Good morning, ladies and gentlemen, and welcome to the Siemens 2021 First Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on Page 2 of the Siemens presentation. This conference call may include forward looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
At this time, I would like to turn the call over to your host today, Ms. Eva Reisenhoefer, Head of Investor Relations. Please go ahead, madam.
Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All Q1 documents were released this morning and can be found also on our website. I'm here today with our CEO, Joe Kaeser, We'll start with a brief introduction and with our Deputy CEO, Roland Busch and CFO, Ralph Thomas, who will review the Q1 results and Please be aware that the Siemens AGM starts right after this call and we have to limit the time of the call to 40 5 minutes. Since there's a lot on the agenda, with that, I hand over to John.
Thank you, Yifaa. Good morning, everyone, and thank you for joining us to discuss Our first quarter results ahead of our virtual ATM. And I'm sure you're all keen to hear what the company has to say about the full fiscal Say that Siemens delivered an outstanding Q1 2021. It accelerated the trend, which we have seen in 2020 In basically all metrics. And when you look at order growth of 15%, revenue up 7% And profit on industrial business up 39% year over year, this company must do something right.
Especially if we remind ourselves that we are comparing the actual numbers year over year with a pre COVID quarter. There are several reasons for this, and Roland and Ralf will dive deeper into the analysis and what it means for full fiscal 2021. I'm particularly pleased with the performance of Digital Industries As it seems that this business not only outperformed expectations, but also peers. Being a decisive driver of the company's valuation, I'm deeply respectful of what Claus Helmerich has put together here Alibos, CEO of Degroofag Enterprise. Another reason for performing well is structural in nature.
The company's closer focus on its core industrial priorities has also been quite beneficial for the shareholders. After the final decision of the Energous spin off was made at the extraordinary ATM in July 2020, The rerating started slowly but surely. It accelerated with the listing of Siemens Energy in late September It has continued since then. As you are all aware, we've just got another all time high yesterday, And we'll see what happens today. I am also pleased with the performance of the Siemens Energy shares since then, The accelerated rerating of the NeoSiemens AG has clearly been high up in our wish list And I'm sure in yours too.
As you all know, there is much more potential To unlock in this record. Well, folks, ladies and gentlemen, this is also the time to take one last look back To where it all began and what happened since then. There are many ways to do so. If I was a shareholder, Which I am, as you can potentially imagine, I want to see what has been in it For me, for example, looking at total shareholder return. Well, it is not on me to judge, But I hope you agree, it could have been worse.
Anyway, the question would be, Could it have been more? I would say, it could have been more. Maybe it should have been by international standards. I am striving for more. I had to realize that there was a balance to strike between the desirable and the doable.
So I went for what was doable in Germany. With that, I do thank you for a great time together. We open and fair to my successors that deserve it. And with that, I hand it over to Roland Thank you.
Ladies and gentlemen, a warm welcome from my side as well. And dear Joe, Thanks for your trust and support over the past months and the last 15 years. Siemens started a new chapter on October 1, and I'm happy to say we indeed had a very good start. Our Q1 results show how strong and agile Siemens can be when it comes to grasping market opportunities. I'm very proud of what our teams have achieved all around the world.
They did an outstanding job. They handled The risks and the challenges of the pandemic and despite all this achieved excellent performance. When Rolf and I talked to you after Q4, we promised we will not miss out on opportunities, And we delivered. Some of our verticals recovered clearly faster, such as automotive and machinery. Particularly in December, customer demand was much stronger than expected.
As a result, capacity utilization in our high margin Short cycle product businesses went up, profit conversion was excellent. From a regional perspective, China stood out. The Chinese economy has recovered from the downturn. GDP is now higher than it was before the pandemic. Demand in China is strong both from the domestic market and from export markets.
The country is Currently winning global market share in manufacturing and our customers trust Siemens to increase their capacity. Trust is built long term. So during this crisis, we benefited from this trust. We helped Chinese customers Modernize and expand. But it was not all China.
Take Germany, for example. The export industry here also recovered faster than expected. However, markets are still volatile. We remain cautious. The pandemic is not yet over.
It is impossible to predict the effects from the second And from the 3rd wave, and we don't know how fast vaccinations will make a difference. But no matter what comes, we will keep Digital transformation. Here are a couple of recent highlights. Just a few weeks ago, we signed a memorandum of understanding with the Egyptian government to build a high speed rail system. Over the last couple of years, Siemens had built 3 huge power plants in the country To supply energy to 40,000,000 Egyptians, a capacity boost of 40%.
