing customer relations.50 customers using ABB’s connected products. agile. in the field of industrial automation and control. Opportunities There is a clear opportunity for ABB to leverage its installed base. data management. Threats ICT providers and smaller. Expansion of its partner network and creation of an IoT platform where development can create value-added apps alongside ABB would create an additional opportunity. Migration of value for ABB’s largest customer segments towards capture and interpretation of operating data may led to lower demand growth for the equipment portfolio. and digital and software capabilities to devise new business models that aim to create value for ABB via savings achieved in energy use or production efficiency at customer sites. Moreover.

834 Liabilities and provisions 29.164 2.919 Others -406 93 -1.718 2.00 2.74 0.084 3.68 0.25 0.172 1.697 2.787 2.50 Key financials FY to 31/12 (USD) 2012 2013 2014 2015 2016 2017E 2018E 2019E Income Statement (USDm) Sales 39.1 16.4 3.8% 4.434 27.98 1.4 1.40 6. ABB Hold TP CHF 24.6% 6.1% 10.497 11.991 2.6% 23.0% EPS reported 1.6% 11.70 0.241 1.986 2.9 Dividend yield (%) 3.1 18.338 Cash Flow Statement (USDm) Cash flow from operating activities 3.87 0.669 24.124 Per share data EPS adjusted 1.4 1.7% 10.990 33.2% Net financial items & associates -220 -321 -282 -209 -188 -242 -195 -191 Others 0 0 0 0 0 0 0 0 Tax -1.244 Net financial debt 1.230.812 2.4% 14.5 17.8% 4.0% EBITDA adjusted 5.62 % Change -13.776 14.901 3.6 20.598 2.80 0.5 1.5% 13.727 13.50 Cash flow per share 1.8% 5.481 33.6% 13.237 Pension provisions 2.314 Capex -1.497 Tangible assets 5.76 0.916 1.901 3.7 9.939 1.26 1.5% 8.361 52 615 -318 35 -293 -131 237 Balance Sheet (USDm) Intangible assets 13.154.965 3.547 2.848 39.1 18.8 12.8 3.72 1.177 2.808 2.01 1.538 923 1.5% 3.743 5.63 1.088 Net profit adjusted 2.357 -1.4% EBIT adjusted 4.494 % Change 3.854 2.62 EPS adj and fully diluted 1.88 Number of shares.022 24.279 -29 -1.2% 9.122 -1.79 1.3 0.816 -1.2 0.996 3.2% ROIC (%) 12.486 2.63 7.3% -6.818 3.694 -772 1.755 12.34 1.394 1.075 5.625 3.9% -4.073 81 34 -1.106 36.828 33.732 -1.747 -1.42 1.481 3.8 9.9 20.609 25.834 1.3% 14.2 18.305.98 1.7% 3.7 9.446 19.485 1.7 11.9% 14.340 5.897 14.538 5.988 13.105 0 0 Dividend paid -1.4 14.319 1.944 2.052 2.13 7.4% 7.290 1.00 1.26 1.3 3.3 0.244 28.830 35.9% 5.030 -1.760 25.947 6. debt / EBITDA (x) 0.276 4.1% 11.59 1.4% -4.1% 14.834 1.21 1.2% 6.594 5.843 3.704 2.304 -1.6% 3.177 14.68 1.76 2.055 2.4% 6.5 1.00 2.7% 3.6% 11.012 2.42 1.259 30.29 1.23 6.555 6.2% 15.489 5.8% -21.254 5.034 2.1 14.140.0 20.4% 12.502 15.2 0.18 1.768 24. YE (m) 2.1 16.598 2.631 1.5 2.6% 13.834 1.00 2.5 17.191 4.3 3.67 Ratios ROE (%) 18.2% EV/Sales 1.72 0.0% 3.09 Book value per share 7.924 1.630 4.2% 3.064 Invested Capital 30.940 3.4 1.497 11.00 2.3 14.com .406 Acquisitions & Divestments -3.899 2.3% 16.312 1.30 1.1% 17.336 41.2 0.0% 12.128 -1.694 2.2 1.4% 10.718 2.8% -10.755 3.829 35.8 8.8 EV/EBIT 10.4 14.6 20.066.7 11.129 5.5 10.2 P/CF 11.4% Net fin.293 -1.250 Change in net financial debt -3.096 27.295.169 4.202 -788 -781 -922 -1.1 P/E adjusted and fully diluted 14.319 1.856 -1.9% 25.6 11.4 EV/EBITDA 8.956 4.652 5.394 Working capital requirement 3.3% 8.1 P/BV 2.973 -1.8% 3.458 2.026 -878 -831 -856 -882 -908 Free cash flow 2.9% 21.260 Net profit from continuing operations 2.779 3.87 2.5% 2.319 Total shareholders' equity 17.819 2.5% 6.5 10.6 1.653 3.9% 14.240 Net profit from discontinuing activities 4 -37 24 3 16 0 0 0 Net profit before minorities 2.3 0.8 9.933 1.51 6.3% 12.5% 14.240 Net profit reported 2.9% FCF yield (%) 5.2 Gearing (%) 9.1% 3.499 1.6 10.33 1.2 19.88 1.6 3.1 3.208 16.15 1.2% Valuation P/E adjusted 14.0% 5.14 Dividend per share 0.444 23.266 4.13 0.787 6.6% 16.967 12.0 12.65 1.4% 11.639 2.206 1.8% 12.6 12.0% 11.075 3.034 5.106 -1.845 3.051 5.008 11.907 2.37 8.29 1.076 2.5% 19.982 -1.7% 0.4 12.590 1.169 EBIT margin (%) 11.018 2.394 1.4% 12.2 167 keplercheuvreux.319 1.837 26.334 27.350 -1.1 14.3 0.418 1.058 4.0 11.1% 8.11 6.87 2.84 0.497 11.0 11.114.594 1.295.24 0.273 Financial & other non-current assets 1.2 10.217 25.9% 15.1% 3.697 5.4% 14.785 -1.00 2.995 EBITDA margin (%) 14.7% 12.

com . not being FY to 31/12 (EUR) 12/17E 12/18E 12/19E interested in the middleware field.2 27.145 1. FY to 31/12 (EUR) 12/17E 12/18E 12/19E Top line growth expected at 7% Sales (m) 3. and fully dil.00 3.2 -2.1% above all) in the design and creation of IoT products and devices.3 5.4 16.323 We expect Dassault Systèmes’ top line to grow roughly 7% organic a year EBIT adj (m) 1.PA Market cap (EURm) 21.8% combined Solidworks with Xively (partner in IoT platform) and Netvibes Net fin.4 13. while margins should No. and also recently expanded capabilities to support edge 74 computing IIoT communications.7 enable the rise of IoT to a certain extent and are also driven by it. EV/EBIT 18. and analyse the data generated.4 recently emphasised the usefulness of its products (Solidworks and Catia.263 in the coming years on the back of continued momentum in new licence Net profit adj (m) 684 774 863 sales with the ramp-up of the 3D Experience platform.0 4.00 Current Price EUR 82.1 FCF yield 3.508 3.com +33 1 53 65 36 36 Dassault Systèmes (DSY) main products include Catia.3% positioned in the middleware space.8% 0.7 them to the cloud. and we expect its Free float 52% top line to grow at c.8% -80. confirming that providing in-house IOT middleware tools was not needed to gain large contract.65 0.4% 3.200 1.1bn Target Price EUR 78. its suites of products all P/E adj and ful.101 company posted total revenues north of EUR3bn in 2016. However. daily volume (EURm) 42.035 1. 7% a year in the years ahead. Delmia Market data and Enovia.debt/EBITDA -1.760 EBITDA adj (m) 1.65/68. integrates IIoT architecture with cloud-based 76 services. Dassault Systèmes is then focussing on 72 70 helping clients to optimise their manufacturing process based on the 3D 68 experience platform. 88 86 Business apps for IIoT 84 82 Delmia. Our take We value Dassault Systemes at EUR78 (DCF with 7. 168 keplercheuvreux.7% ROIC 18.65 3.7% 4.0 3.5% 20. 31.25 connected objects and analysis of data collected.DSY has not developed an IoT platform to collect data. connect EV/IC 5.4 YTD abs performance 14.6 15.34 Consensus EPS 2. debt (m) -2.7% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E Strong expertise in manufacturing Laurent Daure Head of IT Software & Services ldaure@keplercheuvreux.58 0.5 (analytics and data visualisation) in order to offer its customers a Gearing -45.6 24.334 FCF (m) 714 778 867 Complete offer for IoT design EPS adj.1% 21. The recent win of the very large Boeing contract Aug 16 Nov 16 Feb 17 May 17 Aug 17 against key competitors reflects the strong positioning of DSY in Price DJ Stoxx 600 (rebased) manufacturing.70 vendors . D Experienc e platform.00 ReportT ype$ $Com panyRe gion$ Dassault Systèmes Hold France | IT software & services | Mcap EUREUR 21.000 -2.7 3.7% 0. Equity Research $:m: m:m:m: 78. is a key enabler of IIoT.275 3. The Bloomberg: DSY FP Reuters: DAST.7% -61. 2. DSY has EV/EBITDA 17. it has strong expertise in the design of 52-week high/low (EUR) 84.75 Up/downside -5. Net fin.632 -3. Exalead can also be used in the analysis of data.9% WACC. of shares outstanding (m) 255 continue to grow by 50-100bps a year in the medium term.085 1. dil.8 -2. Delmia Apriso includes 78 digital twin capabilities. It has also Dividend yield 0. the group’s business platform. Solidworks.1 14.both industrial companies and software Net dividend 0. Dassault Systèmes’ product for digital manufacturing and 80 manufacturing simulations. along with 3D Experience.3 Unlike many of its competitors . While DSY is not Avg.7% comprehensive IoT offering to help them design IoT products. 7% medium-term growth and 35% EBITA margin).

066 3.00 255.26 2.262 4.2 28.00 Key financials FY to 31/12 (EUR) 2012 2013 2014 2015 2016 2017E 2018E 2019E Income Statement (EURm) Sales 2.6 15.com .6% 6.1% 0.1 -1.34 % Change 15.3 4.6% 13.009 2.1% 34.7% Net fin.00 256.959 3.6% 33.508 3.58 1.3 23.085 1.7% 0.0% 11.532 2.5 -1.2% 31.1 25.8 26.564 2.5 Gearing (%) -52.998 4.426 1.685 3.0% 6.9 17.82 2.7% -61.43 3.08 16.1% EV/Sales 1.33 3.0% 11.68 3.65 0.7 P/BV 3.613 3.5% 8.5% 3. debt / EBITDA (x) -1.71 Cash flow per share 2.8% 31.3 24.2% 18.488 3.255 -1.3% -27.7 EV/EBITDA 4.58 0.3% 22.8% 0.1 22.2% EBIT adjusted 644 653 699 885 958 1.9% 18.823 Tangible assets 108 100 137 135 135 153 169 183 Financial & other non-current assets 0 0 0 0 0 0 0 0 Total shareholders' equity 2.40 0.764 Per share data EPS adjusted 1.52 11.42 1.632 -3.2 18.61 15.1% 31.877 3.088 3.3 30.4 16.7% -38.275 3.9% 0.4 13.70 Number of shares.4% -45.14 17. YE (m) 122.2% 19.00 255.7% -54.48 2.164 3.8% FCF yield (%) 11.50 0.84 2.893 2.039 2.08 Dividend per share 0.1 -1.4 28.323 EBITDA margin (%) 33.4% 23.7% Valuation P/E adjusted 21.00 255.0 6.5% 16.7 29.8% 0.6 2.927 2.5 16.7% 13.1% 21.609 3.0 5.3 4.10 126.49 2.145 1.3 25.37 EPS adj and fully diluted 1.74 1.687 2.4% EPS reported 1.6 15.00 Ratios ROE (%) 19.6% 33.760 % Change 14.8 6.2 15.060 3.5 Dividend yield (%) 1.97 2.9 -2.263 EBIT margin (%) 31.531 Invested Capital 1.2% 35. Dassault Systèmes Hold TP EUR 78.7% 18.858 2.134 Pension provisions 0 0 0 0 0 0 0 0 Liabilities and provisions 1.68 Book value per share 9.624 2.4% 3.2% EBITDA adjusted 677 686 736 927 1.931 Net financial debt -1.9% 17.4 5.9% 0.3% 1.07 3.823 3.00 2.6% 31.3 17.6% Net financial items & associates 18 18 15 0 -11 26 15 20 Others -143 -150 -268 -252 -287 -286 -250 -250 Tax -180 -166 -153 -227 -209 -263 -300 -336 Net profit from continuing operations 339 355 293 406 451 510 610 697 Net profit from discontinuing activities 0 0 0 0 0 0 0 0 Net profit before minorities 339 355 293 406 451 510 610 697 Net profit reported 335 352 291 402 446 509 607 694 Net profit adjusted 425 447 466 575 641 684 774 863 Cash Flow Statement (EURm) Cash flow from operating activities 562 507 500 633 620 784 850 942 Capex -41 -42 -45 -44 -57 -70 -72 -75 Free cash flow 522 464 454 590 563 714 778 867 Acquisitions & Divestments -178 -127 -956 -17 -242 -14 0 0 Dividend paid -88 -35 -36 -98 -102 -51 -148 -166 Others 9 -53 -76 63 -65 -143 0 0 Change in net financial debt 265 250 -613 537 154 505 630 701 Balance Sheet (EURm) Intangible assets 1.61 13.8% 3.00 255.3 26.04 1.429 2.53 0.5 -1.6 24.4 EV/EBIT 5.9 24.243 1.260 1.75 2.03 3.000 -2.3 25.347 2.3 5.7% 30.24 2.7% 4.8 4.331 1.6% 6.548 3.7% 0.460 1.702 2.1 P/CF 16.71 10.38 1.1% 3.329 1.7 5.0 26.073 2.43 0.424 -816 -1.80 1.75 1.5% 20.9 22.8% 7.372 4.6% -38.5 29.2 -2.6 31.5% 18.1 169 keplercheuvreux.6% 32.1% 3.00 3.381 2.42 0.2 27.65 3.5% 3.5 17.8 5.0% 20.0 4.883 4.8 4.37 2.2% 22.200 1.00 256.69 1.8 5.8% 30.1 16.334 Working capital requirement 393 432 520 1.018 1.1% 7.0% 16.2% 33.7% 4.493 -2.6% ROIC (%) 34.62 16.7 4.5 29.1 14.8% 17.5% 29.8 27.8% -80.351 -1.1 4.4% 32.000 1.2% 32.51 2.15 1.31 2.035 1.6 P/E adjusted and fully diluted 22.8 -2.

8 FCF yield 4.11/16.5% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E Sensors and scanners Matteo Bonizzoni.debt/EBITDA 0. Net dividend 0.2% automation. Equity Research $:m: m:m:m: 30. CFA Equity Research Analyst mbonizzoni@keplercheuvreux.5% implying a 12. scanners and markers are key to Industrie 4. Sensors allow companies to collect data.9% identification and allow automated visual inspection.5 616.1 90. Datalogic allows 26 its customers to trace. dil.0 YTD abs performance 42. it competes with Cognex.7 EBITDA margin. Free float 33% Transportation & Logistics (9%).9 14. a company can obtain an unprecedented level of detail about its operations.4 -0. of shares outstanding (m) 58 By offering its sensors. Datalogic invests 9% of its revenues in 22 research & development.5 -37. and laser marking solutions.5% 1. With connected scanners positioned at each step in the process.8%. and a 19% terminal Sales (m) 576.00 ReportT ype$ $Com panyRe gion$ Datalogic Buy Italy | Capital goods | MCAP EUR 1.0% 22. inspect and mark their products. Markers allow them to identify individual products within a line.MI Market cap (EURm) 1. Overall. daily volume (EURm) 3.7 16.9 In all of its markets.5 20.7 customers to implement “batch size one” production through product Gearing -1. 20 Sensors. It Bloomberg: DAL IM Reuters: DAL. Laser Marking and Identification. a terminal growth FY to 31/12 (EUR) 12/16 12/17E 12/18E rate of 1.7% enables automatic data capture and industrial automation. scanners allow items to be traced throughout the production line and beyond.9 FCF (m) 42.com . Our EUR30 52-week high/low (EUR) 27.23 latter.1 23. They also support tracking and product customisation. debt (m) -3. To further develop solutions for the 24 Industrial Internet of Things. No. Datalogic Avg.10 TP is based on a DCF valuation with a WACC of 6. scanners.4% 3.8 66. and fully dil.00 Current Price EUR 26.09 1. Datalogic offers EV/EBITDA 10.0% 21. These products allow Net fin.7 51.8% 1.2 EBIT adj (m) 76.7% Safety. EV/IC 2.40 0.7 Different competitors along the product lines Net profit adj (m) 50. A connected plant 16 Aug 16 Nov 16 Feb 17 May 17 collects on average 0.6bn Target Price EUR 30.30 former. In the EPS adj.2 651.4 105.30 0.0 99. while in the Consensus EPS 0. Vision.4 4.9 4.82 1.3 Industrie 4. the company offers four subcategories of products: Sensor & Dividend yield 1.0 18 Datalogic’s services are crucial to the development of the Industrial Internet.6 66.87 1.559 operates within four industries: Healthcare (5% of revenues). Within industrial EV/EBIT 12. Finally.0 -0.9% -18. and Sick. Datalogic is the only player that can offer experience Net fin.0 needs. Keyence.4 12.14 1.0% -9.0 actions 28 By embedding its solutions in its customers’ value chain.67 Up/downside 12.2 and offer in both automatic data capture and industrial automation.com +39 02 80 62 83 43 Datalogic is a global leader in the automatic capture and process Market data automation markets.9x terminal EV/EBITDA.6 116. and Retail (50%). The transformation and Price DJ Stoxx 600 (rebased) analysis of this data allows companies to optimise their value chains.45 FY to 31/12 (EUR) 12/16 12/17E 12/18E What Datalogic’s offer implies for its customers P/E adj and ful.4 75.5 Looking more closely at the Manufacturing business.7 multiple opportunities to serve Industrie 4.5bn data points per day. EBITDA adj (m) 90. 19.8 -80.9% ROIC 16. 0.7 14.3% 4. 170 keplercheuvreux. Manufacturing (27%). it competes with the likes of Zebra and Honeywell. the company is a traceability enabler.

