Good morning, ladies and gentlemen, welcome to the Siemens 2026 third 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 two 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, Mr. Tobias Atzler, Head of Investor Relations. Please go ahead, sir.
Good morning, ladies and gentlemen, welcome to our fiscal Q3 2026 conference call. All documents were released this morning and can be found also on our IR website. I am here today with our CEO, Roland Busch, and our CFO, Veronika Bienert. Both will review the Q3 results. After the presentation, we will have time for Q&A. I hand it over to you, Roland.
Thank you, Tobias, good morning, everyone. Thank you for joining us to discuss our third quarter results. Siemens delivered another record third quarter with strong performance across all metrics, despite a persistently volatile geopolitical environment. We have been making good progress in driving customer value and fast innovation by executing our ONE Tech program. Our technological leadership across all our businesses, our focus on driving industrial AI, our strong position in attractive markets provide a solid basis for sustained value creation. Let me now turn to the highlights. Book-to-bill reached an outstanding 1.34, lifting order backlog to a record EUR 132 billion. Group orders surged to an all-time high of EUR 27.9 billion, up 14% on the prior year. Smart Infrastructure topped the EUR 8 billion order intake mark for the first time.
SI's data center vertical showed exceptional momentum, again with triple-digit order growth over the prior year and exceeding our excellent Q2. Customer demand remains dynamic, driven by the rapid build-out of cloud and AI infrastructure. With +9%, Digital Industries stayed on its path to healthy growth. Its market environment was supportive in industries such as electronics, semiconductors, aerospace, and defense. Besides the beneficiaries of the AI infrastructure build-out, DI also saw some improvements in the broader manufacturing space. Mobility achieved one of its highest quarterly order volumes ever, close to the prior year's exceptional level. Looking ahead, several high-profile contracts for improving rail services in Germany are already on the books for the fourth quarter. Overall, broad-based revenue growth reached 8%, fueled by Digital Industries and Smart Infrastructure. All regions contributed to growth. The Americas led the way, up 11%, fueled by strong momentum in the U.S.
EMEA grew 6%. Asia, Australia was up 10%, driven by India, which was up 13%. Industrial business profit reached a record EUR 3.5 billion, resulting in a profit margin of 17.3% on operational strengths of Digital Industries and Smart Infrastructure. Effects from tariff refunds in the U.S., primarily at Siemens Healthineers, also supported profitability. Margin expansion resulted into higher earnings per share pre PPA of EUR 3.14. Free cash flow was a standout achievement, reaching EUR 4.1 billion. After a strong year-to-date performance, we raised our earnings outlook for fiscal 2026 on the group level. Veronika will give you some more color later. To drive future success, we have continued investing organically in switchgear capacity in Frankfurt, as well as in bolt-on acquisitions to strengthen our portfolio in the real and digital worlds.
We made progress regarding the plan to deconsolidate Siemens Healthineers. Veronika will give you an update on the tax authority's decision and the timeline. In addition to contractual topics that we discuss in a constructive dialogue with Siemens Healthineers, we plan to reduce our supervisory board mandates from Siemens AG managing board members from three to one, effective as of Siemens Healthineers' next AGM in February 2026. Veronika and I will drop our mandates. Over recent years, three companies have developed from Siemens roots into market-end technology leaders in their respective fields. We understand Siemens Healthineers and Siemens Energy's considerations regarding the use of independent brands in the future. We are pursuing a clear strategy in this respect to ensure an orderly process with both companies in line with existing agreements and for the benefit of all stakeholders involved.
Siemens will sharpen its image as the trusted technology partner for the AI age, a company with a unique ability to combine the real and the digital worlds. Let's look at the four key levers for driving our growth ambitions as one tech company. First, we start with grow digital. During the first nine months of fiscal year 2026, we grew our digital business revenue by 18% on a nominal basis, well ahead of the ambition level of 15% that we set last November. With Vectron X, we welcome a new member to the Siemens Xcelerator family. Vectron X is a highly digitalized next-generation locomotive that builds on our best-selling Vectron platform. Its digital driver's cab features a smart screen, app functionalities with standardized interfaces, and near real-time connectivity. The result, enhanced driver experience, higher operational efficiency, and optimized data-driven maintenance. Second, grow regions.
