Siemens Sells IT Unit - Analyst Blog

Siemens AG (SI) is set to sell its IT solutions and services business to Atos Origin for €850 million or $1.1 billion.

The Siemens IT business provides outsourcing services to midsize and large companies and accounts for 6% of total revenue. The unit also maintains internal corporate IT systems at Siemens and develops software for its medical and industrial businesses. The business lost €537 million in FY10.

Siemens is likely to retain a 15% stake in Atos Origin for at least five years.

Siemens is a global leader in most of its key businesses, including industrial automation, power generation, medical equipment and transportation.

Given its product breadth and geographical diversity, the company should be a major beneficiary of increased spending as developing nations build up their infrastructure. Its core businesses have seen a pick-up in demand and the company is well positioned in areas such as Brazil, Russia, India and China, where growth is the fastest.

Its first competitive strength lies in emerging markets. In the first half of 2010, 30% of businesses were in the emerging markets, which compares to 19% during the downturn of 2001. The company has built out its headcount in low-cost countries. In 2001, it was only 14% of its global headcount base. Today, it is 25%.

It is increasing not just its physical presence from a distribution and marketing standpoint, but also its manufacturing footprint, allowing it to optimize its global cost structures from a global supply chain standpoint.  Roughly 20% of its global sourcing requirements are coming out of low-cost countries.

Global macroeconomic and financing conditions continue to reduce consumer spending, business confidence and capital expenditures. This was particularly evident in such short-cycle industries as automotive, manufacturing and lighting. Longer-cycle energy and infrastructure customers postponed potential new business.

Siemens AG is a German industrial conglomerate with interests in information services, automation and controls, medical equipment, power generation, transportation systems, automotive electronics, lighting and many other areas. With a focus on electronics and electrical engineering, the company is a major multinational with over 405,000 employees in more than 190 countries. ABB Ltd (ABB) is a major competitor.

We currently have an Outperform recommendation on Siemens.