allowing customers to add traceability. Datalogic is able to demonstrate its ability to perform in an Industrie 4. Before taking any steps. Automated Machinery. The companies’ partnerships were based on Datalogic’s sensors. The R&D process has been modified to focus more on customer needs along with the overall strategy of the firm becoming more customer-centric.0 capabilities.00 IIoT strategy Datalogic’s take on Industrie 4. a compact pulse fibre laser system “writes” a 2D code on different materials (organic plastic or metal) for a mechanical part. which invests 9% of its revenues in research & development on an annual basis. and B&R’s automation system. By providing 171 keplercheuvreux. Datalogic has partnered with B&R and Comau to develop solutions for connected robots. identification. Further technological developments are expected by the firm. Datalogic has demonstrated the potential applications of its sensors. The device requires less wiring. Datalogic Buy TP EUR 30. This process enables the customer to create an IP address for each individual product coming off its production line.0 environment. Comau’s Racer3 robot. Datalogic’s T47 and MATRIX300 which are. As seen previously. Datalogic once again demonstrates its Industrie 4. scanners and inspection tools. and inspection to their production lines through smart sensors and machines. time. The group has developed a Fieldbus device to be used in manufacturing plants that protects operators entering dangerous areas and automatically deactivates any dangerous machinery. downtime and allows faster diagnosis at HMI or through the IoT. a smart camera and an imager. By developing such a product. Within its four areas of business. Industrie 4. increases productivity and the overall automation of data collection on the production line.0 techniques. Datalogic serves its clients’ efforts to adopt Industrie 4. will then “read” the information. By engaging in such partnerships. Datalogic has worked to seamlessly integrate its products and their benefits into its customers’ production lines.com . the company generated 24% of its revenues from new products (announced in the last 24 months).0 direction As we have seen. Its product offering is wide and complementary in all segments. In its Manufacturing division. the company serves several different sectors: Automotive. the company has developed products to serve both industrial automation and automatic data capture.0 is clear: it provides customers throughout the entire production line with sensors and connectivity tools. labour. This is crucial for both traceability and customisation. Within those lines. With Datalogic AREX. a machine will be able to read the 2D code and execute the correct task. With “MARK & READ”. respectively. Increased connectivity and digitalisation helps drive cost reductions. Datalogic delivers tools to automate the value chain. Datalogic collected data and sent it to the cyber physical system (CPS) while B&R connected the system to the Internet of Things. A prototype system was presented at the SPS fair in Italy in 2016. Electronics and Intralogistics. In 2016.

Digitising its own value chain will also provide the company with more insight into its customers’ operations and. which offer the best quality in the production process. Weaknesses: Datalogic did not transform itself sufficiently in regards to the potential it offers to clients.0-ready products to its customers and empowers manufacturers to move towards digitalisation. Within our Capital Goods coverage. markers and inspection tools. In 2016. Announced future investment needs With the company’s levels of R&D expenditure (9%). The technology on those lines from the installation of electronic circuit boards to the assembly of finished products fit Industrie 4. Datalogic had two objectives at the time: to expand its production capacity in accordance with its growth strategy and to use the new plant to install new SMT lines. and it offers crucial tools for data collection (sensors).0 market. the products that come out of its factory are key and ready to be integrated into digital systems and CPSs. Opportunities: The company has the opportunity to convert this weakness into a strength.0 (excluding its new Hungarian plant). Along with the usual investments. Datalogic Buy TP EUR 30. Overall. we can expect it to continue to develop products that will be key to the digitalisation trend. for example.0 providers we have looked at. the firm is lagging on its own development towards Industrie 4. Datalogic has become an important player in the Industrie 4. Threats: The company operates in a market with multiple players. SWOT analysis Strengths: Datalogic delivers Industrie 4. and the first mover will have a long-term advantage. However. we can expect the company to further develop partnerships with robot and machine manufacturers to provide a potentially larger installation base for its scanners.0 requirements. Datalogic opened a new plant in Hungary (an overall investment of EUR9m) dedicated to factory automation.com . We therefore can only assume Datalogic is relying on its customers’ digitalisation plans for the integration of their products through their machines/robots manufacturers. 172 keplercheuvreux. Ranking of Industrie 4.0 trend but does not mention the potential development of software or IoT applications to expand the use of its tools. recalibrate its supply/demand levels or introduce predictive maintenance to reduce downtime even further. the company said it plans to serve the Industrie 4. factory automation (scanners for traceability) and digitalisation (Fieldbus). Its R&D levels are high compared to the capital goods average.0 capabilities Datalogic compares favourably to most other Industrie 4.00 such capabilities to its manufacturing customers.

com . Datalogic Buy TP EUR 30.00 Chart 105: Datalogic’s internal survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 173 keplercheuvreux.

0 9.6 55.9 55.2 8.4 75.4 239.9 55.3 70.8% 15.0 0.com .5 45.78 1.7 Free cash flow 23.5 2.9% 18.9 Working capital requirement 29.1% 5.4% 13.1 7.05 1.0 387.8 61.7 14.7 294.00 Key financials FY to 31/12 (EUR) 2011 2012 2013 2014 2015 2016 2017E 2018E Income Statement (EURm) Sales 425.93 1.2% 7.3 84.5% 2.86 0.5 -23.3 38.3 298.9 14.2 12.2 367.7% 6.1 379.9 55.4 Invested Capital 229.7 21.0 -16.7 -3.7 51.7 59.68 0.2 16.0 51.5 13.5 -22.5 616.45 58.2 2.45 58.1 Net profit from discontinuing activities 0.0 18.1 Net profit adjusted 35.0 50.4 -17.9 19.01 1.4 204.91 2.2 241.68 0.3 10.0 Net profit before minorities 25.5% 11.10 5.7 60.0 -16.8% 15.0 0.2 6.8 61.8 0.3 70.2 -8.14 1.4 121.9 30.87 1.3% 2.8 66.3 8.6% -2.2 62.1 1.7 2.1 -1.9 40.68 0.4 7.9 19.20 Cash flow per share 0.1% 15.4 Dividend yield (%) 2.7 EV/EBIT 8.9 1.0 -21.06 1.0 0.7 24.5 45.3 0.0 0.4 73.2 221.2 332.5 -17.4 105.9 Capex -13.6 P/CF 9.9 47.8% EBITDA adjusted 59.5 34.1 90.4 -6.9 44.8 6.9 40.0 319.90 0.76 6.4 -3.9 26.1 576.5% 1.0 Dividend paid -8.6 39.8% 29.9 1.2% 14.3 Per share data EPS adjusted 0.45 58.6 7.6 51.0% -9.3 70.0 0.6% 17.1 58.2 50.5 2.0 0.0 1.17 4.44 0.25 0.7 -22.31 Dividend per share 0.9 16.69 0.7 464.3 -11.2 -6.3 352.2% 10.8 19.6 -8.52 0.2 76.3% 4.1 0.1 41.1 3.5% 11.0 -0.0 99.4 -96.4% 23.5 -37.3% 14.0 -3.1% 7.9 230.68 0.7 47.5 13.4 380.5 20.9% -18.9 52.7 -1.45 Number of shares.0 Change in net financial debt 17.1 Others 10.5 Liabilities and provisions 390.5 45.0% -1.8 39.0 -7.5% 3.9 Cash Flow Statement (EURm) Cash flow from operating activities 36.1 Balance Sheet (EURm) Intangible assets 154.5 20.5 P/E adjusted and fully diluted 9.61 0.40 0.9% Valuation P/E adjusted 9.5 -9.6 8.17 0.9 26.6 66.3 336.4 12.4 -8.13 5.6 -14.0 0.3% Net financial items & associates -3.7% FCF yield (%) 6.3 450.2 651.81 0.3 0.7 90. YE (m) 58.2% 31.2 41.2 1.9 8.45 58.3 34.9 26.4% 3.6% 15.6 6.2 68.0 Net financial debt 59.7% 7.3% 14.4 4.5 -14.6 39.2 74.6 Net profit from continuing operations 25.7 13.1 9.5 282.3 297.0 0.0 0.4 185.1 -61.0 2.5 33.9 9.7 26.8% ROIC (%) 17.8 -10.9 4.5 -18.0 7.2 Pension provisions 6.7 EBIT margin (%) 11.2% 8.9% 13.1 Net profit reported 25.3% 4.3 9.9 50.1% 17.3 43.0 0.16 0.2% EV/Sales 0.9 30.3% 16.0 55.2 Acquisitions & Divestments -8.8% 52.81 0.6% 13.0 61.9% 13.7 Gearing (%) 34.7 Others 0.1 23.7 374.1 78.0% 22.45 58.7 377.9 81.9% 5.0 -3.0 0.5% 18.3 -18.4 211.9% 69.18 0.1% 12.30 0.9 30.7 9.7 % Change 8.7% 15.52 0.7 9.0 69.1 -12.4% EPS reported 0.9 235.7 0.9 9.0 0.8 53.2 12.2 -1.1 2.14 1.8 -80.8% 1.1% 18.5 1.2 Financial & other non-current assets 39.4 346.0% 13.5 462. debt / EBITDA (x) 1.3 57.2 EBITDA margin (%) 13.15 0.9 4.9 Total shareholders' equity 170.9% 1.5 535.0 0.46 0.5% 11.1 1.45 58.2 0.1 -10.9 342.7% 16.0 Tax -7.9 12.3 173.9% Net fin.0 0.7 7.0% 23.61 0.53 0.45 Ratios ROE (%) 23.3 21.8 24.4 -0.2 427.0% 1.3 0.0% 21.9 9.27 1.15 0.30 EPS adj and fully diluted 0.2% 8.1 97.2 9.7 16.7% -22.6 116. Datalogic Buy TP EUR 30.30 % Change 72.4 12.9 50.7 42.5 10.5 P/BV 2.9 15.6 30.51 7.87 1.9 40.1 23.8% EBIT adjusted 48.8 18.1% 17.8 61.7 7.7% 17.45 Book value per share 2.63 0.6 240.6 0.8 -8.9 9.3% 2.4 72.3 EV/EBITDA 6.3% 8.0 0.3 61.0 0.4 54.7 12.9% 18.5% 15.9 Tangible assets 50.2 328.9 15.7% 10.0 0.97 3.45 58.4 7.8 174 keplercheuvreux.2 2.

Application Technology (16%). debt (m) -154. the company is exposed to Avg.3% 2. of shares outstanding (m) 35 Clean Technology Systems (5%).0.4 10.48 Dürr acquired Homag Group to develop.45 5. Smart Products.7% orders a paint shop. It benefits from operating within Germany and its FCF (m) 132.10 2.2 220. EPS adj. offers a Price DJ Stoxx 600 (rebased) particular smart service.3 7. It has developed 90 software to ensure the quality and customisation of products for each 85 customer allowing “batch size one” configurations.4% a 3D modelling simulator to inspect the digitised machine to identify any Net fin.5% -40.26 5. The firm’s robots are ready 80 to produce “batch size one” products with the same efficiency and speed of 75 automated mass production systems.7 17.0 Industrie 4.574.71 5.351 Systems (32% of revenues in 2016). Dürr’s 95 subsidiary.6 197.4 -1.0 and Smart Factories.debt/EBITDA -0. 52-week high/low (EUR) 107.1 407.70 6.9 3. Free float 71% Measuring and Process Systems (17%). among other segments.4% 41.9 Net profit adj (m) 188.0 strategy.0 practices. for EUR228mn and a year later acquired iTAC Sales (m) 3.com .773.2 competitive advantage. Dürr operates five divisions: Paint and Assembly Bloomberg: DUE GR Reuters: DUEG.1 3.0% 2.84 Up/downside 20.6 374. P/E adj and ful. 5. we can see further development for this pillar. daily volume (EURm) 27.0 15.4bn Target Price EUR 117. Smart processes are based on different principles and the EV/EBIT 8. Smart Services.6 Through Machine to Machine communications (M2M).7 315.com +49 69 7569 6121 Dürr is a Germany-based company providing equipment and services mainly Market data to the auto industry. In 2014.8 -388. Equity Research $:m: m:m:m: 117.37 Consensus EPS 5.0% firm to sell multiple connected and intelligent products in a single package.0 224. Geographically.1 company relies on an array of functions to serve them.35 Dürr has launched Digital@Dürr to implement its own Industrie 4.4% 6.5 9. Video-based diagnosis 65 Aug 16 Nov 16 Feb 17 May 17 enables quick troubleshooting.5 -537.35/66. a subsidiary of the group. a central component of Industrie 4. Before Schenck delivers a smart balancing system. Schenck. Wood Processing Systems (30%) and No.1 7. the system’s individual digital print is saved. Smart products enable the ROIC 33.4 8. it enables smart 110 processes. 12.0 6. they receive a fully digitised model of it.6% -49.639. while also 100 providing predictive maintenance information. Smart services guaranty efficient 70 customer care.3 Gearing -18.89 IIoT strategy Net dividend 2.8 Software to extend the group’s activities in the Manufacturing Execution EBITDA adj (m) 358.00 Current Price EUR 96. FY to 31/12 (EUR) 12/16 12/17E 12/18E It is based on four pillars: Smart Processes. the deep coding system will identify procedural 105 delays and notify the machine operator through an application.7 285.2 EV/EBITDA 6. Dürr is an EBIT adj (m) 271.3% 51. They create video diagnosis in no time. 175 keplercheuvreux. For example. EV/IC 4.de Market cap (EURm) 3. Through Homag Group.0 -1. and fully dil. Dürr can then use Dividend yield 3. dil.5 example of technology being applied to a specialist niche to support a Net fin.00 ReportT ype$ $Com panyRe gion$ Dürr Buy Germany | Capital goods | MCAP EUREUR 3.6 Systems (MES) field. When a customer FCF yield 5.8% both developed (65% of sales in 2016) and emerging markets (35%). its Wood FY to 31/12 (EUR) 12/16 12/17E 12/18E Processing System activity.6 YTD abs performance 26.21 2.8% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E Digital and automated paint shops Hans-Joachim Heimbuerger Equity Research Analyst hheimburger@keplercheuvreux.7 214.0% defects it might have and correct potential flaws.5% 6.

evaluates. and aggregates their data. The company knows it has to answer to the customer’s new and more technical demands. The company is focused on capturing and harnessing technologies to the benefit of its customers in the corresponding target verticals. the optimum vibration pattern reveals whether repairs are needed via remote diagnosis and therefore regardless of location. Its recent investment in iTAC shows the firm’s willingness to adapt to the new realities of the sector. Dürr’s digital strategy is set to offer productivity gains to clients and. through the acquisition of iTAC and Homag Group. and a >30% ROCE. To confirm this transition. the firm’s R&D costs grew by 9% YOY in 2016 reaching EUR106m.8% and 2017- 26E sales and EBITDA CAGRs of 3. Our DCF yields a per share fair value of EUR117 with a WACC of 7.00 During operation.0% and 4. Our EVA model shows a discounted fair value per share of EUR118 for 2019E. the software company recently acquired by Dürr.0 Dürr seems to be one of the strongest firms among its peers in terms of Industrie 4. The focus of smart factories is networking and automatic control. Dürr Buy TP EUR 117. Capex stands at EUR70-80m.0 advancement. or 3% of sales. It then collects. The company has implemented its digital strategy across all 176 keplercheuvreux. Chart 106: Dürr’s strategy Source: Dürr. The company has set a goal to reach EUR5bn in sales by 2020. The key technology involved in this is MES. Direction of Industrie 4. it plans to grow both organically and through acquisitions. To do so. is a leading provider in the field. Big data analysis enables targeted production optimisation. Dürr is a case study of IIoT in action. An efficient MES is a central component of the Digital@Dürr strategy. Dürr Investors’ Day 2016 Overall. ITAC. as well as an EBIT margin of 8-10%. A FCF perpetuity model shows that Dürr can generate FCF of around EUR230m on a normalised basis. respectively. to extend its revenue stream to software equipment for its customers. The software application links together independent machines.com .4%.

com . The iTAC acquisition is the one that impresses us the most.0 capabilities Dürr is one of the most advanced companies within our capital goods coverage. The company’s MES software suite controls and analyses production processes. It is a case study in applying technology to achieve success.00 segments. Dürr will require best-in-class execution. a group-wide standardised product development process will be defined and implemented and Homag’s whole portfolio should be replaced by 2019. Announced investment needs The company’s upcoming targets will include helping Homag Group reach its full potential. further investments in software will be needed. through an innovation program. the requirements for innovative products with short payback times. Dürr Buy TP EUR 117. Through iTAC. The FOCUS program for Homag includes expansion in China and the US. differentiation levels and promise consolidation of the competitive environment. Dürr wants to follow up with synergies and transfer its project business know-how. 177 keplercheuvreux. Its goal is to modernise its older projects to make them more flexible and automated. and the difficulties of an international collaboration including sharing competencies. The company now has to improve its technology through the optimisation of manufacturing productivity. The company is also investing and developing its brownfield business. Through leaner processes and client-focused applications. Finally. Ranking Industrie 4. predictive maintenance and digital services. but was able to identify a strong player and to seamlessly integrate to its operations. This will mainly affect the Chinese and emerging markets. and management hopes to strengthen its position as a leading supplier of automated solutions. which means that future acquisitions would target digitised or digital companies. the company has become one of the strongest competitors in its field. The subsidiary is benefitting from the automation trend. Among OEMs. The company sees itself as a leader in digitisation. Dürr has been able to expand its revenue line while offering productivity gains to its customers. The challenges emerging from these Chinese brownfield projects are the time constraints (productivity loss). and the product range will need to be realigned with customer expectations. automation and networking in industrial production using intelligent products and services. Dürr offers M2M communications to its customers and stronger and better big data (data collection) and data science (data analysis and aggregation) capabilities. The group has made revolutionising its digital capabilities the core of its strategy. They favour innovative companies. Overall. We believe the current automation and customisation trends in the industry are beneficial to the firm. To do so. maintenance is always low and the first paint shop in China was launched in 1982. Through its software development strategy. its automation levels and its recent acquisitions. The company already had a foot in software development at the time.