We delivered them on a very, very tight schedule on time. Next is transportation. We and our partners will help the country build a state of the art railway Connecting cities, cutting journey times, creating jobs, reducing pollution. The turnkey project includes rolling stock, rail infrastructure and of course, systems integration. On top, it comes with an attractive 15 year maintenance contract, in part because we are a leader in digital data automation and data based Predictive Maintenance.
We expect first orders to be booked in fiscal 2022, and we will keep you updated on the progress. Let's get back to China for a moment. We often talk about the benefits of combining domain know how with a strong digital offering. And here are the proof points that this combination is working. The joint venture BMW Brilliance wants to increase its production capacities in China.
They choose us as partner. Or take Guangdong Huaxin Glass, Asia's largest glass manufacturer. They want to improve their product quality further, and they want to produce more efficiently and more flexibly. To help them This is all about long term value for our customers. And another highlight, our Smart Infrastructure business is very successful in selling to data centers.
The COVID pandemic has driven up e commerce significantly at the same time, We need more processing storage of data. Our building automation and electrical infrastructure systems are optimized for data center. They help our customers to reduce the energy consumption as well as the operating cost. Our team won several multimillion orders with data center operators and so called hyperscalers. So how does all this translate into our financials?
Let me give you a brief overview for the Siemens Group in Q1. Orders went up 15% at €15,900,000,000 with a strong book to bill ratio of 1 point All business contributed to this increase. Mobility's large orders in Germany and Austria were key drivers. Revenue was up across businesses and regions by 7% to now 14.1 Top line growth was much higher than expected. This comes partly from our business in China, where we were up 21% year over year, but growth came from other places too.
Top line growth in Germany, for example, increased by 8%. Adjusted EBITDA of our 4 industrial businesses rose sharply to EUR 2,100,000,000 benefiting from strong top line driven profit momentum. In addition, we made clear structural improvements And our discretionary spending was very low. This helped us with profitability. Just to give you one data point here, Travel and related expenses were down by 64% year on year.
Well, that's a level that we will not be able to Maintain going forward. Altogether, this led to an excellent margin performance of 16% and translates into a strong earnings per share of €1.72 Alf and I were very satisfied with our progress when it comes to achieve a more consistent Free cash flow development throughout the year. EUR 1,000,000,000 of free cash flow in the Q1 is an excellent start. And myself, we are promising we will keep our eyes on the ball. For many companies, a pandemic is not A time for growth, but some of our businesses and regions saw conditions improve.
Based on the assumption that this continues in the coming quarters, Particularly for our short cycle business, we raised our outlook for the fiscal year. We expect a book to bill ratio above 1. We expect mid- to high single digit comparable revenue growth And net income in the range of €5,000,000,000 to €5,500,000,000 With that, Over to you, Ralf. Let's take a closer look at some of the figures for our Q1.
Thank you, Roland, And also good morning from my side, ladies and gentlemen. Since most business financials were already pre released, let me give you some more color on key reasons for our outstanding Q1's performance. As Roland said, our key markets for digital industries in automotive and machinery rebounded Faster than originally anticipated. All automation businesses returned to order growth again, while software was lower on tough comps. Our Automation businesses saw a stunning 34% order growth in China.
Also Germany was up 13%, Benefiting from a short cycle recovery in export driven end markets. Revenue growth in automation was driven by China, Up by 27%, which overcompensated for single digit declines in other major regions. We assessed that around onethree Of this massive growth in China is attributable to restocking effects. Discrete automation was clear up, While process automation was flattish overall due to ongoing softness in the U. S, where we continue to see low investment levels in Oil and Gas Markets.
Software grew by 5% on strength in the EDA and Mendix segments, While the PLM business continues to see a cautious investment attitude at their customers, for example, in aerospace. Margin performance at Digital Industries reached a quarterly record of 22.5%, driven by a fairly unique accumulation of tailwinds. Main reasons are strong growth and higher capacity utilization in short cycle product businesses for factory automation and motion control, combined with a very favorable mix therein. A strong contribution came from the software business driven by EVA, Whereas cloud and integration investments accounted for around 120 basis points negative impact in the Q1. Besides the COVID-nineteen related low level of travel and marketing costs, structural improvements from our accelerated DI1 cost out program are also clearly visible in our bottom line.