With a landmark agreement, we have deepened our collaboration with HD Hyundai to create a scalable blueprint for digital shipyards. The agreement includes a low triple-digit million contract for a broad range of industrial software and automation offerings. By connecting data, software, and automation technologies across the shipyard, we are creating the operating system for industrial AI. These capabilities will help shipbuilders increase capacity, improve quality, and reduce rework. We will support the launch of the U.S.-Korea Shipbuilding Technology Cooperation Center. It will be a platform for exploring modernization strategies and strengthening maritime competitiveness in the U.S. and allied markets. Third, grow verticals. The semiconductor industry showed strong growth momentum driven by the AI flywheel. We capitalized on this demand with attractive orders across our entire portfolio. Among them was a wide-ranging electrification win for a major new fab project in the U.S.
At COMPUTEX, we announced an expansion of our partnership with Intel across the entire value chain from design to chip manufacturing. Fourth growth lever, grow AI. Our Eigen Engineering Agent continues to demonstrate our ability to rapidly translate advances in AI into commercial industrial software. We have expanded the product globally while continuously introducing new capabilities based on direct customer feedback. Adoption has been strong. Hundreds of customers from across more than 30 countries and ranging from small system integrators to global industrial OEMs have signed on. With the launch of this agent in China at the World AI Conference, we were the only global company to receive the prestigious Super AI Leader Star Award. The PAC, the PAC INNOVATION RADAR, recognized Siemens Eigen Engineering Agent as the leading platform for GenAI advanced industrial engineering in Europe 2026.
Another example, at our global customer conference, Realize LIVE, we launched Intelligence Center X, a powerful new offering to orchestrate industrial AI, available as part of Siemens Xcelerator. Our customers run plenty of AI pilots, but they usually get stuck in the testing phase. Intelligence Center X breaks that pattern. This system enables experts to orchestrate AI agents and bring industrial AI into live operations at scale. The system features four capabilities that work together seamlessly. First, it pulls together customer data from across the entire life cycle in a knowledge graph. Graph Studio puts individual data into their overall context, live and in real-time, from design to engineering, manufacturing and maintenance, but also from supply chains and customers, for example. Second, this is crucial, Intelligence Center X comes with industrial ontologies right out of the box.
They map how assets, products, and processes in industrial engineering and manufacturing relate to each other. The result is codified industry-specific knowledge ready to use. The ontologies are linked to our Siemens Xcelerator portfolio, for example, to our market-leading most secure PLM software Teamcenter. Third, AI comes into play. AI Studio delivers machine learning and AI models trained on real operational data. It continuously monitors model quality and established rules, giving AI agents and LLMs access to advanced machine learning and data science to make more reliable predictions and decisions. This approach makes AI explainable and predictable, and thus ready to move into production at industrial scale. Fourth and finally, Mendix. Customers use this AR-augmented low-code platform to develop their own AI agents and connect them to existing systems and external agents.
They govern their AI agents with workflows based on clear roles where humans continue to have oversight and make critical decisions. As a result, the power of automated AI delivers measurable outcomes in business processes. In short, Intelligence Center X makes AI scalable for industry. Early customers are already seeing real successes. It's further proof that Siemens is using AI to deliver unique value to customers. These applications show that industrial AI is becoming real and will continue to drive exceptional growth opportunities for data center infrastructure and compute power. Market fundamentals remain strong, we are a trusted partner across the entire spectrum, from hyperscalers to colos to enterprise customers. Nine of the global top 10 data centers providers rely on Siemens. The first nine months, order volume reached close to EUR 6 billion, up triple digit over the prior year.
Similarly impressive, the team grew our revenue by more than 50% to EUR 3.1 billion. Our backlog and customer framework agreements provide visibility well into fiscal year 2027 and even beyond, while the sales pipeline looks healthy. Looking ahead, we might see some volatility in order intake due to lumpiness of large orders. Our strong position today is based on several long-term success factors, such as a comprehensive portfolio across disciplines, including prefabricated, modular, and standardized solutions. A reliable track record of execution with the ability to grow global delivery capacities and supply chains accordingly. Proven global domain know-how available in regional hubs. A strong ecosystem of partners across the full value chain. Building on this strength, we are shaping the roadmap towards 800-volt direct current architecture, which will be required to deal with high rack density in AI factories in an efficient and reliable way.