00 SWOT analysis Strengths: Dürr is fully digitalised. Dürr Buy TP EUR 117.com . The company is highly dependent on single customers. Threats: The company’s exposure to OEMs is high. It has to be careful with the pricing of its upcoming acquisitions. Opportunities: Through a better integration of Homag and iTAC and additional well selected acquisitions. Weaknesses: The company is highly exposed to emerging markets and this could slow its growth over time. the firm could reach its 2020 revenue and EBIT targets. It offers productivity gains to its customers while adding new revenue streams through Industrie 4.0. Chart 107: Dürr internal survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 178 keplercheuvreux.

0% 0.922.1 -31.9 Total shareholders' equity 364.7 0.0 15.5 176.4 13.9 94.6 8.0 188.0 0.3% 51.7 7.4% 6.7 16.6 2.33 4.3 Free cash flow 108.4 -1.7 49.27 6.5 9.0 -75.2 2.3 8.7 49.5% 2.3 173.3 10.4 10.19 5.0% 2.3 623.3% -5.20 Book value per share 10.4 -51.4 10.4 13.45 5.4 725.05 4.37 EPS adj and fully diluted 1.639.6% 22.8% -46.5 8.6% 8.3 Liabilities and provisions 1.7% EBITDA adjusted 127.5% 16.2 Financial & other non-current assets 57.2 Net profit from discontinuing activities 0.0 -72.0 0.0% FCF yield (%) 22.5 Net profit from continuing operations 64. debt / EBITDA (x) -0.8 -311.6% 11.8 161.0% 0.0 173.7 2.8 -107.238.9 648.9 3.9 90.7 2.6 0.4% 27.45 5.4% Dividend yield preference shares (%) 0.8% EPS reported 1.2 -0.6% 11.9 311.1 3.6 -36.3% -17.9 -51.6 8.0% 0.2% 10.15 27.0 -72.6 197.6 185.7% EV/Sales 0.6 -59.60 34.58 9.1 511.10 2.0% 0.9 3.9 150.2 220.79 3.0% 0.8 2.60 34.0 108.5% 6.2% 9.0% 0.6 188.4 Net profit adjusted 61.6 0.7 432.4 -0.3 432.3% 9.10 4.4 -1.9 150.0 Dividend paid -6.4 835.60 34.6 Tangible assets 144.430.8 714.0 Tax -21.8% 3.7 17.3% 7.7 -2.399.6 185.2 12.1 3.37 12.8% EBIT adjusted 106.0% 0.0 0.9 12.0 1.0 0.2 P/BV 1. Dürr Buy TP EUR 117.2 12.5 Dividend yield (%) 4.574.9 3.8 107.0% 8.9% 2.5 138.20 Cash flow per share 3.322.8 -95.5 15.50 5.0 0.0 0.4 4.2% 15.0 214.4 140.1 -7.5 956.7 -154.222.9 348.4 Pension provisions 57.4 140.7 326.60 34.6 70.9% 2.2 -177.4 -0.4 0.3 28.10 4.2 72.3 -53.3 Capex -19.4 755.8 11.0% Net fin.6 179.8 -388.3 -387.6 -31.0 242.2 387.7 405.65 31.8 % Change 52.0 -29.8 0.7 -29.8 50.21 2.1 297.7 161.6 9.3 262.3 111.3% 2.0 155.5 -16.60 Ratios ROE (%) 18.7 7.4% 30.4% 41.0 617.0 0.6 182.1% 27.9 640.2% 27.1 179 keplercheuvreux.9 EBIT margin (%) 5.40 9.4 230.99 5.45 1.2 0.0 -40.2 193.60 34.7 -143.3 166.7 315.8 53.0 0.1% 1.5% ROIC (%) 17.7 142.6 148.767.0 0.78 20.3 111.0 -94.79 3.0 -1.7 329.42 8.3 322.0% 21.1 -227.0 17.7 214.7 -33.1% -11.1 394.05 4.4 -84.2 140.7 632.6 -22.9 117.8 271.7 535.1 1.13 1.0 15.3% 30.2 Net profit reported 61.6% 10.0 EV/EBIT 4.8 -89.5 -14.8 362.8 53.4 8.8% 31.65 1.4 208.6 0.4 -68.0 -53.6 374.79 3.5 1.6% 7.8% 27.3% 10.5 Cash Flow Statement (EURm) Cash flow from operating activities 127.9 8.35 Number of shares.8 217.8 EV/EBITDA 3.1 6.4 -389.2 -23.10 4.2 358.4% 4.2 Others 0.0 222.5 10.9 1.9% -18.2 132.7 0.3 -14.0 0.5 Invested Capital 438.4% 8.6 2.9 2.6% -49.00 Key financials FY to 31/12 (EUR) 2011 2012 2013 2014 2015 2016 2017E 2018E Income Statement (EURm) Sales 1.574.256.0 -238.1 205.9% 0.188.2% 3.2 278.9% 8.4 -84.7 17.5 -537.2 210.4 Balance Sheet (EURm) Intangible assets 326.6 -99.1 2.9 202.9 12.2 6.9 90.com .4 227.4% 24.1 P/CF 3.3 2.7% -13.3 -43.05 4.00 6.0 149.9 152.0 49.4 -78.3 166.0% Valuation P/E adjusted 7.51 6.0% 10.4 Others -67.9 602.19 5.2 140.1 3.8 -76.4% 24.5 5.0 224.4 3.5 49.0 318.8 4.0 Net profit before minorities 64.1 407.4 -16.5 15.8 217.2 -18.0 0.3 -77.70 6.60 34.58 17.4% Net financial items & associates -20.7% 2.2 Per share data EPS adjusted 1.773.156.1% 7.60 1.6% 9.9 220.0 -23.2 P/E adjusted and fully diluted 7.67 5.37 % Change 875.4 73.5% 5.3 434.8 107.5 4.4 -83.5% -40.3 86.0% 4. YE (m) 34.5 3.60 34.01 6.7 Net financial debt -48.0 Acquisitions & Divestments -5.196.0 -0.70 3.097.3 Gearing (%) -13.4% 5.8 7.25 14.6% 33.4 299.4 90.6 EBITDA margin (%) 6.8 0.6% 7.8 Change in net financial debt 28.0 0.15 24.4 522.9 267.0 7.5% 7.0 2.7 -21.70 6.1 7.1 -396.85 2.7 285.71 Dividend per share 0.2% 73.50 5.4% 8.0 0.2% 27.406.1% 25.2 Working capital requirement -63.0% 46.3 -64.3 -10.7 -54.

quality controls and inspection.0 Net dividend 0.7 20.7 2. results and design).6 compares to a 5% average in the capital goods sector. of shares outstanding (m) 360 solutions serve its customers along their whole value chain.4% 1. 3. and fully dil.8% to final product. while the manufacturing 340 body requires a seamless flow of information between design. We further apply a EBIT adj (m) 736 816 907 Net profit adj (m) 573 630 698 target multiple of 25x on 2020E EPS.1 2.00 ReportT ype$ $Com panyRe gion$ Hexagon Buy Sweden | Capital goods | Mcap SEK 139.200+ patents.1 3.92 the management risk.debt/EBITDA 1. we reach a value of EUR47 or SEK460 per share.3 13.0 capacities across the company’s business portfolio.2 15. which we then discount back to the Net fin. Market data While the company serves a plethora of end-markets. delivering automatic feedback. a long-term growth rate of 3% and a long-term EBIT margin of EBITDA adj (m) 970 1.0 strategy based on two pillars Hexagon has disclosed its Industrie 4.80 Up/downside 17. 320 300 Future investments Aug 16 Nov 16 Feb 17 May 17 The company outlined the future expected investments in the areas of Price DJ Stoxx 600 (rebased) connectivity and digitalisation: the realisation of digital synergies between the company’s three main focuses (inspection.0- friendly. Concerning manufacturing operations.2 Hexagon’s Industrie 4.092 1.50/304.1% of Industrie 4. 21. OEMs 380 have been struggling with increased demand. R&D is key to the development Net fin. Finally.2 Gearing 31.7 1. This P/E adj and ful. showing its Dividend yield 1. and 2) the 400 automation of information. both in quantity and quality.4 3.48 0. Consensus EPS 1.com +46 8 723 51 63 Hexagon is implementing connectivity along its entire product range. Equity Research $:m: m:m:m: 454. the conversion of its whole product line in order to become Industrie 4. engineering. The challenge of information automation is the need for multiple end.4 17.7% EV/IC 2. 18% of EV/EBIT 18.6% 4.4% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E At the top of our analyst survey Markus Almerud Equity Research Analyst malmerud@keplercheuvreux.193 25%. dil. debt (m) 1.2% 3. 360 markets to link together islands of information. Furthermore. 30x) with a discount to account for EPS adj.419 knowledge and extensive investments in research & development (12% Free float 74% of sales) have made it one of Industrie 4. from design Avg.com .2 YTD abs performance 18. Our target multiple is FCF (m) 517 535 685 based on the peer group median (c. With the application of IoT.00 production efficiency and operational optimisation of its customers. reaching a value of EUR47 or SEK452. ROIC 9.ST Market cap (SEKm) 139.7% company’s patent portfolio amounts to 3. which is based on two 420 pillars: 1) the automation of manufacturing operations.74 1.2% 9.9 the firm’s employees are devoted to R&D (c.5% determination to be ahead of competition. 180 keplercheuvreux.2 2.6 1. daily volume (SEKm) 447.419 end of 2018.4% 1.00 Current Price SEK 386.400 employees).429 1. Using a WACC Sales (bn) 3.0% 26. 1. IP enabled. and overall being more ready for the new production environment.3% 9. the FCF yield 4.0’s first movers.59 1.2 EV/EBITDA 14.5 1.4 21.1% 38.4 23.60 Research & development is central to the firm FY to 31/12 (EUR) 12/16 12/17E 12/18E The firm invests 10-12% of its revenues in research & development. its technological Bloomberg: HEXAB SS Reuters: HEXAb.5 of 8%.4bn Target Price SEK 454.55 0.887 1. Our FY to 31/12 (EUR) 12/16 12/17E 12/18E target price is based on a mix of a DCF and P/E valuation. it can enhance the 52-week high/low (SEK) 418. Its products and No.0 strategy.

the company has pinned Industrie 4. Overall. On a YOY basis.com . Hexagon is developing its potential to further allow digitalisation and connectivity for its customers. Hexagon is a strong technology player that has based its growth both on an organic increase of sales and M&A. mainly on the back of organic growth (5%) and M&A consolidation (3-5%).0 did not just rely on M2M or automation but rather on an overall connectivity of the assets and the software solutions. Industrial Enterprise Solutions and Geospatial Enterprise Solutions. This being said. The communication between metrology and the software enable such evolution through the collection and analysis of data. the firm has been able to build a strong product and solutions offering around its two core businesses.0 potential.0 as a strategical turning point for the company. Hexagon is able to bring important added value. which is the main challenge for the industry. Through its sales of CAE (Computer-Aided Engineering). Through the development of new sensors and new visualisation tools coupled with the acquisition of MSC (a CAE software company). By selling both software and proper tools. Hexagon can help its customers embed a precision control tool in their production line seamlessly and further grow their Industrie 4. the company expects to grow its top line 8-10%. ROMI. Hexagon’s Manufacturing Intelligence strategy was clearly stated in the manufacturing world: to enable further automation of manufacturing operations and enable the automation of information. Real-time data is key to the evolution of production lines. Hexagon enables its customers to develop better productivity through higher precision in the production processes. the company can ensure a presence along the whole length of its customers’ production lines. Hexagon Buy TP SEK 454. the company has understood that the instalment of Industrie 4. Both divisions are split into sub-divisions and serve different industries. Key account customers are looking for seamless solutions to treat islands of information (data) from engineering and design teams all the way to quality and control processes. Furthermore. The technological component included in the company’s value offer is core. Specifically. Most of those functions are executed from different places around the globe and the linkage has to be realised through the cloud. CAD (Computer-Aided Design) and CAM (Computer-Aided Manufacturing) software as well as sensors along the production line. By enabling its sensors and machines to communicate (making them smart). The CAE software will allow a company to leverage the lessons learned through a failed or unprecise production line development. SKA and technical partners such as Sandvik. Through multiple partnerships with companies such as KUKA. The precision tools it delivers to the customer industries along with automation robots such as KUKA and RFID readers allow the company to install itself in the digitalisation space of manufacturing. through its Manufacturing Intelligence business (the successor of metrology). Hexagon is focusing on this second pillar.00 IIoT strategy Overall. 181 keplercheuvreux.

Hexagon is ahead of comparable firms such as Ametek (5% of sales and 11. Moreover.47/5. It reached an exceptional score of 4. the Manufacturing Intelligence part of the group has a presence along the entire production line of its customers. Through connectivity.0. design. Furthermore. The development of the digitalisation trend has reset the focus of this subdivision. The rebranding of its Metrology division into Manufacturing Intelligence shows the will to develop a marketing strategy targeting companies with a digital bias as well as key accounts. 182 keplercheuvreux.00 Direction of Industrie 4. Hexagon has given particular importance to its Research & Development capacities. development of synergies is also expected across the three areas of Manufacturing Intelligence. With 12% of sales invested in R&D. the proliferation of smart sensors is increasing and Hexagon is following this trend as connectivity is key to Industrie 4. inspection and results. they will allow the customers to integrate all of Hexagon’s applications and tools and seamlessly transfer data from the engineering and design teams to the shop floor and vice versa. Furthermore. This could therefore have a positive impact on the company’s top line. KUKA and Schneider Electric.0. Hexagon has come out as the strongest company among our Capital Goods coverage. We also expect Hexagon to further continue its M&A strategy.0-friendly.0 action As we have mentioned previously. Within the area of the Industrial internet.com . The firm grows its sales by 3-5% through consolidation on a yearly basis.0- friendly. As seen above.0 trend. Announced future investment needs Investments will remain at 12% for Research & Development. making it by far the most advanced company among the coverage in the sphere of digitalisation. Hexagon Buy TP SEK 454. The rebranding of one of its subdivisions attached to high investments in Research & Development show the company’s resolve to further develop its offering and remain a technology leader in its area. By offering inspection tools along with software solutions. offering to make them completely Industrie 4. through our Analyst Survey. Competing with the likes of Siemens. When Hexagon will have realised this. it will definitely be closer to its customers and will have become a pure enabler of digitalisation. Created through better connectivity. the company will then succeed in its objective of information automation. This enables it to have more information about its customers and to be more embedded in their operations. we expect the firm to transform its products and solutions. This will enable it to provide more cross-selling possibilities to its salesforce. This positioning on research is crucial for the company to develop further core competencies in the domain of Industrie 4.5% of employees) and in line with companies like Renishaw (15% of sales).0 capabilities The elements seen above show the accent that Hexagon is on the Industrie 4. this shows the potential of the company in this area. Ranking of Industrie 4. the company has to make its entire product offer Industrie 4.