On top, lower severance cost accounted for 2 60 basis points margin improvement Year on year, we liked very much that Digital Industries generated more than €500,000,000 of free cash flow in the Q1, which Historically, revenue distribution in our Automation business is rather evenly split in the Q1, influenced by the number of working days around Christmas in many countries. However, this year, pent up demand, restocking effects and faster industrial recovery led to an extraordinary strong December revenue share of 36% of quarterly revenue, close to €100,000,000 above our own Now let's have a look at our market segments and geographies. As usual, this page summarizes the regional perspective regarding top line, which I already talked about. When looking at our key vertical end market expectations for the next quarters, we see further recovery along broad based Improved sentiment in automotive and machinery. Yet, we know the situation is still fragile in terms of how the pandemic may develop, And we stay tuned and alert to short term volatility.
Looking ahead, we still expect for the 2nd quarter a similar negative currency impact on top line and even higher on margin compared to the Q1. From today's point of view, for DI, we anticipate further client comparable revenue growth in Q2. Based on this, we foresee the profit margin to be in the range of 19% to 20%, including our plan to record a high double digit million amount of severance due to further structural optimization efforts. In addition, we see a gradual return of discretionary cost combined with selective invest in higher OpEx to capture future growth opportunities. We are convinced TI is very well positioned both in technology and geography to continue leveraging the upcoming opportunities in the market Let's move on to Smart Infrastructure, which delivered an excellent top and bottom line performance, also benefiting from several factors.
Major contributor was its extraordinary strong short cycle product business, supported by a faster than expected recovery in the industrial end market. Orders were up 7%, driven most notably by the increase north of 20% in electrical products, where we bundle our low voltage and control product offering. However, I would like to mention, as I did for Digital Industries, that some of this growth may be due to restocking effect, in particular ahead of announced price increases. The systems business was moderately up, while the solutions and service Businesses were slightly down in line with their late cycle market recovery as indicated. Revenue growth of 4% was broad based across All major regions with substantial strength in China, up by 20%.
Germany was up by 5% and the U. S. Grew by 2%. Product business was up by 6%, whereas systems grew moderately. Margin performance of 11.2% benefited From strong conversion as well as structural improvements from its competitiveness programs and discretionary cost savings.
We expect momentum in our short cycle product business to continue and our solution business to pick up towards the second half of the fiscal year. While the nonresidential building market is still soft, with gradual improvements expected throughout fiscal 2021, Robust verticals like power distribution, data centers and health care will compensate for this to a certain extent. For the Q2, we continue to expect a strong negative currency impact on both top and bottom line. We see continued top line momentum and hence comparable revenue to be moderately up. Margin will be slightly below the 1st quarter on partial return of discretionary and effective OpEx spending.
Mobility showed a strong set of numbers In a still difficult business environment with pandemic related restrictions in our factories and at customer sites, I would like to draw your attention to the fact that we increased disclosure transparency by reporting service revenues now on a regular basis. Mobility team Again, delivered on its own ambitions regarding growth and profitability and clearly outperformed competition with industry leading margins. We are confident that Mobility will continue to show substantial order growth in the second quarter based on a strong sales funnel and will deliver reliably moderate comparable revenue growth again. Given the mix and cost structure of the projects being executed in the 2nd quarter, Margin performance may be slightly below 1st quarter levels, while free cash flow will clearly rebound from Q1. Let me briefly point out a few important topics below our industrial businesses.
Siemens Financial Services Developed in line with our expectations and improved quarter over quarter on a robust debt business. Within portfolio companies, the fully consolidated businesses We continue to execute our full potential plans and therefore expect severance charges of a high double digit €1,000,000 amount in the second quarter. Corporate items benefited from positive effects related to the transfer of assets to the German Siemens Pension Trust in a magnitude of €138,000,000 including the stake in Bentley Systems, as indicated before and included in our outlook. For the full year, you see compared to our Q4 guidance some upside potential in the Siemens Energy investment item and in the tax rate. As always, we will give you a detailed update with our Q2 numbers.
As Roland already highlighted the raised outlook for the Siemens Group, I will give you the updated framework for the businesses. Digital Industries now expects clear compatible revenue growth. Margin is expected at 19% to 20%, 200 basis points up. Our infrastructure continues to anticipate moderate compatible revenue growth with a margin at 10.5% to 11.5%, up by 50 basis points. Mobility confirms to achieve mid single digit It's important to note that effects related to Siemens Healthineers' planned acquisition of Varian are excluded, which we will assess as soon as closing is achieved.