Rather than being a wholesale shift, adoption of 800-volt DC is likely to progress in stages over the next four to five years, with hybrid architectures dominating the early phases. As technologies mature and operational requirements and standards evolve, a centralized DC distribution architecture will become viable. We expect that AC and DC will also coexist with mixed topologies in brownfield retrofit and greenfield installations. We are helping major data center providers to design, test, and deploy safe and reliable DC power distribution to tackle the high density challenge they are facing. We expect the first pilots in 2027. At Siemens, we know how to handle a DC environment based on our experience in other areas, such as marine applications, battery storage, and industrial campuses.
With our proven capabilities in digital twin, automation, and electrification, we can deliver a holistic approach from design and simulating systems to innovating on the component level. We are driving organic innovation partnerships and a broadening of the ecosystem. Let me highlight some recent innovation examples to show our progress. We developed a reference architecture together with NVIDIA, nVent and Fluence across compute, cooling, power, and control systems for the latest NVIDIA DGX Vera Rubin platform. The goal, maximizing tokens per watt and ensure predictable, scalable operations. Building on this architecture, we have developed a modular and scalable automation framework with ready-to-use SIMATIC libraries. Our PLCs are already automating critical OT infrastructure in several megawatt scale data centers. In the electrification area, we are continuously optimizing our factory-assembled, pre-tested kits and are working on new DC products.
One great example is our collaboration with Infineon, where we are integrating their silicon carbide power modules into our latest solid-state circuit breakers, a critical enabler for safe and reliable distribution of DC power. Summing up, we are very well positioned to win in traditional and hybrid architectures and on the way forward to 800-volt DC. I'm very pleased with the momentum and performance of our DI software business. At 11% over the prior year quarter, organic ARR growth remained at a very healthy level. Integration of our Altair and Dotmatics acquisitions is progressing very well. We are bringing our simulation products together and are launching new products. Early revenue synergies are materializing as well. Strategic partnerships such as those with IFS and Xometry complement our industrial AI offerings.
With IFS, we are offering a digital twin to connect design, production, and asset performance in order to deliver productivity and adaptability for manufacturers. The software business is moving fast, strategically, and in operations. Now, over to you, Veronika.
Thank you, Roland, and good morning, everyone. Let me share further details on our record Q3 and our outlook for fiscal 2026. Orders for Digital Industries at EUR 4.9 billion were 9% above the prior year, with a book-to-bill of 0.98. Orders in automation were up 11%, with a book-to-bill of 1.01, driven by the short cycle business. As Roland mentioned, overall market dynamics have been further improving. In addition, I want to point out that DI saw an upswing in its core vertical of machinery driven by China, but improving elsewhere as well. Yet, capacity utilization in some of our key industrial markets, particularly in Europe, is still on a relatively low level. DI software business delivered 5% growth over the prior year, with orders close to EUR 1.7 billion. A key driver was the PLM business, including a major order with a large automotive OEM modernizing its entire system landscape.
The EDA business was softer as expected. Our backlog at Digital Industries was stable at around EUR 10 billion. Revenue for DI increased 10%. The software business was up a strong 15%, driven by the EDA business, growing more than 30%. DI's automation revenue was up 7% to EUR 3.1 billion on broad-based growth in discrete and process automation. DI's profitability improved sharply to 18.7% with a strong contribution from its software business. A high share of accretive EDA revenue and the successful integration of Altair and Dotmatics drove margin expansion. Economies of scale and a clearly net positive economic equation supported margin improvement in the automation business. Sustainable productivity gains more than compensated for cost inflation and increasing pressure from rising prices for selected electronic components. Integration-related costs for Altair and Dotmatics accounted for 70 basis points in the third quarter, in line with expectations.
I'm very pleased with DI's extraordinary free cash flow performance of almost EUR 1.5 billion, which is an all-time quarterly high. Cash conversion was excellent in both software and automation. Looking at the regional top-line perspective, DI's automation businesses grew strongly across most regions. China showed good momentum with orders up 17%, and revenue grew 9% on healthy sequential revenue dynamics fueled by motion control. Our local China portfolio was accretive to revenue growth, up by a rate in the mid-20s. The picture in Europe remains somewhat mixed. Order recovery is on the way, with a book-to-bill above one and healthy growth. Revenue in Germany was still muted due to discrete automation, while the latter drove clear growth elsewhere in Europe. The U.S. continued its growth path. The AI-driven investment boom also supported core manufacturing industries. This benefited our discrete automation business.