Hexagon Buy TP SEK 454. Further connectivity and partnerships will make a strong case for the firm’s solutions. SWOT Analysis Strengths: The company has a long track record of growth and investments in technology. Hexagon should be able to cross sell its solutions to be integrated along the entire value chain and product lifecycle of a company or product range.0 standards. Threats: Companies like Renishaw have slightly higher levels of investment in Research & Development and its European position could impact Hexagon’s margins over time if the company fails to modernise its product line. Weaknesses: Hexagon has not yet fully transformed its product offer to match Industrie 4. machines and software solution. it will be able to obtain a better knowledge of its customers’ operations and therefore have a better opportunity to target its sales to those customers. Opportunities: Through the multiplication of synergies.00 Through the integration of connectivity to its suite of devices.com . Chart 108: Hexagon Internal Survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 183 keplercheuvreux. Its positioning in the precision tools linked to engineering and design software makes it unique in our coverage.

9% 9.8 4.55 0.8% 1.4% 1.3 21.1 21.4% 26.0 2.85 0.1% EBIT adjusted 440 485 508 578 693 736 816 907 EBIT margin (%) 20.932 3.621 2.9% Net financial items & associates -59 -51 -34 -34 -27 -22 -21 -26 Others 0 0 0 0 0 0 0 0 Tax -75 -83 -88 -102 -125 -136 -144 -176 Net profit from continuing operations 297 351 371 406 505 579 576 705 Net profit from discontinuing activities 0 0 0 0 0 0 0 0 Net profit before minorities 297 351 371 406 505 579 576 705 Net profit reported 295 348 368 403 500 573 569 698 Net profit adjusted 301 349 380 432 528 573 630 698 Cash Flow Statement (EURm) Cash flow from operating activities 353 497 502 549 704 774 805 964 Capex -136 -172 -216 -233 -230 -258 -270 -279 Free cash flow 217 326 286 317 474 517 535 685 Acquisitions & Divestments -83 -67 -35 -537 -194 -172 -794 0 Dividend paid -56 -60 -99 -110 -133 -156 -198 -216 Others -25 -7 -1 30 57 1 0 0 Change in net financial debt 54 192 151 -301 203 189 -458 468 Balance Sheet (EURm) Intangible assets 3.15 2.7 1. debt / EBITDA (x) 3.85 0.0% 13.60 Number of shares.999 5.6 EV/EBIT 15.4 21.1 15.622 3.67 Book value per share 7.2 20.3% 13.044 3.907 4.41 1.235 6.49 352.3 14.386 3.0% 8.99 1.43 0.08 1.4 4.2 21.44 360.4 14.5% 3.34 360.2 Gearing (%) 69.8 20.871 6.2 P/BV 2.581 6.21 1.99 1.8 14.94 Cash flow per share 1.2% 9.0% 21.6 EV/EBITDA 12.7% 3.591 4.54 1.430 2.443 Pension provisions 39 64 53 88 124 132 132 132 Liabilities and provisions 2.9% 39.10 Dividend per share 0.4 17.9% 3.149 3.2 2.50 355.749 2.4 23.7 18.3 4.0 2.574 3.1 18.567 5.617 Tangible assets 229 239 253 312 288 295 373 331 Financial & other non-current assets 117 127 121 91 84 76 76 76 Total shareholders' equity 2.9% 25.4% 29.42 1.39 12.44 360.872 3.629 3.8 15.0 11.31 0.4% 1.460 7.28 0.48 0.4% 31.1% 38.0% 22.1 3.191 3.4 15.0% 51.526 2.8% 50.3% 9.3% 2.470 4.76 8.7% 14.1% 7.2% 20.04 9.9 4.4% ROIC (%) 8.9% 22.70 13.74 1.8 20.3% 9.631 7.4% 9.4 23.4% 8.2 2.779 2.615 1. Hexagon Buy TP SEK 454.552 4.17 0.13 1.846 3.35 0.473 Per share data EPS adjusted 0.14 7.1 21.092 1.193 EBITDA margin (%) 24.4 1.07 1.84 0.00 Key financials FY to 31/12 (EUR) 2011 2012 2013 2014 2015 2016 2017E 2018E Income Statement (EURm) Sales 2.2 15.3 13.5% 13.47 1.0 2.7% EV/Sales 3.4% 24.4% 1.4 15.7 P/CF 14.44 Ratios ROE (%) 12.2% 34.745 1.6% 4.7 2.2 21.419 Working capital requirement 451 385 367 394 380 465 505 525 Invested Capital 4.2% 3.429 1.3 14.5% FCF yield (%) 4.5 1.39 360.3 15.8 1.99 1.7 20.4% 28.2 15.4% 10.8% 32.7 18.4% 1.6% 13.9% 13.59 1.962 5.59 1.178 2.2% 13.00 1.0% 9.7% Net fin.8% 23.4% 5.00 357.39 1.1% 15.6 2.423 1.1% 56.192 Net financial debt 1.7 2.2% 13.04 1.8% EPS reported 0.4 11.9 184 keplercheuvreux.556 4.9 15.0% 26.5 2.8 18.96 2.887 1.3 18.1% 25.102 4.2 Dividend yield (%) 1.23 2.5% 7.6% 4.58 1.6% 30.47 1.3% EBITDA adjusted 542 606 642 744 901 970 1. YE (m) 352.3 20.499 % Change 46.72 11.254 3.74 15.2% 1.92 % Change 33.94 EPS adj and fully diluted 0.3 14.21 1.802 1.75 1.5% 8.2% 9.4% 20.0 3.704 6.1% Valuation P/E adjusted 16.2% 4.380 2.9% 16.561 1.com .526 5.7 3.0 4.0 P/E adjusted and fully diluted 16.206 3.2% 8.4% 1.1% 3.59 1.

0% become not only a machine provider but also a solutions and services Net fin.8 IoT platform that serves as a tool for its entire operations management. the company has developed an P/E adj and ful.638. dil. this data is accessible from anywhere with a smart device. debt (m) -373.15 Krones is a manufacturing leader in the field of processing. Our EBITDA adj (m) 336. Krones offers a fully IIoT line-up for its customers.391.5 254.8 Huge data processing capability With 200 physical servers and 700 virtual machines spread across three 115 data centres.1 -1.500 users concurrently. 52-week high/low (EUR) 113.4% and 5.6 -546.7% provider as well as a consultancy firm.9% 1.com .00 Through smart acquisitions. Avg. As a result.5x 2018 EV/EBITDA.0 2. data centre services and a better understanding of its customers through CRM.5% respectively).3 2018E.1 -449.40 5.0 180.8 3.1 12. Most importantly. The solution 90 developed can be fully integrated with other enterprise IT systems. the company should be No.4 EVA model indicates an undiscounted fair value per share of EUR102 for EBIT adj (m) 233. daily volume (EURm) 7.0 194.2 5.4 Gearing -29.9 362.75 1.8% 2.5 7.2 16.8 Through the integration of Microsoft’s IoT platform and Cisco’s FCF yield 1.1 10.3% 3.2 5.00 Current Price EUR 103. EV/EBIT 12. Our TP values Krones at 7. Equity Research $:m: m:m:m: 101.20 packaging technology.25/81. Net fin. filling and Consensus EPS 5.760.1 Net profit adj (m) 169.35 119.0 3.3 petabytes daily 110 and serves 5.9 277. widening its revenue stream with new consulting services.4% 18.70 143. the company offers more possibilities and services Price DJ Stoxx 600 (rebased) to its clients.2 385. The IoT platform has brought even 105 more capabilities.4 YTD abs performance 19.6% components in its new data centres. making their operations leaner and more productive.2 -1. 85 80 Offering a wide range of services to clients Aug 16 Nov 16 Feb 17 May 17 With this new solution. With Microsoft and Cisco. it has manged to transform itself and Dividend yield 1.0 (2016-25E sales and EBITDA CAGRs of 3.4 8. 37. Our DCF model yields a fair value per share of EUR101 Sales (m) 3.2% -35.4% -32. and fully dil.8 6.8 IIoT strategy FCF (m) EPS adj.com +49 69 7569 6121 Krones digitalisation strategy is one of the most advanced in the Market data coverage universe. Furthermore. or 5% of group sales.70 6. 185 keplercheuvreux. Krones has optimised its cost structure through new 100 capabilities such as remote monitoring.4% EV/IC 2. Every fourth bottle in the world was made by a FY to 31/12 (EUR) 12/16 12/17E 12/18E Krones machine. it redefines equipment performance Free float 48% in the food & beverages industry. of shares outstanding (m) 32 able to sell its developed solution to competitors creating new revenues.282 services and product digitalisation.8% 4.9 EV/EBITDA 8. ROIC 17. the company intends to further develop its FY to 31/12 (EUR) 12/16 12/17E 12/18E IoT capacities.07 and bottle-filling machines.90 Up/downside -2.91 2. It serves OEMs with state-of-the-art bottle-making Net dividend 1.debt/EBITDA -1.8% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E The bottle-making digital player Hans-Joachim Heimbuerger Equity Research Analyst hheimburger@keplercheuvreux.6 18. 17. support and diagnostics.00 ReportT ype$ $Com panyRe gion$ Krones Hold Germany | Capital goods | Mcap EUREUR 3. integrated 95 predictive management and real-time communication. Through the development and deployment of its IT Bloomberg: KRN GR Reuters: KRNG.0 3.3bn Target Price EUR 101.6% The company spent EUR170m on R&D in 2016. the company can handle an average of 1.DE Market cap (EURm) 3.7% 17. it acts as an example for its peers.

and Interfaces for smooth communication. among other solutions. lower total cost of ownership. The company’s knowledge of the production line and challenges of the industry is used to develop and implement SitePilot. All applications are divided into nine families of products. Line Management Systems. The results of the implementation allow customers to reduce downtime. The overall objective is to have production and software interacting seamlessly and provide support for each other. the company offers Line Diagnostics. Krones has developed its SitePilot software solutions. Finally. valuable indicators and data analysis (allowing an improvement of the production line). Krones’ solutions are tailor-made for the F&B industry. and have access to spare parts availability. Line Management Systems allows for the identification of weak points along the production line as well as bottlenecks together with the optimisation of operational processes. Chart 109: Krones digitalisation of customers Source: Krones 186 keplercheuvreux. among others. Krones Asset Management offers the opportunity. The line management system will enable customers to receive information about the line status. All of Krones’ IT solutions were brought under the same roof and include.00 Direction of Industrie 4. among other things.0 development To enable its customers to accelerate and steer their production facility processes. More specifically.com . and a Warehouse Management System (WMS). it will permit its SitePilot applications to communicate with each other. but are all connected to each other. Krones Hold TP EUR 101. make changes to production. to plan maintenance work with the least downtime. a Process Control System (PCS). an MES. Krones Asset Management. and organise necessary jobs in a timely manner. Each of the solutions is designed to allow the workflow in specific parts of the company to be organised on a reproducible and efficient basis. with the smooth communication interfaces.

OEM customer services were inefficient. The existence of these data centres and SitePilot allows Krones to develop a new line of revenues. which represent a competitive edge. making IT operations smoother.3 petabytes of data.0 capabilities Throughout our analysis of our capital goods coverage. data analysis. All three solutions ensure the development of smart factories around Krones’ production lines. Announced future investment needs Krones has set up key elements to ensure the digitalisation of its own company as well as that of its customers. making Krones a central player in Industrie 4. predictive maintenance. is also developing its digital capabilities. allowing them to realise beneficial gains in productivity and time through the acquisition of SitePilot tools and the use of Microsoft Azure’s cloud. Equipment maintenance schedules were based on time intervals. Through the integration of real-time data. Its digital knowledge will be key when competing for new customers. remote support. Finally. Ranking of Industrie 4. Krones Hold TP EUR 101. Business Intelligence allows companies to determine precisely where operational optimisation can be realised. meaning Krones will have to invest further in R&D to keep its actual position in the market. regardless of the boundaries of individual IT systems. stock levels and scheduling specifications. as no direct connections existed between them and the installed base. 187 keplercheuvreux. provides new consulting and services. the company has been able to modernise its assets and install intelligent device gateways. The company has also partnered with Microsoft to develop M2M communications between OEMs and their end-users. and remote diagnostics.00 SitePilot’s Manufacturing Intelligence ensures that customers have access to all IT data and analysis. predicted events. Through the development of new digital solutions. to recipes. and digital platforms to interact and aggregate data. edge to cloud communications. wherever they are. Its partnerships with Cisco and Microsoft show the company’s interest in the topic and make us think it will continue to develop its solutions. it has aided companies with remote monitoring. and improves productivity. Krones owns and operates three data centres. Krones optimises the cost structure through new capabilities.0. Through a partnership with Cisco. The company is expected to create new revenue streams through the use of its data centres and consulting and business services. representing a total of 1. Krones has been able to eradicate these issues and make operations leaner for its customers. real-time communications and more. deepens the CRM. Key competitor. SitePilot Planning ensures that operations are smoothly run by planning orders. Krones has emerged as one of the most automated and digitised companies. Back in 2014. M2M communications. setting up intelligent packaging and container types.com . Sidel. meaning they were either performed too early or too late.

Chart 110: Krones Internal Survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 188 keplercheuvreux. These elements result in productivity gains for customers. which alleviates the company’s cost line but hits customer retention levels. which could make it harder to retain customers. relying on other operators. Opportunities: Further development and stronger marketing of its solutions would allow the company to make it more popular to its existing client base as well as to potential new customers. the company offers multiple software products that enable not only monitoring but also data analysis and predictive maintenance. SWOT analysis Strengths: The company offers a digitalised solution to its customers and enables them to realise productivity gains. The company owns data centres but is not the owner of its IoT platform. Krones Hold TP EUR 101.com .00 With its SitePilot solution. Threats: Competitors such as Sidel are moving forward with digitalisation and could become a threat to Krones’ market position. Weaknesses: The company does not offer its own platform yet. reducing downtimes and allowing operational optimisation.

0 -113.4% 6.7 350.2% 18.3 Others -41.5 -132.00 1.7% Valuation P/E adjusted 33.8% 2.5 172.5 65.15 EPS adj and fully diluted 1.0 5.98 5.537.4 169.1 Per share data EPS adjusted 1.8% 7.2 385.1 1.5% 6.45 1.6% EV/Sales 0.9 211.0 1.0 0.8 189 keplercheuvreux.0 35.0 194.9 -133.9 157.8% 4.953.4% Net fin.5 -78.5 1.5 153.59 31.1 Net profit from continuing operations 43.3 24.1 10.4% 18.4 181.0 178.7 63.3 119.0% 17.4% 75.386.6 0.9% 7.0 0.9% -29.0 3.8 EV/EBITDA 10.6 18.4% Net financial items & associates 4.5 45.0 0.4 169.1 -449.28 2.8 244.2 482.9 0.15 Cash flow per share 3.3 1.7 109.480.2 13.1 15.16 3.0 0.4 13.9% 14.042.9 233.7 1.0 23. debt / EBITDA (x) -0.0% -31.5 762.7 156.29 36.8 0.1% 2.3 1.64 8.3 441.5% 7.0 0.2 257.3% 6.5% 1.530.0 % Change 14.2 39.2 -16.5 Liabilities and provisions 1.760.487.3 2.4 EBITDA margin (%) 5.0 196.3 475.4% -32.0% 14.5 7.6 21.3 2.0 Free cash flow 16.9 1.3 87.0 0.4 -51.8 Acquisitions & Divestments 0.2 -56.0 -100.8 Financial & other non-current assets na na na 1.4 2.75 1.6 17.4 135.8% 15.7 7.87 24.0 11.4 Gearing (%) -16.6% 9.0 11.1% 6.168.4 310.6 276.6 77.59 31.2 1.3 119.1 -1.0 0.8% 3.4 3.60 0.2 465.5 -51.1 1.38 2.3 Net profit reported 43.9 2.4% EBITDA adjusted 140.8 -0.2 -96.5 9.8% 6.3 171.0 Dividend paid 19.0 182.0 1.30 4.7 19.5% 1.1 479.5 9.com .3 Net profit from discontinuing activities 0.78 4.8 EV/EBIT 20.2 75.7 110.59 31.0 0.5 266.2 -1.9% EPS reported 1.4% 9.0 -100.0 -84.6 256.59 31.6 -546.2 557.7 -142.67 4.7 484.00 9.98 5.7 Pension provisions 82.35 5.9 -0.9 157.0% -17.161.3 305.0 202.1% 56.9 P/E adjusted and fully diluted 33.2 1.8 893.6 Balance Sheet (EURm) Intangible assets 110.7 1.2 16.172.7% 16.0 0.8 170.15 44.5 Dividend yield (%) 1.03 5.0% 7.6 0.9 285.3 336.98 5.9 521.9 1.5 12.0 0.0 196.4% 9.0% 10.6 127.8% 3.0 0.9 229.30 4.9% 10.0 3.3 Cash Flow Statement (EURm) Cash flow from operating activities 116.0 -99.16 3.6 8.0 235.1 15.3 171.5 -143.0 182.9 -102.2 -67.1 252.3 119.3% 3. Krones Hold TP EUR 101.1% 7.5 28.9% 7.2 16.3 1.8% 1.5 0.4% -25.7% 6.0 135.8 8.4 135.2 1.4 6.1 EBIT margin (%) 2.268.0% 2.2 2.2% -35.174.3% EBIT adjusted 70.7% 17.9 P/BV 1.2 2.7 6. YE (m) 31.78 4.9% 7.78 4.0 0.9 362.638.391.4 135.4 -365.35 5.1% 9.0 0.1 7.8 0.143.9% 1.1 P/CF 12.15 30.2 671.2 Net financial debt -125.1 -93.7% 8.5 254.4 789.7 227.8% 14.91 2.5 Change in net financial debt -6.59 31.0 0.16 48.00 Key financials FY to 31/12 (EUR) 2011 2012 2013 2014 2015 2016 2017E 2018E Income Statement (EURm) Sales 2.4 10.2 119.05 Book value per share 24.0 0.0 Net profit before minorities 43.21 31.35 5.1 -66.7% -0.59 31.0% 13.2 -1.0 Tax -30.7 2.16 3.0 180.9 -239.2 143.59 Ratios ROE (%) 5.2 -1.3 1.0% 13.8 954.003.4% 9.3 222.25 1.2 19.0 194.8 185.7 68.2 Others 0.3% 1.9 37.7 128.2 16.70 6.4 8.0 5.2 143.9 -30.5% 1.1 6.7 19.394.7 9.1 216.8% 13.0 Tangible assets 441.664.3 Net profit adjusted 43.0 -373.9 277.2 16.3 60.73 8.5 60.8 Capex -100.7 68.0 0.38 2.3% 3.9 1.30 4.3 155.5 7.0 180.1% -34.0 0.6 145.7 68.2 -82.3% 16.18 40.9 -50.6 18.9 96.4 4.6 17.8 55.4 493.1 12.46 Dividend per share 0.7 0.38 2.15 % Change -14.7 1.0 0.0 0.4% 5.2 13.6 576.07 Number of shares.815.0 3.44 4.9 -1.2 19.3 Invested Capital 661.7 2.7 Total shareholders' equity 785.6 -3.7 1.262.0 825.4 106.309.3 119.2 988.8 Working capital requirement 219.9% 7.2 16.0 0.7 1.7 68.70 6.5% 6.5% 13.5 93.3% ROIC (%) 6.70 6.2 83.1 3.7 156.7% 4.070.59 31.0% FCF yield (%) 1.9 -336.4 135.6 427.0 0.75 2.