With that, I hand it back to Eva for our Q and A.
Thank you, Ralf. We are now ready for Q and A. Please limit yourself to 1 to 2 questions per analyst. As I can see, we already have many analysts in the queue and unfortunately, only limited time. So operator, please open the Q and A now.
Thank you. We will now take our first question from Andres Willi from JPMorgan. Please go ahead.
Yes. Good morning, everybody. My first question is to Joe. First, thank you for your time and discussions over the years. You're leaving with a very strong quarter and a strong trajectory for the company.
What do you think is the biggest unfinished business or opportunity you leave behind For Roland and the team. The follow-up question on the discussions we just had on China and DI, could you maybe give a little bit more insights into What type of customers are driving this growth? And how you would compare that maybe to the market growth as well? Is it driven By exporters in China or more domestic companies? And within automotive, maybe a little bit more color on EV, new companies versus the traditional auto customers.
Thank you very much.
Well, thank you, Andreas, and thank you also for being around for quite some time. We've had our moments together Since 2006, but it's been a nice journey. Look, I mean, thank you for the question. But honestly, there's nothing worse than an That's an honest advice to successors. I mean, that's why I I believe that Roland and the team knows really well.
I mean, I have Roland here to my right and Ralf to my left. And if I just step out as the middleman, there is a great couple to represent the company going forward. So that's why I believe that they know what to do and how to now organically grow the company on its core area. So but I don't know, Ulla, what you think the next the biggest challenge will be, but I'd rather defer that question to you.
Well, thank you very much. So I mean just to give you a couple of ideas. Number 1 is, you know that we invested in the past into an innovation, invested in acquisitions, €10,000,000,000 in software, but also our high F and E spending, but this has to turn into profitable growth. That's what we have to do. And this comes along with, of course, a change also in the value which we are providing to our customers.
We are selling a lot of products. Customers are looking for more values. We talk about IoT solutions and the like. We talk about still and you're asking every time the profitability gap of our Smart Infrastructure businesses. We are working on that.
We are working on our cost savings, also on corporate costs. That's something which is ahead of us. We're going to report on this one too. And maybe another area where we are working on is looking how we can transfer more of our businesses, software Into recurring revenues as a service, more cloud based. And last but not least, I think you like hearing that, to make a better cash flow and a more stable cash flow over the quarters.
So I think there's a lot of on our plate, and we look forward to work on all that. Yes.
Andreas, let me take the DI question With regards to China, I mean, what we said before is that to a certain extent, We do also see restocking effect taking place. It's hard to really assess that in detail and to quantify. So what we Concluded is about onethree of the effect may have been driven by restocking effect. So Just to mention that beforehand, then with regards to the structure of growth momentum in China, had a very focus a very Intense focus on discrete manufacturing, you anticipated that also with your more details in the question then. It was, to a large extent, driven by bouncing back in machinery and automotive.
On the machinery side, I think we can see a very rich content in export oriented industries in China, And that is reaching from home entertainment to masks, but they all have one thing in common. The automation content In the business models of our customer industries is fairly high, and ramping up their capacities is very much supported By our contribution, so therefore, we are quite happy with that. On the automotive side, I mean, it's very tough to assess What is EV driven and what is traditional carmakers, as you put it. But I would say that wherever we see Kind of greenfield approaches over capacity is extended. We clearly benefit assuming that the focus of that will be EV driven.
We are quite confident that we see more to come as the Chinese government has been clearly indicating where their focus is going to be in the years to come. So overall, strong focus on discrete in the Chinese markets momentum. Export driven, yes, but also a lot of Content for domestic demand being driven by the governmental programs.
Thank you very
much for the detailed answers.
You're very welcome.
We will now take our next question from Simon Tonneson from Jefferies. Please go ahead.
Yes, good morning, everyone. Also from my side, thank you, Joel, for the discussions over many years. Firstly, can you talk a bit about the change in the drop through margins you're expecting, particularly for the short cycle part The of the DI portfolio, you historically mentioned that automotive and machine tooling can generate leverage of So 60%, you now have this unique effect of short cycle recovery and a lower cost base. I mean, if I were to assume 100 basis points severances and 100 basis points investments for the year, Your guidance implies around 7% drop through margins. Is that the right level we should Think about it.