Based on delivering a strong performance after nine months, we confirm our DI guidance for fiscal year 2026 in all aspects. Revenue growth is expected in the range of 7%-10%, and profit margin is expected to reach 17%-19%. For the fourth quarter, we see DI orders around the prior year level on very tough comps due to an exceptionally high volume of EDA bookings. Automation orders are expected to be clearly up, while the software order volume will be below the prior year's record level. Nevertheless, the software sales funnel is promising. We anticipate that DI's revenue growth will be in the range of 5%-7%, supported by growth in automation and software. We expect DI's profit margin to be flat sequentially because of the business mix.
Now, let's turn to Smart Infrastructure, which once again delivered an outstanding performance across all businesses and key metrics. Orders were up 42%, reaching a new record level of EUR 8 billion. This increase was driven by a massive growth of 58% in SI's electrical products business and 55% in its electrification business. Both businesses benefited again from a high volume of large order wins with data center customers in the U.S., but also in Europe, where we won, for example, a large project in the Nordics. Even without the data center-related business, order growth was strong and reached the high teens. Book-to-bill came in at an outstanding 1.25. SI's record order backlog of EUR 23.7 billion gives us a lot of confidence for sustained growth momentum into fiscal year 2027. Revenue growth was broad-based and reached 13%.
The largest contribution, again, came from the electrification business, up 20%, and the electrical products business up 18%. Consistent backlog conversion led to further operational margin expansion. SI's margin was up 120 basis points year-over-year to 20%. An impairment related to the e-mobility charging business partly offset positive effects from tariff refunds in the U.S. The net effect amounted to 50 basis points, implying an operational margin of 19.5%. Structurally, SI's business continued to benefit from economies of scale due to higher revenue, combined with improved capacity utilization and from sustained productivity improvements. Pricing measures in SI's product business compensated increasingly, but not yet fully, for higher commodity costs. Free cash flow showed consistent cash conversion at 0.94, with a seasonal increase in operating working capital well below the top-line growth trajectory.
Looking at the regional top-line development, orders were up double digit across the board and stringent backlog execution drove revenue in all geographies. The U.S. again showed exceptional order momentum, up 81%, led by data center and semiconductor wins. Bookings and buildings saw growth in the low double digits. Germany recorded substantial order growth in buildings. Electrification and electrical products grew around 10%. The Europe and Middle East region also benefited from large data center orders in Finland and Spain. SI's top line in China recovered further, with order strength in buildings ahead of price increase while electrical products drove revenue. The service business delivered 7% growth, clearly up in Asia and in Europe. Our SI teams continue to expect very healthy end market dynamics, with data centers and power utilities as key engines for growth.
After delivering 11% revenue growth in the first nine months of fiscal year 2026, given high visibility from order backlog, we raise SI's guidance for the full fiscal year. For comparable revenue growth, we now expect a range of 10%-11%, up by 150 basis points at the midpoint. Building on a very consistent margin expansion trajectory, we lift SI's profit margin outlook by 50 basis points to a range of 18.5%-19.5%. For the fourth quarter, we anticipate that SI's revenue growth will approach the lower end of the full-year range and that the profit margin will be in line with full-year expectations. Mobility recorded a robust set of results in the third quarter. Orders at EUR 7.6 billion included a high share of attractive service contracts and topped our expectations with an excellent book-to-bill ratio of 2.35.
Order backlog increased to EUR 58 billion with an attractive growth margin profile. As Roland noted, we see a very promising sales pipeline for the fourth quarter of fiscal year 2026, including the booking of the majority of a EUR 3 billion contract with Italo Holding. The contract includes rolling stock as well as a 30-year service agreement. Revenue in Q3 was up 6% over the prior year, fueled by low double-digit growth in the rail infrastructure business. Margin performance was solid at 8.6%, with a somewhat less favorable project mix and slightly higher severance costs compared to the previous year. As indicated, free cash flow picked up materially, and cash conversion improved due to stringent collection of large payments from customers. Looking at project payment profiles and the timing of order awards, we continue to expect further substantial catch-up in the fourth quarter.
After a consistent Q3 performance, we confirm Mobility's full-year outlook for revenue growth in the range of 5%-7%. We continue to anticipate that Mobility's full-year margin will come in with the range of 8%-10%, with the expected outcome towards the lower end. For the fourth quarter, we expect Mobility's revenue growth to accelerate on strong backlog execution and achieve a level between 9% and 11%. Profit margin is expected to be within Mobility's full-year guidance. Page 17 in the appendix shows our below IB performance. The results included a strong SFS contribution, fueled by a gain of EUR 156 million from the sale of a stake in an equity investment in the U.K. Free cash flow of more than EUR 4.1 billion in the third quarter was up more than 40% over the prior year, driven by all industrial businesses.