com . the group’s “Digital Innovation system”. IIoT alone is unlikely to change materially our organic growth estimates for the coming years. based on a DCF with 8. of shares outstanding (m) 1.59 5.0 12.090 8. and cloud activities.21 4.3 +60bps in 2019E and 2020E). Sales (m) 23. once the group’s IoT solutions brand.3 On the other hand.84 comprises IoT solutions.1% CAGR over 2017-20E.1 4. We value the shares at EUR90. operating margins should therefore drop by Dividend yield 1. as investments in data centres will have been Gearing 6. which we see growing at around 30% a year.0 -0. dil. It is set to be 90 running on revenues of around EUR100m.229 announced in September last year that it will invest EUR2bn in IoT by Avg. SAP is set to remain a nice Net profit adj (m) 5. 20.50 1. The impact could be limited to a maximum of an additional 1% of organic growth over 2017-20.6 13.60 FY to 31/12 (EUR) 12/17E 12/18E 12/19E Margin pressure short-term P/E adj and ful.950 7. 190 keplercheuvreux. Net fin. up from 16% in 2017E.865 Shift to the cloud ongoing EBIT adj (m) 6.6 14.275 Revenues should continue to grow in the high-single-digits (we see an Free float 77% 8. debt (m) 1.3% (data centres).2 0. Over FY 2017.590 8. is running on estimated revenues of around FY to 31/12 (EUR) 12/17E 12/18E 12/19E EUR100m currently with triple-digit growth.047 5. we expect cloud Consensus EPS 4.0 SAP Leonardo 100 SAP Leonardo.994 4. markets. Bloomberg: SAP GR Reuters: SAPG.7 the short term. 75 Aug 16 Nov 16 Feb 17 May 17 Aug 17 and people (consumer market).2bn in revenues).5% 1.3% completed and the stronger effort on hiring is behind it. By 2020E.1% WACC.com +33 1 53 65 36 36 SAP has regained revenue momentum in recent years thanks to Market data investments in mobility.debt/EBITDA 0. cloud investments are putting pressure on margins in EV/EBITDA 14. Net dividend 1.973 FCF (m) 3.2 11. 4.1% -0. Equity Research $:m: m:m:m: 90. daily volume (EURm) 364. EPS adj.8% around 1pp to 29.0 YTD abs performance 6.7% 4.00 Current Price EUR 88. and then progressively rebound (+40bps in 2018E. as SAP remains in investment mode in the public cloud EV/EBIT 15.806 EBITDA adj (m) 7.757 3.100 top-line growth story for the foreseeable future. 7% sales growth and 32% long-term EBITA margin.10/75.3bn Target Price EUR 90.09 while licence sales should decelerate. and fully dil. The group No.1%. 85 IoT not a game changer 80 SAP Leonardo’s strength lies in the fact that it goes beyond pure IIoT offerings and addresses market segments like connected cities.0% 21.365 With an estimated 8.623 mainly by cloud subscriptions.701 27.30 1. real-time analytics.450 8.4% 2020.DE Market cap (EURm) 108.8% -8.6% ROIC 20. which 52-week high/low (EUR) 96.6 5.3 4.5% 3.00 ReportT ype$ $Com panyRe gion$ SAP Hold Germany | IT software & services | Mcap EUREUR 108.737 -263 -2. However. with a still limited top-line Price DJ Stoxx 600 (rebased) impact.4 FCF yield 3.504 6. SAP Leonardo.7% 1.2% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E IoT not yet a game changer Laurent Daure Head of IT Software & Services ldaure@keplercheuvreux.9 19. and management hopes to get this number to about EUR1bn per year. EV/IC 4.4% 23. Growth will be driven Net fin.10 Up/downside 2.1 subscriptions to represent 28% of SAP’s total sales.2 17.916 25.2 4.1% CAGR over 2017-20E to reach EUR30. has been transformed into a “digital innovation system” working on the SAP cloud platform and 95 comprising machine learning and big data capabilities.

334 Total shareholders' equity 14.916 25.2% 27.616 4.2 17.511 31.2 19.4 3.507 7.195 2.578 20.332 3.194 -1.0 4.89 4.03 3.090 8.1 3.468 1.791 2.380 3.5 0.2% EBITDA adjusted 5.4% 6.37 3.4% 38.274 3.30 1.067 3.00 1.7% 13.00 1.126 25.160 -6.25 1.509 5.00 1.097 27.945 26.439 26.619 3.827 3.129 7.348 6.1 21.999 Net profit adjusted 3.320 3.590 8.4 4.56 3.820 2.6% 32.8% 32.950 7.3% Net fin.590 11.1 4.300 26.230 -1.1% 30.2% 8.29 19.2 11.2 19.6% 4.5% 8.49 3.228.7% 4.701 27.3 18.1% Net financial items & associates -69 -67 -25 -4 -37 -23 -30 -15 Others -173 -16 49 -256 -233 -10 -70 -50 Tax -995 -1.3 3.316 -1.3 P/BV 4.6% Valuation P/E adjusted 17.332 3.799 Others 532 -251 14 474 -559 -500 -100 -100 Change in net financial debt -3.1% -0.022 4.49 3.708 1.8% EPS reported 2.973 Working capital requirement -573 -550 -581 -663 -765 -909 -746 -952 Invested Capital 14.86 Book value per share 11.593 -1.59 5.5% 9.3 19.465 -39 -106 -22 0 0 Dividend paid -1.068 23.88 13.4 16.4 17.2% 3.286 27.994 4.4% 21.644 25.978 17.822 3.1% 29.50 1.229.09 EPS adj and fully diluted 3.662 5.21 4.78 26.418 5.2% 3.389 2.865 EBITDA margin (%) 34.6% 8.694 Tangible assets 1.7% 1.5% 20.0 12.623 Acquisitions & Divestments -6.4 191 keplercheuvreux.274 3.9% 11.5% ROIC (%) 31.03 3.229.181 3.0 18.3 13.6% 32.752 3.925 3.00 23.12 28.450 8.069 -1.85 4.0 17.1% 18.1 20.087 6.322 2.827 3.229.640 4.808 Net profit from continuing operations 2.2% 21.310 -1.557 -1.2 4.1 P/CF 16.519 4.762 2.737 -263 -2.9% EBIT adjusted 5.6 13.00 1.1% 8.8 0.15 1.969 27.79 2.6 14.5 4.3% 31.210 5.4% 7.2% 9.757 3.640 4.com .8% 18.616 5.0% 21.5 3.827 3.171 16.3% 3.5% 1.0% 3.6 12.264 -1.099 19.047 5.200 -1.4 17.14 4.014 Net profit reported 2.531 1.039 3.9 19.631 3.857 17.3 4.21 3.378 -1.0 -0.8% 4.59 5.029 15.9% 1.102 2.066 3.957 5.980 3.678 3.33 4.082 -929 -1.958 22.3 Gearing (%) 18.382 25.341 34.172 4.00 1.3 P/E adjusted and fully diluted 17.4 3.638 6.062 3.17 Cash flow per share 3.5% 30.8% FCF yield (%) 5. debt / EBITDA (x) 0.04 3.3 20.8% 19.094 -1.60 Number of shares.4% 35.062 3.229.485 27.619 3.100 Cash Flow Statement (EURm) Cash flow from operating activities 3.7 3.4% 18.365 EBIT margin (%) 32.186 1.5 0.4 16.1 14.139 Per share data EPS adjusted 3. SAP Hold TP EUR 90.6% 23.78 Dividend per share 0.8% 1.509 16.671 17.6 13.37 2.504 6.336 2.8% -8.77 3.89 4.609 4.4 12.03 3.636 1.0 17.67 4.5 13.46 16.5% 31.4 19.816 7.552 898 -4.4 3.5% 24.194 5.9% 26.392 18.3% EV/Sales 4.809 22.1% 31.780 Financial & other non-current assets 1.738 2.2 0.9% 19.633 4.410 14.0% 34.43 22.7% 1.2 21.00 Key financials FY to 31/12 (EUR) 2012 2013 2014 2015 2016 2017E 2018E 2019E Income Statement (EURm) Sales 16.229.7% 4.5% 30.403 4.4% 23.00 1.0% 18.1 20.331 3.3% 4.99 3.3 1.1% 3.823 Capex -502 -512 -691 -569 -938 -1.511 16.499 1.0% 32.725 Balance Sheet (EURm) Intangible assets 16.629 6.834 3.200 Free cash flow 3.883 3.574 3.21 2.7 EV/EBITDA 11.498 -1.1% 6.03 3.014 Net profit from discontinuing activities 0 0 0 0 0 0 0 0 Net profit before minorities 2.00 Ratios ROE (%) 26.917 6.7% 1.229.229.013 -1.1 Dividend yield (%) 1.274 3.09 % Change 6.580 2.221 25. YE (m) 1.1 15.4% 18.200 -1.044 Net financial debt 2.2 0.0% 29.4 13.806 % Change 14.05 1.2 17.8% 1.527 Pension provisions 74 105 110 115 115 115 115 115 Liabilities and provisions 12.0% 10.37 3.74 2.901 17.594 23.9 19.382 28.6 12.536 5.304 16.00 1.636 4.5% 3.21 4.3 4.617 1.85 1.7 EV/EBIT 12.10 1.3 14.77 3.418 5.352 24.

offering ethernet and web 64 62 technologies on the shop floor. connecting more than a billion devices. 70 A long track record developing leading digital capabilities 68 The first smart factory initiative was taken in 1997.00 Current Price EUR 66.1 10. It represents a stack of devices.9 4.69 A leader in low-voltage electricals betting on digital FY to 31/12 (EUR) 12/17E 12/18E 12/19E Schneider Electric is the leader in low. intelligent.388 3.0% 18.19 2. the full digital offer ROIC EV/IC 11.384 the group’s offer.8% discount rate.7% 4. We 74 72 expect adoption of digital solutions to support growth.0% and data analytics to enhance the asset efficiency and energy use.829 approaches to arrive at a fair value of EUR77 with a range of EUR73.PA Market cap (EURm) 37. debt (m) 4.6% 2. Our DCF central case uses EPS adj.736 EUR82. industrial and FY to 31/12 (EUR) 12/17E 12/18E 12/19E electrical grid environments.0 13. Our multiples based valuation approach applies EV/EBITDA.7% is directed toward increasing its connectivity. when the group 66 introduced its “transparent factory” product. while enlisting expertise from customers in software development for analytics. Net fin.3 EV/EBITDA 11.4bn Target Price EUR 77.com . EBIT adj (m) 3. Schneider’s five-year EV/EBIT 12. dil.9 The digital system Schneider offers to all markets is the Ecostruxure platform. to 2018 FCF (m) 2.0% 6.5x and 16x.189 4. No.6 14. control with secure software Dividend yield 3.3% 3. of shares outstanding (m) 562 Partnerships with analytics and IoT platform providers create the Avg.55 5. low and medium Market data voltage products acts as a backbone or foundation for the digitalisation of Bloomberg: SU FP Reuters: SCHN.4 YTD abs performance 0.7 strategy places digitisation as a key pillar for investment and growth.00 ReportT ype$ $Com panyRe gion$ Schneider Electric Buy France | Capital goods | Mcap EUREUR 37. 192 keplercheuvreux. 2% terminal growth. Net fin. 16.665 3.186 EV/EBITA and PER multiples of 11x.02 4.6 13. Consensus EPS 3. The flexible suite of software creates the ability to Free float 100% provide tailored solutions in each of Schneider’s target markets.7% 14.000 systems deployed.9 0. edge control and apps that can be 76 tailored for each end-market application via different architectures. 4.8% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E Complete tailored solutions William Mackie Head of Capital Goods wmackie@keplercheuvreux. levering partners’ strengths. respectively.187 an IIoT enabler.983 4.debt/EBITDA 1.com +44 (0) 207 621 5183 Schneider’s leading portfolio of connectable.1 9. and a 15% margin mid-term.343 26. IBM intelligence and communication and network technology company offers.980 3.516 2. 58 The 2014 Invensys acquisition enhanced the offering in Industrial.and medium-voltage product and P/E adj and ful.4 4.8 Net dividend 2.52 Up/downside 15. We use the average of DCF and multiples based EBITDA adj (m) 4.4% 6.234 2.2% 1.0 12. Aug 16 Nov 16 Feb 17 May 17 Price DJ Stoxx 600 (rebased) Partnerships and open platform maximise opportunity Schneider has adopted an open source strategy. Equity Research $:m: m:m:m: 77. datacentre.0 0. EcoStruxure was developed and 60 has seen 450.50/59.559 4.00 a 7.239 2. daily volume (EURm) 155.9% 2.6 10.48 2.241 Net profit adj (m) 2.417 27.6% capabilities required for Schneider to enhance its ability to drive increased 52-week high/low (EUR) 74.023 2.11 operating efficiency and productivity in building.518 forecasts and discounts back to year-end 2017. Since then.7 Gearing 21. and fully dil. R&D FCF yield 5. including the Microsoft Azure IoT platform.7 11.6% Ecostruxure platform. 12. The group’s capabilities position Schneider as Sales (m) 25.4 system supply applied to six core market verticals.

an element of control functions and cloud-based apps. 15% software and services. 193 keplercheuvreux. the development of the industrial internet and digitalisation of business throughout Schneider’s end Provision of markets is critical to the future development of the group’s EUR25bn of revenues. while levering on the existing software offer. Chart 111: Schneider Electric digital strategy focused on three ideas Source: Kepler Cheuvreux Since 2016. but the relaunch creates a single The group’s digital umbrella concept under which a number of tailored offerings have been created. products is at the and 30% end-user applications. connectable low and The convergence of IT and OT is central to the development of Schneider’s strategy. data centre. 55% products. Schneider Electric Buy TP EUR 77. The platform’s capabilities are focused across each of the group’s target market segments . During 2016. meaning that the current bias of the business is heart of Schneider’s offer toward ensuring connectivity for devices. The offer is centred on the Ecostruxure brand Ecostruxture platform is a technology stack that provides connectivity for Schneider’s multiple products and devices. but Schneider is able to offer more tailored and dedicated solutions in each of its target segments: building.com . medium voltage The mix of business at Schneider is split c. Schneider indicated that nearly 50% of revenues were generated with IoT enabled products.000 systems deployed.and hence it is a key supporting digital application for the whole of the business.00 Schneider Digital Strategy As a global specialist in energy and automation management. Conceptually. The group’s digital strategy is centred on three pillars set out below. industrial applications and electrical grids . analytics and services. EcoStruxture as a brand and system has been under development since 2007.buildings. the Ecostruxure offer is shown below. industry and grid. with over 450. Schneider has centred its digital strategy on is EcoStructuxe internet of things platform. data centres.