And then secondly, on your U. S. Performance in behalf.
Simon, you keep breaking
up. So one thing, it's maybe the order decline in the U. S.
So Simon, let me first start with your first question. I mean, the drop through on margins In TI, I mean, this is mainly driven by scale. As you know, in automation, we have a tremendous margin conversion. And The incremental volume that I mentioned, in particular in December, that has been surprising us to a certain The team has been still able to master that incremental demand, and that's what Roland has been referring to. We have a very solidly established supply chain that was able to cater for this incremental need.
So scale is of the essence. We do benefit from the recovery in machinery and automotive. As you rightly stated, this is making up For a large part of our customer base, and we have been particularly benefiting from the Chinese momentum, if I may put it that way. I elaborated on that already a bit. But we also should not underestimate the impact of The cost out programs that have been initiated, you remember back in the Capital Market Day, the year before last year, we said that the The I team has been committing themselves to quite a massive cost out program.
They have been even accelerating that. And now we are reaping the fruit of that At a point in time where we got top line momentum plus that cost out momentum, there's more to come. As you do know, The team is very ambitious about that. And as I quantified already in the press call this morning, the fact that Travel and entertainment costs have been coming down substantially, driven by the COVID regime and the restrictions thereof. I think it's also worth to mention that the I alone has been benefiting in the area of a mid double digit €1,000,000 amount In the Q1, it would be naive to expect this is going to continue on that level in the quarters to come.
But a certain extent of that, We intend also to use this incremental momentum on the way forward. And last but not least, would also Your attention again to our cloud investments, I mean, we have been very transparent on that. And with the 120 basis points that we invested In the Q1, I think we also have been contributing to the case the business case way forward. And that is, I think, striking a very decent balance between cost out and drop through to the bottom line and investing In future growth momentum, I have to say that the DI team is doing a tremendous job. I mean, the SI team as well and also mobility, but DI Being affected by that massive volatility in the market so intensively, they are really doing an outstanding job in that regard.
Talking the U. S. Market, that was your second question. I think that was the line was a bit difficult to understand at that point in time. But the U.
S. Market in Automation has been, of course, also benefiting from some discrete momentum, discrete manufacturing momentum, Also double digitally growing there, but on a relatively low volume, yes? While The process industries are still suffering. They are typically lagging, as you know. And also, machinery is not that Strong, unfortunately, for us in the U.
S, but we are working on that, as you do know. So that mix basket is Finally, concluding for us, we are concluding of that there is Momentum that may build up later in the year, and we are also very, very intensely monitoring Each and every opportunity arising there, in particular when it comes to software business, where we were able to grow Based mainly on the EDA opportunities also in the mid teens in the Q1, which is quite impressive, I think.
Thank you very much, Rob.
You're welcome, Simon.
We will now take our next question from Ben Oklow from Morgan Stanley.
Good morning, everyone, and thank you for taking the question. I mean, first of all, a big, big shout out And thank you to Mr. Kaeser for being open and transparent over many, many years. You've treated us like grown ups and we really appreciate it. I did just want to make that point before we go into the detail.
So just I guess what we're all trying to figure out Is this sort of transition from the growth in China, a lot of which looks like it was automotive related So what is happening in other parts of the industrial economy? Could you just and I know you've touched on various things already, Ralph, But in terms of outside of automotive, if we think about North America and we think about Europe, Do we have clear signals and clear intentions from other industries of a sort of pickup and maybe even a restock effect Outside of China, I. E, what we're trying to navigate right now is how much of this is due to 1 or maybe 2 industries which are interconnected And how much is kind of broad based? So that's my first question. And my second question is really on the restock in China, which is Amazingly powerful as ever.
Has that continued into January ahead of the Lunar New Year? Thank you.
Thank you, Ben. Of course, again, a bunch of relevant questions, which we have been asking ourselves When we have been assessing the situation, in particular with regards to the way forward and the guidance we have been giving. So let me start with restocking in China and how did the business develop in January. You do know it's hard to assess, In particular, in China, how channel partners are behaving, there are also legal restrictions, so you don't have full transparency Through to the end customers in each and every market segment. That's why I have been carefully choosing my words when I said we assessed And estimated about onethree of the Chinese momentum coming from restocking.