Free cash flow return on revenue stood at 11% after nine months, we are firmly on track to achieve a double-digit return again for the full year. We further deleveraged our capital structure to 0.6 for industrial net debt over EBITDA, which gives us the entrepreneurial freedom to act from a position of strength. Our leadership team remains fully committed to delivering strengthened capital allocation and strong shareholder return. As Roland already mentioned, we made good progress with our plan to deconsolidate Siemens Healthineers. Meanwhile, as expected, we have now received binding decisions from the tax authorities clarifying the relevant tax topics. As a result, we can proceed with the spin-off of Siemens Healthineers as planned. We confirm the timeline for receiving the shareholders' approval at the annual shareholders' meetings of both companies in February 2027. Currently, we are working on contractual details.
In connection with our Q4 earnings release, we will update you on the next steps and related decisions. At the beginning of July, following completion of the previous program, we launched our new share buyback program for up to EUR 6 billion over a period of up to five years. Execution started swiftly with a buyback volume of EUR 400 million in the first month. Finally, our group outlook and expectations for our core business at a glance. Following the strong first nine months, we raised our fiscal 2026 outlook for EPS pre-PPA to a range of EUR 11.20- EUR 11.50, up by EUR 0.45 at the midpoint. We continue to expect to reach the upper half of our group revenue growth guidance of 6%-8%.
In a time of highly volatile geopolitics, we are leveraging market opportunities and are delivering strong earnings performance with healthy growth and excellent free cash flow. With that, I hand it back to Tobias for Q&A.
Thank you, Veronika. We are now ready for Q&A. Please limit yourself to one question per person. We want to give as many of you as possible the opportunity to raise your question. Operator, please open the Q&A now.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from James Moore from Rothschild & Co. Redburn. Please go ahead.
Good morning, everybody, and thanks for the time. I wondered if I could ask about the DI automation orders in China, at the 17% growth, really in two dimensions. I think you mentioned a strong start to the quarter in April and May. I wonder if that is showing us that June has slowed in speed a little bit. Could you talk a little bit about the momentum in the quarter, the speed into July, and what's happening by end market and channel, and whether you see any sign of the strong Chinese cycle where you've grown 25%, 30% now for nine quarters slowing at all? The second dimension is really on the 17%. It might seem slow to some against some of the locals growing closer to 40%, but you do have a different premium versus value for money mix.
Would it be possible just to remind us of the share of sales or orders from value for money? I think you mentioned, Veronika, that the VFM segment grew in the mid-20s in revenue, but could you say what it grew at in terms of speed on orders? Thanks very much.
Your observation that there was a little bit of a slowdown in June, it's right. However, in July, we are picking up momentum again. Therefore, I would say it's all intact. If it comes to China, also the local product and the 40% you're mentioning, this is the value for money portfolio. Now let's compare with value for money from our side, our China new products or smart products, as we call them. Year to date, it's +30% from our side. You compare that April to June, I assume, 40% of Inovance. We know that Q1 in Inovance was also not that strong. I would say we are equally or even a little bit ahead compared to Inovance. If you compare us to international competitors at the same time, I would say in this segment, we are definitely outperforming.
Last point is we also see a pickup in the demand for the, let's say, the higher-end automation devices, which we like very much, because, again, this is a very strong position of ours, which we are also going to expand. Therefore, from that perspective, I would say we feel quite comfortable the way how we are working in and with our Chinese customers with our products.
Very helpful. Thanks.
Yeah. Really from my side, if you look again at the China portfolio, really the orders were up in Q3, up 20%, as well the revenue, the 17% I already mentioned. If you really look at the development in July for automation, we could see in China, if you look at our dailies really in the lower twenties in order entry, the development, they're ex-FX comparable. Therefore we are quite confident here for the fourth quarter, even though the entire environment is mixed. We definitely see a K-shape development. We had a strong continuous growth in certain key verticals in Q3, in electronics and the like. For the fourth quarter, the outlook is really that the automation orders are expected to be clearly up year-over-year. Yeah.
Thanks, Veronika.
Next question, please. The next question comes from Ben Uglow from Oxcap Analytics. Please go ahead.