Dell. The platform is positioned to be open to and operated by an ecosystem of developers and data scientists. Microsoft. The range of software offers and capabilities has been amassed via the group’s legacy of prior acquisitions. IBM. i.00 Chart 112: Schneider’s Ecostruxure brand Schneider’s core strength is within the connected products segment Source: Schneider Electric The first device layer of Schneider’s offer builds on the company’s core competence. this incorporates the PowerStruxure or SmartStruxure software suites. Intel. Foxbrobro and Triconex brands. To support Ecostruxure. supplying connected products with intelligence. …level 3 Apps and Schneider tailors its offer for each of the core end markets . 194 keplercheuvreux. and in the datacentre/IT environment it has specific software for data centre operation and monitoring.. machines value from the data set… and power distribution. while for Industry it includes the MachineStruxure and PlantStruxure offers alongside the Modicon. These product types are core strong leading components in each of the group’s divisions and sold across virtually all target portfolio in each part of the technology markets. For grids. Salesforce and ARM. Schneider and partners have developed a range of cloud or server- based apps and software systems that provide control. For each of the end markets. Schneider Electric Buy TP EUR 77. medium and The group has a low voltage circuit breakers and actuators. asset management and analytics functions.buildings.while offering specific solutions for industrial plants.Level 1 – connected incorporates connected control platforms that provide remote access and advanced devices…. Schneider has the PACiS and MicroGrid offers. functionality and connectivity of its devices. Schneider has built a network of alliances with companies including Accenture. Cisco. grid. scheduling. used alongside the SmartStruxure and …Level 2 intelligent offers at the edge… PowerStruxure offers.com . alongside internally development software. analytics and services. In the field of buildings. automation with local control and firewall protection. PTC. to provide access to all necessary technologies and to create an attractive platform for integrators and partners. The third layer comprises a portfolio of apps.e. industry solutions to extract and data centres . such as Invensys. planning. Schneider is adding value to the sale of components via the enhanced stack…. Schneider already has a broad collection of offers for each segment. including sensors. The second layer of Schneider’s digital offer centres on “edge” control and .

Schneider aims to leverage the collection of data in each operating environment to extract value for Schneider’s customers and the group. supplying low and medium voltage control and automation equipment for electrical systems.developing and selling connected devices - with complementary software naturally aligns the group toward facilitating adoption concepts linked to the IIoT. Positioning for Industrie 4. making the group’s portfolio of equipment a preferred choice for the device backbone in any of the key markets . data centres or grid . Over the past decade. manufacturing facilities.0 and IIoT At heart. Schneider is a product company. Within each environment the value of connecting Schneider’s devices in smart networks offers enhanced asset use. industrial plant and electrical grid applications. which has been reflected in R&D investments remaining stable as a proportion of revenues. machine. Schneider has built and acquired a full suite of software systems that interface with the group’s range of connected devices and provide monitoring. In each and intelligent offer is case. especially in the field of energy management and efficiency and in the discrete. The nature of Schneider’s core business . This means that as digital Schneider should be technologies and capabilities have evolved. Organic investment 195 keplercheuvreux. Schneider is able to provide smart connectable products (devices) that can be tailored for each end connected to localised processes or to the cloud. Schneider Electric Buy TP EUR 77. Within the group there are a range of software systems that provide connectivity and control.0 pursed exactly this strategy. control and analysis functions. datacentre.via continual expansion of the range of connected products. hybrid and process engineering environments. industry. Size and direction of investments for digitialisation Schneider maintains a high level of commitment to developing leading-edge technologies and designs across the product portfolio. Schneider has created industry-specific solutions that can be run securely in the cloud or on premises.00 Tailored for and targeting the core verticals Today’s EcoStruxure system is tailored to six specific architectures for building. which could include residential/commercial buildings. Schneider’s connected power. For end of the group’s target operating environments. Management has I4. the principal need for Schneider has thought of as driving been to increase the amount of embedded intelligence within the group’s product towards an IIoT offer and expand the ability of all devices to securely connect with associated strategy rather than devices and control software via wired and wireless networks. a leading industrial software company that supplies human machine interface solutions and control. although this can be largely achieved via partnerships. where data can be collected and market converted to actionable information. A good example of Schneider’s software capability is Wonderware. performance management and operational efficiency.building.com . datacentres or electrical distribution networks. The group’s capabilities in the specific field of industrial production limit its ability to be a full capability provider of Industrie 4.0 technologies and software. as applied to Schneider’s markets and around electrical technology. Cloud-based capabilities are supported by the platform and intelligence provided on the Microsoft Azure platform.

Chart 113: Schneider Electric’s Internal Survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 196 keplercheuvreux. Schneider already owns a broad range of software systems able to provide direct control in each market. Schneider has acquired and built a range of software applications. the group may lose market share to competitors able to offer more effective and comprehensive software solutions.00 in the field of industrial software has been more selective. The 2015/16 approach to AVEVA for a merger of the software businesses is the one exception to this path. 2) business models that generate revenues for Schneider from the enhanced asset efficiency it can offer.com . Threats If Schneider is unable to provide software and project solutions that provide many of the promised benefits associated with the IIoT. SWOT Strengths as a leading connected product supplier Uniting Schneider’s global relationships with leading distributors of low and medium voltage electrical products with the group’s leading technology and market share in the supply of connectable smart products is a powerful combination. although much of the capability and talent is embedded in silos. Schneider Electric Buy TP EUR 77. The merits of a combination of Schneider’s software activities with AVEVA’s software business remain unclear to us. Weaknesses We believe a weakness for Schneider is that the software strategy as applied to each functional application remains relatively uncoordinated. most recently via the acquisition of Invensys. This is enhanced by the group’s experience and knowledge in each market vertical. Opportunities The main opportunities come from building: 1) a globally strong partner network that constructs and maintains market and industry-specific applications that can sit on open IoT platforms (such as Microsoft Azure) to generate value from Schneider’s (and competitors’) connected devices.

485 2.5% 15.7% ROIC (%) 11.958 1.1 1.19 2.642 2.176 3.5% -10.7% 14.6% Net financial items & associates -349 -324 -312 -295 -272 -242 -252 -240 Others -97 -159 -155 -151 -190 -132 -127 -127 Tax -554 -665 -551 -389 -712 -796 -933 -1.2 11.1 10.2 1.298 1.103 19.71 3.0% 18.893 Pension provisions 1.6 13.108 24.9 20.829 EBITDA margin (%) 16.6% 8.8% 23.261 0 0 Dividend paid -919 -1.43 4.631 4.00 562.816 17.4 14.208 2.7 EV/EBITDA 9.42 3.6 14.7% EV/Sales 1.8 12.com .7 1.3% 11.394 1.9% EBITDA adjusted 3.688 22.7 1.3% 15.5 10.974 1.1 10.3 P/BV 1.9 0.537 2.07 2.6 P/CF 9.25 4.983 4.65 40.060 1.5% 7.640 24.736 Cash Flow Statement (EURm) Cash flow from operating activities 2.681 Net profit reported 1.5% 24.2% 2.00 562.0% 12.7% 16.0% EPS reported 3.064 -1.713 3.7% -5.516 2.832 2.019 3.06 4.067 3.140 18.824 4.240 1.1% 15.129 23.5 12.147 2.7 1.1% 19.02 4.3% 14.9% 21.878 1.1% 5.319 831 -604 -352 Change in net financial debt 871 1.26 34. Schneider Electric Buy TP EUR 77.329 Capex -719 -714 -829 -787 -764 -750 -786 -811 Free cash flow 2.7 197 keplercheuvreux.045 2.8 11.794 22.578 22.461 2.665 3.9 1.533 21.00 % Change 5.804 19.0% 6.825 2.7 1.620 Net profit adjusted 2.704 2.74 3.120 Tangible assets 2.9 1.69 Number of shares.713 3.7 1.3 17.751 2.423 17.06 3.3% -8.9% 12.48 2.42 Dividend per share 1.8 1.2% 10.289 20.2% 3.364 18.227 Net financial debt 4.98 5.9 1.878 1.8 16.3% 17.0 14.216 3.713 Total shareholders' equity 16.5% 17.60 5.776 23.946 21.518 Acquisitions & Divestments -121 -294 -2.976 1.363 20.777 2.6% 4.7 1.1 10.8% 6.158 21.3% 2.6% 8.68 36.745 1.52 37.7 12.774 3.8% 13.372 Others -171 143 190 -778 -1.030 2.42 561.681 Net profit from discontinuing activities 0 0 0 0 0 0 0 0 Net profit before minorities 1.974 1.92 3.0 1.970 2.204 2.28 3.05 3.8% 10.146 2.713 3.5% 14.954 2.95 3.4 EV/EBIT 11.331 5.44 3.6% Valuation P/E adjusted 12.691 391 -193 436 407 794 Balance Sheet (EURm) Intangible assets 17.6 11.5 12.8% -7.1 1.025 2.899 3.022 4.84 Cash flow per share 5.6% 3.866 1.151 2.8% 4. debt / EBITDA (x) 1.00 2.231 21.0% 3.234 2.9% 12.676 21.6 10.622 2.208 2.7% 12.577 2.8 Dividend yield (%) 3.2% 12.095 -1.39 3.3 1.8% 10.00 562.0% -3.777 2.157 -1.0% FCF yield (%) 7.098 3.2% 12.04 2.946 23.2% 3.65 31.2% 10.359 21.189 4.4% 21.807 2.2% Net fin.7 Gearing (%) 26.025 -1.270 2.239 2.5 13.417 27.229 2.6 1.55 5.395 3.7% 4.6% 13.1 15.8 13.7% 6. YE (m) 555.729 2.217 Liabilities and provisions 17.17 562.559 4.564 3.8 18.2 12.801 2.9% 6.3% 3.145 2.8% EBIT adjusted 3.64 38.8% 12.87 1.574 2.5 1.939 26.895 Financial & other non-current assets 2.023 2.082 2.928 19.2 P/E adjusted and fully diluted 12.727 Invested Capital 18.721 2.186 Working capital requirement 2.00 Ratios ROE (%) 13.8 1.263 18.17 572.6 1.9% 3.16 5.4% 11.89 4.06 EPS adj and fully diluted 3.96 572.3 14.507 22.108 -1.824 3.190 2.085 17.559 2.450 3.779 1.400 2.87 1.017 Net profit from continuing operations 1.069 3.223 2.461 2.388 3.327 3.9 18.693 25.969 18.7% 5.758 1.394 1.5% 13.9% 5.219 2.656 22.241 EBIT margin (%) 12.5% 11.1% 15.07 3.36 4.4 17.22 4.716 2.533 2.151 21.00 Key financials FY to 31/12 (EUR) 2012 2013 2014 2015 2016 2017E 2018E 2019E Income Statement (EURm) Sales 23.52 6.653 20.7 11.2% 24.343 26.6 16.7 20.199 2.206 2.2% 10.187 % Change 7.1 9.0 0.127 -1.03 5.897 1.16 Book value per share 30.3 11.866 1.38 4.771 4.4% 6.980 3.223 -1.869 4.490 232 47 -1.49 36.92 2.8 14.29 5.3 15.881 21.3 15.408 Per share data EPS adjusted 3.9% 15.28 3.

represents the final Sales (m) 83.660 7. that Siemens’ digital portfolio is not fully recognised.642 software. 13.20/101.6 Gearing 71.2 Sustained high levels of investment expand capabilities Over ten years.4% digital service growing at c. engineering.8 12.294 6. 198 keplercheuvreux.522 22.1 1. and 100 is one of the key drivers of the group’s mid-term growth prospects. 11x.277 137. FY to 30/09 (EUR) 09/17E 09/18E 09/19E Mindsphere.818 6.4 2. we estimate Siemens has invested EUR8bn in research and 135 development in its industrial software and automation businesses. 8. debt (m) 23. EUR10bn in M&A investment since 2007 provides a EV/EBIT 12.8% Consensus EPS 7. Our DCF central case uses 7. Pure play industrial software peers trade at higher multiples than the Siemens group.95 WACC. growing at an 8% CAGR and No.0 EV/EBITDA 9. and 15x. EUR5.089 investment until late 2018. Our multiples-based valuation approach applies EV/EBITDA.6 7. We 130 expect the future growth potential offered by digitalisation in the industrial 125 sector to ensure a high commitment to the development of the group’s 120 market-leading portfolio.434 Net profit adj (m) 6.6% 15.000 software engineers.8 Siemens’ c. 18.41 8.028 8.846 element of the group’s digital suite and will require considerable EBITDA adj (m) 11. Siemens’ specialised IIoT platform.8 comprehensive industrial software offering for digital design.6% discrete.364 and PER multiples of 9.6bn Target Price EUR 125.0 8. and fully dil.6% 7.656 86.80 3. showing. Siemens has invested c.9 Net dividend 3.5 YTD abs performance -6. Equity Research $:m: m:m:m: 125.3 2. ROIC 13.395 12. digital services and industrial automation.00 Current Price EUR 109.9 1.30 Up/downside 14. supported by c. This is complemented by Net fin. 2% terminal growth and a 11% EBITA margin mid-term. hybrid and process automation industries.DE Market cap (EURm) 88.049 13.5bn.00 ReportT ype$ $Com panyRe gion$ Siemens Hold Germany | Capital goods | Mcap EUREUR 88. of shares outstanding (m) 811 delivering operating margins c.2% manufacturing. We use an average of DCF and multiples based EBIT adj (m) 8. Aug 16 Nov 16 Feb 17 May 17 Price DJ Stoxx 600 (rebased) Undervalued component of group activities The group’s industrial software and automation portfolio. The trend spans all aspects of Siemens’ activities. 115 Digitalisation is a central part of the strategy 110 Siemens’ board has placed digitalisation at the heart of the group’s strategy 105 (internal and external). dil. is one of the fastest-growing businesses.0 production methods.4% supplier of integrated industrial software and automation technologies 52-week high/low (EUR) 133.4% Change in TP none 31 August 2017 Change in EPS none 17E / none 18E Powerhouse of digitalisation William Mackie Head of Capital Goods wmackie@keplercheuvreux. entry into service and support throughout the continuum of Dividend yield 3.914 21.4 10.8% 13. Siemens is a leading Avg.2% 55.28 9. in our view.0% EV/IC 2.14 and discounts back to year-end 2017.308 9. 2x the group’s average. daily volume (EURm) 456.4% 3.com +44 (0) 207 621 5183 Over a decade. We see annualised Free float 94% revenues in this area of c. 15% per year.debt/EBITDA 2. along with digital services.com .8 8. EUR10bn in M&A and a further Market data EUR8bn in organic R&D to build its unrivalled capabilities in industrial Bloomberg: SIE GR Reuters: SIEGn.5% 3. FCF yield 4. FY to 30/09 (EUR) 09/17E 09/18E 09/19E Unrivalled full spectrum capabilities P/E adj and ful. EV/EBIT FCF (m) 4.75 3. respectively.0 13.5x.197 88.3% 8.2 8.572 7.265 approaches to arrive at a fair value of EUR125 with a range of EUR107- Net fin.4% 65.05 and actively promotes adoption of Industrie 4. to 2018 forecasts EPS adj.2 12.

Siemens Hold TP EUR 125.3bn in revenues from industrial software and EUR1bn from digital services. Both areas generate attractive margins. while Industrial from industrial Software is more closely aligned with large manufacturers of complex software and digital services electromechanical equipment. we believe the combined digital software and services offering will grow 12% per year. Siemens is increasing its Mentor Graphics. grew c. we expect the market for these digital products and services to grow c. 8% annually. engineering. The consolidation of Mentor Graphics will add an additional EUR1. The recent launch of Siemens’ Mindsphere IoT 199 keplercheuvreux.00 Siemens’ digital strategy – exploit leadership and scale Digitalisation has been a central piece of Siemens’ strategy for the past four years. Between 2014 and 2016. Siemens is in the leading position to provide secure and integrated digital and physical design. Looking forward. operation and service. automation and control software. 40%. Across all categories of the industrial vertical. By leveraging cloud technologies. industrial software revenues grew c. Siemens generated software revenues EUR3. we see Siemens growth potential across its portfolio.com .5bn in revenues that spans the most relevant end-market verticals for Siemens. Chart 114: The leading industrial automation and software company Source: Siemens Over 2017-20.5bn.1bn in annual software revenue and enlarge the group’s footprint and ensure Siemens has the most comprehensive digital offering for industrial design. while revenues from digital services doubled. from process industries to discrete. increased connectivity. Between 2014 and and perfectly complements the capabilities of the automation and electrification 2016 industrial businesses and the huge installed base of equipment. not only within the digital factories division but generating almost within every part of the group. big data Post-consolidation of and analytics and the group’s specialist industrial software. 40% and digital services Consolidation of Mentor Graphics will increase annualised revenues in these fields revenues doubled to EUR5. In FY 2016. Digital services is a fast-growing business offering EUR5. The scope of these activities extends all along the horizontal value chain.

0 was introduced. and a well-developed digital portfolio that is already proven within Siemens’ own operations. built over its long history industrial leadership. 200 keplercheuvreux. The upper section in the chart below reflects Siemens’ vision in 2007. five years before the concept of Industrie 4. Siemens’ full spectrum of software capabilities enables the seamless creation of digital twins of products that can act as a master reference for the physical product and offer significant benefits. In 2005. Siemens’ strength in industrial digitalisation comes from its exceptional depth of knowledge across a broad range of end-markets and industries. including increased efficiency. Siemens Hold TP EUR 125. Siemens was already highlighting the concept of the digital factory. Chart 115: Siemens vision 2007 Source: Siemens The acquisition of UGS in 2007 illustrated Siemens’ vision of integrating the stack of industrial software and technologies from computer aided design/engineering/manufacture through to product data management and planning and simulation of manufacturing processes.0 Siemens was one of the first global industrial automation companies to position itself for a convergence of mechanical and control design.com . the product lifecycle software market was seen growing 7-9% annually. which motivated its acquisition of UGS in 2007. quality and flexibility. a huge installed base and large fleet of connected equipment. In fact. while the lower sector reflects the trends taking hold across the industry today.00 platform is the centrepiece of its strategy to support the wide-scale adoption of digitalisation among Siemens’ customer base. which is the same as our current growth expectations of 8% annually to 2020. Siemens was visionary and well ahead of Industrie 4.