We are doing, Of course, a lot of regression analysis in that field. And from that, what I see from January, There's still a lot of lively momentum in the Chinese market. It's Not a secret that Chinese New Year is going to create another crystal ball to reach, how that is going To effect then the second quarter and the way forward, therefore, I don't dare to quantify what I'm talking about here, but The momentum in January did not indicate that beyond that restocking effect of 1 third, I mentioned before, Would be materially affected, yes? So in particular, the last 2 weeks in January have been encouraging From our perspective, when it comes to the factory outputs that we saw. Talking how is the world looking like outside China and outside automotive?
Of course, Europe very much depends on export opportunities when it comes to Germany, Italy, but also other Smaller but relevant countries for our offering like Austria, where we can apply our full domain know how and grow with our entering new business models. So that machine building environment is quite sensitive To the volatility created by COVID, but also has been picking up materially, I don't see a change in pattern here for the Q2. We have been very carefully guiding you also with regard to 2nd quarter where we do have a relative high level of visibility in the short cycle business, where we have backlog On levels that are not impressive compared to project businesses, but still quite high. So Europe, I think it's on a decent transitionary path, but will, of course, depend also On China, which again is driven by export momentum and extraordinary impact from COVID opportunities, as I have been pointing out before. And with regard to the U.
S, Beyond automotive, that was the center of your question. Beyond automotive in the U. S, I think process industries are still Fairly shaky, yes. And you do know also from our competitors reporting that it may take Some time before there is a stable momentum built up, that also depends probably on political decisions that are still not fully transparent With their impact on the market.
And let me this is Roland speaking. Let me add points. Where we see still a good momentum is everything, which is on electronics,
Semiconductors, as
well as pharma or food. Interestingly, we saw also machinery And not only automotive related, but also general machinery picking up, where we said the last time that we believe that This machinery market comes back to a level before corona at 2022. We see this pulls ahead And we see also stronger residential demand. This was also from our short cycle businesses, too. By the way, automotive, Last time we said we expect this market to come back by 2025 to pre corona levels.
This could accelerate by 2 years. And as Jose said, Oil and Gas, Aerospace, there's no change from our perspective at this point in time.
That's super helpful. Thank you very much, and I'll pass it on. Thank you.
Thank you. We are asked to please limit yourself to one question per analyst at this point. Operator, please continue.
We will now take our next question from Alexander Virgo from Bank of America. Please go ahead.
Thanks very much and good morning to everybody. I'll keep it super, super brief. I just wanted to clarify, Ralph, your comments on Q2 guidance for growth in DI, Because I thought I heard you say further decline in comparable revenue growth. And I'm sort of listening to way you're talking about what you saw in China and what you're seeing in January, and I just want to make sure I've understood the dynamics that you're talking about there. That would be really helpful.
Joe, best of luck with the future. Thanks very much for your help.
Thank you.
Yes. Alex, thank you. I mean, DI growth momentum driven by China, I also We mentioned that there was also quite promising new orders giving us more visibility short term in the short cycle businesses, Not only but with a focus in DI. And for the Q2, I think we will see a Continuing growth momentum, also on fairly high levels. And what the big question mark is, you have been rightfully stating is Is that going to continue for the second half of the fiscal year?
And that was the reason why we mentioned that We will stay tuned and very carefully observing also weak signals in the market. You do know that once Once burned twice shy. Looking back to the Q3 in fiscal 2019, we very respectfully are watching the market opportunities. And as Roland said before, we are tuned not to miss out on any growth opportunity, even though they may be unforeseen. And the robustness of our supply chain will be critical in that regard.
We are very, very intensely monitoring that. And therefore, for DI, the second quarter, I think, will be both an opportunity on automation and on software.
Great. Thank you.
You're welcome, Alex.
We will now take our Next question from Jonathan Munsey from Exane BNP Paribas. Please go ahead.
Hi, good morning. Thanks for taking me in. Maybe if we look sort of somewhere else out in capital goods across to Alstom, Bombardier. I guess the deal completed just last week, Trading a number of monopoly positions for that new entity in many rail networks. I'm just wondering how you see this.
Is this an Do you think there's a good chance you'll be asked to come into those markets to create a bit more competition? Could we see these sales dis synergies for them and therefore, Extra sales growth for you. And on that, the industry consolidation, do you think it's now over in mobility? Or could you participate in something further In the next couple of years?