500 1. Siemens Hold TP EUR 125.9 2011 Vistagy USD Not disclosed 2011 Emeter USD 200 (estimate) 35 5. CD.1 2016 Mentor Graphics USD 4.500 1. Siemens has invested almost USD10bn in industrial software acquisitions. Following the acquisitions of UGS. in combination with partnerships (including IBM and Microsoft). production planning.0 concept evolved in Germany means it is no surprise that Siemens’ capabilities are closely aligned with the concepts and recommendations set out by the Industrie 4. This ensures Siemens has the most complete product and service offering for industrial customers and is a direct competitor for purer play software companies such as Dassault Systèmes. Siemens’ suite of software. 201 keplercheuvreux. expanding its capabilities in PLM software.200 2. As highlighted above. The evolution of the group’s capabilities is illustrated in the chart below. which also shows how its acquisitions have facilitated a merging of the physical and virtual worlds.200 3. LMS. Adapco and Mentor Graphics.0 working group in 2013. Siemens’ capabilities throughout the horizontal digital value chain are almost unrivalled. allowing for the creation of a complete digital twin.6 2014 Camstar USD Not disclosed 2015 Polarion USD Not disclosed 2016 CD Adapco USD 970 190 5.8 Source: Kepler Cheuvreux The historical background of how the Industrie 4.7 2012 LMS EUR 680 187 3.com . equipment design and automation engineering combined with virtual commissioning. Vistagy. Table 11: Siemens’ acquisition track record Year Target FX Price Rev EV/Sales 2007 UGS USD 3. allows for the digitisation of the entire value chain. spanning product design.00 Chart 116: Overview of product lifecycle management software Source: Siemens Since 2007.

Siemens Hold TP EUR 125.00

Chart 117: Historical development of Siemens’ software and automation capabilities

Source: Siemens, *In-house developments/digital upgrades

It is notable that UGS brought 7,300 people focused on PLM software and a business
with over 4m licensed seats across 47,000 customers generating USD1.2bn sales.
Mentor had 5,700 employees and was generating revenues of USD1.2bn. Before the
consolidation of Mentor Graphics at the end of 2016, the digital offering was
generating EUR4.3bn in revenues and set to grow close to 12% per year.
Unrivalled capability via c. EUR18bn investment in ten years
We estimate Siemens’ total spend on industrial software acquisitions, software R&D
and automation R&D was nearly EUR18bn over ten years. We believe Siemens has
invested nearly USD13bn in its industrial software offering for digital factories, split
c. 25% for R&D and 75% for acquisitions. In addition, we believe the group has
invested around EUR5bn in automation R&D.
This unrivalled investment has been directed at accelerating the convergence of the
group’s production engineering and automation portfolio with the industrial
software for design manufacture and support. In conjunction with M&A and directed
research and development expenditures, Siemens has extended its reach into the
wider technology marketplace with venture capital provider Next47, which is
searching for disruptive businesses in the fields of decentralised electrification,
artificial intelligence, autonomous machines, connected mobility and block chain
applications. The reach of the group’s offering, which extends across the whole
group, is illustrated below.

202 keplercheuvreux.com

Siemens Hold TP EUR 125.00

Chart 118: Main features of Siemens’ offering

Source: Siemens

With over 70m contracted meters, more than 800,000 connected devices and
products and over 30m automation system installations, Siemens is extremely well
positioned to leverage its installed base for service revenues.
Looking at the 2017-20 period, its offering will be further strengthened by the
consolidation of Mentor Graphics, the partnership with Bentley Systems and the
global roll-out of Mindsphere. Management’s plan is to continue to increase the level
of penetration of Siemens’ offering to increase its value and extend the depth of data
use. This strategy is illustrated below.

Chart 119: Siemens path to higher value with smart data application

Source: Siemens

Sinalytics at the core of Siemens digital services
Siemens built the Sinalytics platform in 2014 to provide a foundation for the group’s
digital services. Sinalytics combined Siemens’ domain know-how, industrial context,
security software and analytics capabilities to create valuable outcomes from
customer data, most commonly in the field of asset utilisation and operation. In
2015, the platform had over 300,000 connected devices collecting data to be

203 keplercheuvreux.com

Siemens Hold TP EUR 125.00

reviewed by advanced analytic functions, and was leveraging 17,500 software
engineers’ knowledge and 160 data scientists to optimise product domain
knowledge to improve outcomes for Siemens’ customer base.
The knowledge and capabilities developed within Sinalytics are being applied across
multiple end-markets where Siemens’ software and systems can bring
improvements in productivity and efficiency and increased asset availability all
within a secure environment. The range of digital services Siemens is able to offer
spans across all its divisions.

Chart 120: Selection of Siemens’ digitally enhanced service offering by division

Source: Siemens

The pace of the roll-out of the service offering depends on the level of technology
adoption among the respective industries and customers. Ultimately, Siemens
envisages bringing together advanced data analytics, connectivity and smart
networked devices in a secure environment to deliver prescriptive analytics and
automated service offerings, a complete transformation from the classical time and
material maintenance business model. This will take time. Predictive analytics for
local service has been achieved. Streaming analytics and distributed analytics are
speeding up the process.

Mindsphere – cloud-based open industrial system
Siemens Mindsphere, the Siemens cloud for industry, was launched in Q1 2016 and
was designed as an open ecosystem that companies can use for digital services in
areas such as preventative maintenance, energy data management or resource
optimisation. In many ways, it provides the backbone on which much of the
Sinalytics capabilities will depend.
The platform is well designed to allow machine builders and plant constructors to
monitor machine fleets throughout the world, allowing the builders to offer new
business models. It also forms the base for data-driven services from Siemens, such
as preventative maintenance, or drive train analytics. To allow interoperability of

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Siemens Hold TP EUR 125.00

other machines with Mindsphere, Siemens will offer a connector box, under the
brand MindConnect.
To support customer implementations, support and operation, Siemens has
partnered with a number of groups including Atos, Microsoft, SAP, evosoft,
Accenture and IBM, to support the adoption of Mindsphere among its customer
base.
Data is generated by the physical assets, passed to the Mindsphere cloud via secure
plug and play connection technologies and then analysed by apps that can be
tailored to each customer vertical to determine value-creating outcomes. To date, it
is estimated that Siemens has migrated about 70 customers onto the Mindsphere
platform, but this can be expected to rise rapidly, and the global roll-out continues,
which can be expected to extend over a 5-10 year period.

Chart 121: Mindsphere’s relation key physical and virtual assets

Source: Siemens

SWOT of Siemens industrial digital capabilities
Strengths – industrial software and digital services leadership
The breadth and depth of Siemens’ industrial software capabilities and industrial
vertical knowledge represent an almost insurmountable competitive advantage over
the medium term. The group’s complete portfolio of industrial PLM, manufacturing
execution and product data management soft, in conjunction with the dominance in
the market for supply of industrial automation and control equipment, make
Siemens the best positioned global industrial equipment supplier to provide the
range of software and hardware needed to achieve the concepts set out within
Industrie 4.0.

Weaknesses – scale may hinder the pace of innovation in niches
Maximising the value of digitalisation for Siemens’ customer base will, to a large
extent, hinge on the ability to apply artificial intelligence, cloud-based computing, big
data management and IT integration skills. Many of these skills are outside the
domain of Siemens’ core capabilities. The group’s size, hence lack of agility, may
hinder the ability to nimbly transform in a period of disruption.

205 keplercheuvreux.com

Siemens should leverage its own capabilities internally to enhance competitiveness while working closely with partners to accelerate adoption through the customer base to drive growth.00 Opportunities – pushing capabilities internally and externally The main value from digitalisation comes from increased productivity in manufacturing. Siemens Hold TP EUR 125. enhanced working capital management. Chart 122: Siemens Internal Survey grading Strategy & organisation 5 4 3 Employees Smart factory 2 1 0 Data-driven services Smart operations Smart products Source: Kepler Cheuvreux 206 keplercheuvreux.com . Software- focused companies such as SAP or IBM may choose to build a specific vertical offered in the markets Siemens is targeting. Industrial customers may choose to accelerate investments into industrial software and services rather than hardware. which is at the heart of Siemens’ automation offer. at the expense of growth for Siemens’ industrial portfolio. Threats – may emerge from other industrial software suppliers Rising demand for cloud-based computing or remote computing and control at the edge of industrial networks may eventually impact demand for industrial PLCs. lower time to market for product development and higher flexibility within manufacturing systems.

0% 10.4 11.4% EPS reported 4.028 -1.119 6.6% Net financial items & associates 501 5 117 -58 242 550 250 250 Others 0 0 0 0 0 0 0 0 Tax -2.846 % Change 6.070 23.1 15.753 6.7% 7.8% 13.522 22.008 18.4 11.894 10.695 13.160 3.6% 9.8 8.626 31.3% 5.8 207 keplercheuvreux.8% 20.327 -300 -300 Dividend paid -2.7% 17.0% 9.5 2.328 7.380 5.330 28.7% 13.630 -2.45 824.3% 25.3% 10.206 80.924 Net profit reported 4.0% 3.60 3.0 P/E adjusted and fully diluted 12.0% 0.834 6.082 4.9% 3.308 9.25 Cash flow per share 7.4% 65.18 11.85 7.1 EV/EBITDA 6.089 EBITDA margin (%) 12.687 4.374 7.3% 16.2 1.811 13.1 1.1 1.637 Balance Sheet (EURm) Intangible assets 21.251 Others -5.0 1.9 1.260 27.88 7.8 0.0% 0.82 843.41 8.2 1.0% 0.97 794.9% 17.9 1.8% 15.08 6.28 9.157 10.031 188 35 0 0 Net profit before minorities 4.695 13.34 9.927 31.557 Net profit adjusted 5.284 5.4% 38.289 -6.695 Liabilities and provisions 67.873 -3.2 9.656 86.636 8.5% 19.734 28.831 -1.986 9.439 -2.481 5.355 4.0% 0.3 1.8% 13.414 -2.1% ROIC (%) 18.816 32.00 Key finanials FY to 30/09 (EUR) 2012 2013 2014 2015 2016 2017E 2018E 2019E Income Statement (EURm) Sales 78.162 8.2% 5.3 14.9% 54.1 11.1% 18.453 28.660 7.6% 10.7 8.784 9.26 8.364 Acquisitions & Divestments -702 -711 264 -4.85 7.6% 7.6 2.796 5.191 Net financial debt 9.0% Net fin.584 6.57 8.851 Capex -2.96 47.95 Number of shares.12 33.8 12.0 13.1 1.18 12.3% 8.7 13.2 10.157 10.0% FCF yield (%) 7.2% 5.4% 3.818 6.627 5.232 6.7% EBIT adjusted 6.508 7.30 3.6% 15.421 -2.760 Net profit from continuing operations 5.80 3.914 21.157 10.8 13.395 12.882 71.7 2.0% 14.210 44.135 -2.157 Financial & other non-current assets 22.9 12.893 6.638 Per share data EPS adjusted 5.108 -3.0% 6.664 22.7% 3.488 Free cash flow 4.452 608 1.2% 9.0% 0.0 P/BV 2.581 37.2 2.102 41.1% -11.00 3.3% 7.75 7.80 807.7% 12.046 64.094 -1.5% 13.2% 37.934 81.213 5.296 -3.1% 52.7 13.054 34.8% 15.412 Pension provisions 9.83 6.6 Gearing (%) 30.277 Working capital requirement -572 229 4.487 4.31 6.1% -5.311 7.296 -1.8 EV/EBIT 9.1 2.0 13.67 6.275 -4.638 10.533 4.4 8.282 5.6% 2.726 6.45 8.2 2.00 843.291 10.533 24.243 -3.529 19.322 Invested Capital 27.041 75.6% 9.4% 13.410 5.210 10. YE (m) 875.0% 0.0% 0.405 45.815 9.613 8.064 -3.897 -2.215 9.59 Dividend per share 3.396 6.901 31.938 35.9 11.986 11.37 8.3 13.926 9.400 5.8 8.658 -2.110 5.243 31.3 14.2% 6.4 10.089 11.219 6.6% 14.119 6.879 7.688 80.2 12.294 6.238 5.3 P/CF 9.924 Net profit from discontinuing activities -595 197 108 2.67 6.324 9.12 8.481 77.8% 71.35 39.6 13.9 2.038 43.5% 3.197 88.732 29.0 13.2% 55.434 EBIT margin (%) 8.497 -2.513 35.141 38.31 6.722 8.668 6. Siemens Hold TP EUR 125.1% EBITDA adjusted 9.41 8.175 Change in net financial debt -4.9% 18.92 36.0% 3.5% 3.53 7. debt / EBITDA (x) 1.763 9.com .004 19.635 79.049 -1.236 4.14 % Change -18.00 3.342 -2.73 811.265 Cash Flow Statement (EURm) Cash flow from operating activities 6.9% 20.98 5.203 -1.3 13.008 -2.1 15.028 8.275 7.4 8.12 8.3 11.784 -2.14 EPS adj and fully diluted 5.428 -1.87 42.719 12.644 83.680 -2.311 -2.49 8.532 Total shareholders' equity 30.349 5.940 22.132 29.1% 4.3% 13.9% 12.401 4.0% -1.901 Tangible assets 10.850 9.40 Book value per share 35.4 9.4 2.9 1.450 6.572 7.8 Dividend yield (%) 4.1 1.5% 10.98 5.50 3.5% 6.2 12.868 -2.206 -2.00 803.920 75.0 8.0 13.6% Dividend yield preference shares (%) 0.7% 3.2 1.265 9.295 75.1% 3.343 31.982 5.049 13.28 9.903 -807 -4.727 -2.901 31.6 7.2% EV/Sales 0.75 3.822 27.80 42.49 Ratios ROE (%) 16.4% Valuation P/E adjusted 12.901 31.254 6.5 9.695 13.653 5.359 -2.623 64.9% -3.7% 3.521 -541 -4.98 5.70 41.287 7.

Equity Research

Research ratings and important disclosures
The term "KEPLER CHEUVREUX" shall, unless the context otherwise requires, mean each of Kepler Cheuvreux and its affiliates, subsidiaries and related companies (see
“Regulators” table below).
The investment recommendation(s) referred to in this report was (were) completed on 01/09/2017 10:07 (GMT) and was first disseminated on 04/09/2017 5:05
(GMT).
Prices in this report are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated.
Companies mentioned
Stock ISIN Currency Price
ABB CH0012221716 CHF 22.20
Dassault Systèmes FR0000130650 EUR 82.75
Datalogic IT0004053440 EUR 27.66
Dürr DE0005565204 EUR 97.84
Hexagon SE0000103699 SEK 389.90
Krones DE0006335003 EUR 103.90
SAP DE0007164600 EUR 88.10
Schneider Electric FR0000121972 EUR 67.73
Siemens DE0007236101 EUR 109.80

Source: Factset closing prices of 31/08/2017
Disclosure checklist - Potential conflict of interests
Company Name Disclosure
ABB nothing to disclose
Dassault Systèmes nothing to disclose
Datalogic nothing to disclose
Dürr nothing to disclose
Hexagon nothing to disclose
Krones nothing to disclose
SAP nothing to disclose
Schneider Electric nothing to disclose
Siemens nothing to disclose

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Analyst disclosures
The functional job title of the person(s) responsible for the recommendations contained in this report is Equity/Credit Research Analyst unless otherwise stated on
the cover.
Name of the Research Analyst(s): William Mackie
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content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with
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any current or potential conflict of interest that may arise from any KEPLER CHEUVREUX activities.
Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst’s(s’)
compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst(s) in the research report. The research
analyst’s(s’) compensation is, however, determined by the overall economic performance of KEPLER CHEUVREUX.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of KEPLER CHEUVREUX, which is a non-
US affiliate and parent company of Kepler Capital Markets, Inc. a SEC registered and FINRA member broker-dealer. Equity/Credit Research Analysts employed by
KEPLER CHEUVREUX, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of Kepler Capital Markets, Inc. and
may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a
research analyst account.
Rating ratio Kepler Cheuvreux Q2 2017
Rating Breakdown A B
Buy 45% 50%
Hold 35% 35%
Reduce 17% 9%
Not Rated/Under Review/Accept Offer 3% 6%
Total 100% 100%
Source: KEPLER CHEUVREUX
A: % of all research recommendations
B: % of issuers to which material services of investment firms are supplied

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12 months rating history
The below table shows the history of recommendations and target prices changes issued by KEPLER CHEUVREUX research department (Equity and Credit) over a
12 months period.
Company Name Date Business Line Rating Target Price Closing Price
ABB (CHF) 24/10/2016 08:49 Equity Research Hold 24.00 22.18
13/12/2016 09:40 Equity Research Hold 23.00 21.52
15/05/2017 08:21 Equity Research Hold 25.00 24.71
21/07/2017 07:49 Equity Research Hold 24.50 23.24
Dassault Systèmes (EUR) 19/09/2016 08:38 Equity Research Hold 76.00 76.25
26/07/2017 07:55 Equity Research Hold 78.00 80.00
Datalogic (EUR) 26/10/2016 07:37 Equity Research Buy 21.50 18.20
13/03/2017 09:21 Equity Research Buy 24.50 22.09
17/05/2017 08:25 Equity Research Buy 29.50 26.50
07/08/2017 07:53 Equity Research Buy 30.00 25.41
Dürr (EUR) 26/09/2016 08:49 Equity Research Hold 77.00 78.33
19/01/2017 18:35 Equity Research Buy 86.00 75.84
24/02/2017 09:34 Equity Research Buy 88.00 75.68
26/04/2017 06:57 Equity Research Buy 98.00 89.03
12/05/2017 07:11 Equity Research Buy 103.00 93.36
21/07/2017 08:19 Equity Research Buy 117.00 102.20
Hexagon (SEK) 02/11/2016 09:29 Equity Research Buy 350.00 309.50
07/02/2017 08:06 Equity Research Buy 400.00 358.70
03/05/2017 08:55 Equity Research Buy 425.00 383.40
28/07/2017 07:40 Equity Research Buy 454.00 400.00
Krones (EUR) 14/09/2016 17:40 Equity Research Reduce 80.00 89.65
03/03/2017 08:41 Equity Research Reduce 85.00 103.45
28/04/2017 07:10 Equity Research Reduce 90.00 105.05
21/07/2017 08:25 Equity Research Hold 101.00 108.35
SAP (EUR) 10/01/2017 09:54 Equity Research Hold 82.00 84.34
26/04/2017 07:55 Equity Research Hold 85.00 93.13
22/05/2017 08:29 Equity Research Hold 90.00 94.10
Schneider Electric (EUR) 21/09/2016 17:36 Equity Research Buy 74.00 60.27
17/02/2017 08:04 Equity Research Buy 72.00 66.00
21/04/2017 07:45 Equity Research Buy 72.50 70.02
22/05/2017 08:41 Equity Research Hold 72.50 68.50
11/07/2017 08:22 Equity Research Buy 76.00 67.64
28/07/2017 06:45 Equity Research Buy 77.00 68.60
Siemens (EUR) 19/09/2016 08:38 Equity Research Buy 116.00 103.75
24/10/2016 07:04 Equity Research Buy 118.00 106.45
16/12/2016 09:38 Equity Research Buy 124.00 116.05
03/02/2017 09:34 Equity Research Buy 132.00 118.90
Siemens () 18/04/2017 08:32 Equity Research Buy 135.00
Siemens (EUR) 22/05/2017 08:25 Equity Research Hold 135.00 128.15
04/08/2017 07:14 Equity Research Hold 125.00 112.50
Credit research does not issue target prices. Left intentionally blank.
Please refer to the following link https://research.keplercheuvreux.com/app/disclosure for a full list of investment recommendations issued over the last 12 months
by the author(s) and contributor(s) of this report on any financial instruments.

Equity research
Rating system
KEPLER CHEUVREUX equity research ratings and target prices are issued in absolute terms, not relative to any given benchmark. A rating on a stock is set after
assessing the twelve months expected upside or downside of the stock derived from the analyst’s fair value (target price) and in the light of the risk profile of the
company. Ratings are defined as follows:
Buy: The minimum expected upside is 10% over next 12 months (the minimum required upside could be higher in light of the company’s risk profile).
Hold: The expected upside is below 10% (the expected upside could be higher in light of the company’s risk profile).
Reduce: There is an expected downside.
Accept offer: In the context of a total or partial take-over bid, squeeze-out or similar share purchase proposals, the offer price is considered to be fairly valuing
the shares.
Reject offer: In the context of a total or partial take-over bid, squeeze-out or similar share purchase proposals, the offered price is considered to be undervaluing
the shares.
Under review: An event occurred with an expected significant impact on our target price and we cannot issue a recommendation before having processed that new
information and/or without a new share price reference.
Not rated: The stock is not covered.
Restricted: A recommendation, target price and/or financial forecast is not disclosed further to compliance and/or other regulatory considerations.

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Due to share prices volatility, ratings and target prices may occasionally and temporarily be inconsistent with the above definition.

Valuation methodology and risks
Unless otherwise stated in this report, target prices and investment recommendations are determined based on fundamental research methodologies and relies on
commonly used valuation methodologies such as Discounted Cash Flow (DCF), valuation multiples comparison with history and peers, Dividend Discount Model (DDM).
Valuation methodologies and models can be highly dependent on macroeconomic factors (such as the price of commodities, exchange rates and interest rates) as well as
other external factors including taxation, regulation and geopolitical changes (such as tax policy changes, strikes or war). In addition, investors’ confidence and market
sentiment can affect the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments
specific to individual industries. Whichever valuation method is used there is a significant risk that the target price will not be achieved within the expected timeframe.
Unless otherwise stated, models used are proprietary. Additional information about the proprietary models used in this report is accessible on request.
KEPLER CHEUVREUX’ equity research policy is to update research rating when it deems appropriate in the light of new findings, markets development and any
relevant information that can impact the analyst’s view and opinion.

Credit research
Rating system (issuer or instrument level)
Buy: The analyst has a positive conviction either in absolute or relative valuation terms and/or expects a tightening of the issuer’s debt securities spread over a six-
month period.
Hold: The analyst has a stable credit fundamental opinion on the issuer and/or performance of the debt securities over a six-month period.
Sell: The analyst expects of a widening of the credit spread for some or all debt securities of the issuer and/or a negative fundamental view over a six-month period.
Not covered: KEPLER CHEUVREUX’s credit research team does not provide formal, continuous coverage of this issuer and has not assigned a re commendation to the
issuer.
Restricted: A recommendation, target price and/or financial forecast is not disclosed further to compliance and/or other regulatory considerations.
Recommendations on interest-bearing securities mostly focus on the credit spread and on the rating views and methodologies of recognized agencies (S&P, Moody’s and
Fitch). Ratings and recommendations may differ for a single issuer according the maturity profile, subordination or market valuation of interest bearing securities.

Valuation methodology and risks
Unless otherwise stated in this report, recommendations produced on companies covered by Kepler Cheuvreux credit research, rely on fundamental analysis combined
with a market approach of the interest-bearing securities valuations. The methodology employed to assign recommendations is based on the analyst fundamental
evaluation of the groups' operating and financial profiles adjusted by credit specific elements.
Valuation methodologies and models can be highly dependent on macroeconomic factors (such as the price of commodities, exchange rates and interest rates) as well as
other external factors including taxation, regulation and geopolitical changes (such as tax policy changes, strikes or war) and also on methodology changes at recognized
agencies. In addition, investors’ confidence and market sentiment can affect the valuation of companies. The valuation is also based on expectations that might change
rapidly and without notice, depending on developments specific to individual industries.
Unless otherwise stated, models used are proprietary. If nothing is indicated to the contrary, all figures are unaudited. Additional information about the proprietary
models used in this report is accessible on request.
KEPLER CHEUVREUX’s credit research policy is to update research rating when it deems appropriate in the light of new findings, markets development and any
relevant information that can impact the analyst’s view and opinion.

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Regulators
Location Regulator Abbreviation
KEPLER CHEUVREUX S.A. - France Autorité des Marchés Financiers AMF
KEPLER CHEUVREUX, Sucursal en España Comisión Nacional del Mercado de Valores CNMV
KEPLER CHEUVREUX, Frankfurt branch Bundesanstalt für Finanzdienstleistungsaufsicht BaFin
KEPLER CHEUVREUX, Milan branch Commissione Nazionale per le Società e la Borsa CONSOB
KEPLER CHEUVREUX, Amsterdam branch Autoriteit Financiële Markten AFM
Kepler Capital Markets SA - Switzerland, Zurich branch Swiss Financial Market Supervisory Authority FINMA
Kepler Capital Markets, Inc. Financial Industry Regulatory Authority FINRA
KEPLER CHEUVREUX, London branch Financial Conduct Authority FCA
KEPLER CHEUVREUX, Vienna branch Austrian Financial Services Authority FMA
KEPLER CHEUVREUX, Stockholm Branch Finansinspektionen FI
KEPLER CHEUVREUX is authorized and regulated by both the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers.

CIMB
Country CIMB entity Regulated by
Hong Kong CIMB Securities Limited Securities and Futures Commission Hong Kong
India CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI)
Indonesia PT CIMB Securities Indonesia Financial Services Authority of Indonesia
Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia
Singapore CIMB Research Pte. Ltd Monetary Authority of Singapore
South Korea CIMB Securities Limited Korea Branch Financial Services Commission and Financial Supervisory
Taiwan CIMB Securities Limited Taiwan Branch Financial Supervisory Commission
Thailand CIMB Securities (Thailand) Co. Ltd Securities and Exchanges Commission Thailand

Morgans
Country Morgans entity Regulated by
Australia Morgans Financial Limited Australian Securities & Investments Commission

SB Equities
Country SB Equities entity Regulated by
Philippines SB Equities Inc. Securities and Exchange Commission of Philippines

VN Direct
Country VN Direct entity Regulated by
Vietnam VNDirect Securities Corporation State Securities Commission

211 keplercheuvreux.com

the relevant entity distributing or disseminating this report in Philippines. Morgans. but has not been independently verified by KEPLER CHEUVREUX. This report is being issued outside Australia to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purposes. where appropriate. nor VN Direct exercise any control over the contents of. subject to the distribution and regional notices below. Morgans. IMPORTANT DISCLOSURES REGARDING THE KEPLER CHEUVREUX – CIMB RELATIONSHIP This report is distributed pursuant to an exclusive Cooperation Agreement between KEPLER CHEUVREUX and CIMB for the distribution of research on certain European Markets (the “Research”) to institutional clients of CIMB. Further information may be available on request. the People’s Republic of China (“PRC”) does not include the Hong Kong Special Administrative Region. in every other case. subsidiaries and related companies. legal and/or tax advisers to seek advice regarding the appropriateness of investing. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. subsidiaries and related companies. The term "VN Direct" shall denote. China: For the purpose of this report. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and neither KEPLER CHEUVREUX. Equity Research Legal and disclosure information Other disclosures THIS DOCUMENT IS NOT FOR DISTRIBUTION TO RETAIL CLIENTS OR PRIVATE INDIVIDUALS. SB Equities Inc. or if research on the subject company is withdrawn. or for engaging in any other transaction. CIMB Securities Singapore PTE Limited and its affiliates. KEPLER CHEUVREUX. Consequently it may be difficult to sell or realise such investments. KEPLER CHEUVREUX has implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business. which are available upon request. Morgans. High volatility investments may experience sudden and large falls in their value which may cause losses. where appropriate. where appropriate. where appropriate. opinions. This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities. the relevant entity distributing or disseminating this report in Australia. or. changes or subsequently becomes inaccurate. Neither CIMB. subsidiaries and related companies.com . Morgans. and its affiliates. modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter. SB Equities nor VN Direct accept liability for any such loss or consequence. mean each of Kepler Cheuvreux and its affiliates. This publication is a brief summary and does not purport to contain all available information on the subjects covered. Any opinions. Some of the investments mentioned in this publication may not be readily liquid investments. This report may not be reproduced for further publication unless the source is quoted. Morgans. SB Equities and VN Direct do not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information. the relevant entity distributing or disseminating this report in the particular jurisdiction referenced below. in every other case. SB Equities. the Macau Special Administrative Region or Taiwan. recipients should contact their own investment. This publication is not for private individuals. SB Equities. Country and region disclosures Australia: The distribution of this report is not an offer to buy or sell to any person within or outside Australia or a solicitation to any person within or outside of Australia to buy or sell any instrument described herein. no liability whatsoever is accepted for any direct or consequential loss. subsidiaries and related companies. SB Equities. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of KEPLER CHEUVREUX or clients to ensure that price sensitive information is handled according to applicable laws and regulations. forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. International investing includes risks related to political and economic uncertainties of foreign countries. and VN Direct (as the case may be) located in Asia and Australia (the “Recipients”). This report has been distributed to the Recipients by CIMB. or. except to the extent required by applicable law. CIMB. subscription or purchase of any securities. subsidiaries and related companies. CIMB pays KEPLER CHEUVREUX a percentage of commissions and other revenues received by CIMB in connection with trades in European Equities executed by KEPLER CHEUVREUX. The term "CIMB" shall denote. forecasts or estimates in this report are those of the author only. It is NOT a product of CIMB. Under the Cooperation Agreement. the relevant entity distributing or disseminating this report in Vietnam. opinion. damages. in every other case. in every other case. this report. This report belongs to and has been prepared solely by KEPLER CHEUVREUX. The term "SB Equities" shall denote. CIMB. Morgans. projection. forecast or estimate contained herein. who has acted with a high degree of expertise. SB Equities and VN Direct have no obligation to update. In the event of any doubt about any investment. They reflect only the current views of the author at the date of this report and are subject to change without notice. CIMB. To the extent permitted by applicable law. as well as currency risk. The term "Morgans" shall denote. The information contained in this publication was obtained from various publicly available sources believed to be reliable. The investments referred to in this publication may not be suitable for all recipients. projections. rules and regulations. Kepler Cheuvreux has sole control over the content of this report and is responsible for compliance with all applicable local laws. The past is not necessarily a guide to future performance of an investment. The analysis. costs or prejudices whatsoever a rising from the use of this publication or its contents. The term "KEPLER CHEUVREUX" shall. The author of this publication benefits financially from the overall success of KEPLER CHEUVREUX. and VN Direct (as the case may be). or VN Direct. Some investments discussed in this publication may have a high level of volatility. unless the context otherwise requires. or views expressed in. or. or. Kepler Cheuvreux is not an affiliate of CIMB. KEPLER CHEUVREUX. Morgans. inducement or intermediation for the sale. projections. or as an invitation. The KEPLER CHEUVREUX research analysts and other staff involved in issuing and disseminating research reports operate independently of KEPLER CHEUVREUX Investment Banking business. The distributor of this report has not been approved or licensed by the China Securities 212 keplercheuvreux. Morgans Financial Limited and its affiliates. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. SB Equities. VNDirect Securities Corporation and its affiliates.

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com Capital Goods team for over four years. CFA William Mackie is Head of Capital Goods cscotti@keplercheuvreux.com Research at Kepler Cheuvreux. Equity Research Local insight.com Charles-Louis Scotti Matteo Bonizzoni.com Assisted by Johan Eliason Laurent Daure. Over 16 years. jferrer@keplercheuvreux.com He also worked in Capital Goods Equity Peter Olofsen Research at MainFirst AG and as a Geoffroy De Mendez polofsen@keplercheuvreux.com mbonizzoni@keplercheuvreux.com Manufacturing Systems from Cranfield Joaquin Ferrer. CFA industrial landscape and key competitive Hans-Joachim Heimbuerger Head of Austrian Research success factors. dlindahl@keplercheuvreux. gaining a vital perspective and a Head of Benelux Equity Research strubrich@keplercheuvreux. William Mackie has a hheimbuerger @keplercheuvreux.com Berenberg Bank where he headed the Nikolas Mauder Douglas Lindahl nmauder@keplercheuvreux.com in September 2014.com .com malmerud@keplercheuvreux.com tneuhold@keplercheuvreux. Head of IT Software & Services jeliason@keplercheuvreux.com pboucheny@keplercheuvreux. he has Guido Nunes Head of French Research actively researched most companies gnunes@keplercheuvreux.com gdemendez@keplercheuvreux. he worked at cabbot@keplercheuvreux.com Thomas Neuhold.com mflueckiger@keplercheuvreux.com within the UK and European Industrial Hans Pluijgers Stephan Trubrich.com tsauter@keplercheuvreux. CFA School of Management. CFA sectors.com Main author wmackie@keplercheuvreux.com Mechanical Engineering degree from the Iñigo Egusquiza Torsten Sauter University of Exeter (1993) and an MSc in Head of Iberian Research Head of Swiss Research Management with a focus on iegusquiza@keplercheuvreux.com Director of Capital Goods Research at Pierre Boucheny Commerzbank AG. Most Craig Abbott Matthijs Van Leijenhorst recently. before joining Kepler Cheuvreux Head of German Small & Mid Caps mvanleijenhorst@keplercheuvreux.com deep understanding of the global hpluijgers@keplercheuvreux.com Research Thomas Poutrieux Joffrey Bellicha Meller keplercheuvreux. European scale Europe Amsterdam +31 20 573 06 66 Frankfurt +49 69 756 960 Geneva +41 22 361 5151 London +44 20 7621 5100 Madrid +34 914365100 Milan +39 02 8550 7201 Paris +33 1 53 65 35 00 America & Asia Stockholm Boston +46 8 723 51 00 +1 617 295 0100 Vienna New York +43 1 537 124 147 +1 212 710 7600 Zurich San Francisco +41 43 333 66 66 +1 415 255 9802 Capital goods research team Baptiste de Leudeville Markus Almerud William Mackie bdeleudeville@keplercheuvreux.com Benjamin Terdjman Martin Flueckiger +44 (0) 207 621 5183 bterdjman@keplercheuvreux.