So to your first question, we I mean, it's correct. It's closed. The remedies are still under discussion, and we'll see how that goes. But we see more an opportunity also, in particular, in the near to midterm Because this is a hell of a work of integrating, we have some quality issues, but the market saw quality issues from one of our competitors there. So therefore, I do believe it's an opportunity.
And we also see and this is going back to the recent tenders and awards The customer are looking more and more into life cycle cost considerations. So it's not about buying cheap, it's about operating To the best cost. And here is about uptime availability. So technology has a much, much stronger impact On this market in the future rather than sheer size. So and this is the card we are going to play.
We have maybe saw that that we got a service order for the high speed fleet from Deutsche Bank where we have proven that we can do a very good service. And this is not only we do that only on our fleet, we get also from others' fleets and also the energy efficiency, for example, Which is improved by 20% compared to our prior products. That's something what customers really appreciate. After all, it's about providing capacity Over the life cycle, and that's where we are focusing on. Well, you know the market.
You know the market well. There are the big ones And then you have smaller ones. There's always an opportunity to look for consolidation in the market. Still, there are many players out there. And yet at the same time, if you look at the smaller ones like Kaff or Stadler, for example, they play in a niche, and they do that very well.
They have Limited engineering cost when they adopt their product, they're going for specific markets. They don't go for the high volume. This is something where really maybe I'll start on Bombardier Siemens come in. So therefore and they make Some decent margins and good cash flow. So therefore, there's no need to some extent for them to be consolidated, so to speak.
But I do believe there's still some movement in the market if you ask me for the next couple of years to come.
We will take one more question.
Pleasure.
We will now take the next James Moore from Redburn. Please go ahead.
Yes. Good morning, everyone. Thanks for taking my questions. And Joe, may I also say congratulations on Making your ships sail so well and good luck. My question is
Thank you.
Very welcome. On the DI profitability, your underlying margins in DI are up 600 bps for the quarter and you Guides to 200 bps for the year. You've explained some of the moving parts there. But could you give us a flavor So whether the software margin development is better, the same or worse than the automation Margin development for either the quarter or the year.
Thank you, James, for this interesting question. I mean, first of all, as I said, we are very much benefiting at the moment from EBA demand. Yes, semiconductor businesses around the globe We're obviously very much benefiting from their market momentum, and we are grasping that opportunity. We do have a tremendous conversion rate there, We do foresee this momentum being up for the next quarter. Visibility, as I said, It's fairly good at the moment, but we are very respectfully observing the market.
And it would be too early to conclude whether this will Be sustainable for the rest of the fiscal year. At the same time, I mentioned that and I would like to repeat that, that we intensively invest into Further opportunity to grow cloud based, so to speak, and that investment being 120 basis points We'll continue for the next couple of quarters. So if we compare the momentum in software to the underlying and what is Sustainable in that we need to take that into consideration as well. So for the time being, we are very happy with the margin development of software, but Right. We will strike the best possible balance between investments and drop through margin also on the software side.
Thank you very much. And just to make sure I understand that, are we talking about 120 basis points for cloud investment As a guide for the full year and if you were to look out for the next couple of years, does that number go down towards 0? Or should we Consider that's a good number for the coming 2, 3 years.
What I said is 120 basis points for the Q1 of I expect that level to be maintained for the rest of the year, give or take, but we are ready to invest into Additional incremental opportunities, if they arise, yes, that's what I meant with respectfully observing the market opportunities. Way forward, in the years to come, there will be a shift. We mentioned in very much detail, I think, in the past that we had MindSphere Investments, and that has We're now changing to software as a service as focus. We also continue to groom our Mendix opportunities, And therefore, the split may change. And we will give you more color on that at the Capital Market Days when we will intensively discuss our way forward for the software business in DI.
Thank you very much.
You're welcome, James.
Thanks a lot to everyone for participating today. As always, the team and I will be available for further With respect to the Siemens AGM, you can watch the live webcast of the speeches from Jim Hagerman Snabis, Joe Kaver and Roland Busch via the Investor Relations homepage. Please stay healthy and goodbye.
This will conclude today's conference call. Thank you for your From 450,000,000,000,000,000,000,000 This replay of this will be available until tomorrow night. A recording of this conference will also be available on the Investor Relations section of the Siemens website. The website address is www.siemens.com/investorrelations. Thank you.