Morning, Roland, Veronika, and Tobi. Thank you for taking the question. Just getting into the kind of sequential progress and the dynamics on the automation hardware side. Veronika, if we look at the margin, I think it's maybe a little bit lighter than some of us expected. Obviously we're hearing from a number of companies now in the automation world about supply chain constraints, memory, shortage, lead times, et cetera. Can you give us your thoughts on if that is going to be a factor in the next couple of quarters? I guess a broader question maybe for Roland is if we look at this upcycle, if we look at the growth and the uptrend that we're seeing across a number of industries, not just electronics or semiconductor, how comparable is this with what we were seeing after COVID in that sort of 2021, 2022, 2023 period?
If we looked at the supply chain situation today, how does it compare with back then? Thank you.
I give it a start with regards to the commodity cost, which we are seeing in the DI business, and they are having a drag on DI margins.
I think that is something we, in a very diligent way, work with it. As already mentioned, the DI team contributed with a net positive economic equation in the third quarter. Productivity continued to contribute it and was really reinforcing the overall economic equation and was really significantly helping to offset cost pressure as well. If we look at more or less the entire fiscal year and from an overall outlook, we are as well confirming a net positive economic equation as well for the entire fiscal year and are very confident with our productivity measures and with a very continued high focus really to offset inflation and demand-related cost pressures from supply side.
Good.
Then the next question from.
Sorry.
Yeah.
Ben, to your question, to your second part and comparing that with the COVID time, there are two dimensions. One is the go-to-market, the stocking on the one side and one is the supply chain on the other.
Yeah.
Let me start with the supply chain. The uptick in the demand was so strong that there was really a supply chain shortage in particular on international semiconductors, less local Chinese ones, which was raising lead times for supply to, I don't know, 10 weeks, 20 weeks, whatever. Completely off. We don't see that. We are looking at supply chain. There are certain constraints, but there's no alarm at this point in time that we aim to fall short. Could that be that there's a price increase? Yes. Our economic equation is positive as said, and it will stay positive. It even increased a little bit. Therefore that's good. If it comes to the sell-through, and we don't see an increase in stocking, we are watching that closely.
There's no sign that this happens, but we have to stay tuned, and we do that in order to avoid any signals from this perspective.
Understood. Thank you very much, Roland. Very helpful.
Next question, please. The next question comes from Jonathan Mounsey from BNP Paribas. Please go ahead.
Thank you for fitting me in. I'd maybe like to ask one about software strategy, particularly in the context of what's been happening in the first half in terms of investor sentiment around software. Obviously software revenue looks strong this quarter, and SaaS transition is almost complete. I just want to understand, I think is the market moving away and towards new ways that you'll have to adapt to? Investors have been worried about the revenue model of PLM competitors in the first half, and I know that's been traditionally linked to the number of seats as kind of a proxy for product usage, at least historically when humans were doing the work. Going forward, AI may drive down the number of seats. How are you going to adapt to that future? Are you
Tokenizing your software, are you able to charge for actual usage on outcomes and are you moving your customers towards that? If so, how are they responding? Are you having those conversations?
This is quite a bit. Let me start. Yes, we are seeing a strong demand on our software, which underlines that what we are saying that the software which we are selling, it's not a workflow-based, rule-based software. It's physics-based simulation. It's data-centric with a single source of truth, with a very structured way of storing your data with contextualization. This holds true for our PLM as well as EDA software. Good things here, firstly. Secondly, yes, our SaaS transition is we are through. We see a higher growth rate. We see a very good picking up in the margins as well, which continues also in the next year. Whatever we planned at that point in time when we pulled the trigger for this SaaS transformation, happens, materializes as planned or even better.
On the other point, you know that we are rewriting and supercharging our software with AI capabilities. We are taking care that, for example, in the future simulation software was used by engineers, in the future will be used by engineers and agents. The user interface changes. We have embedded functionality in our software, which already creates revenue. Currently we are not charging tokens. We are running a license model and a SaaS model, pushing also for SaaS. We have the highest growth for SaaS, which plays out very well. We are ready from that perspective that we run software out of a SaaS model, out of the cloud. We can update a very short notice, which is super relevant for any kind of AI functionality which rolls in as we go forward. The more we are using AI models and also underlying LLMs.
By the way, we use all of them and also open source model in particular those, because once you have your model trained, you can use cheaper tokens, and in any kind of model on the edge or in our software. We are also thinking about how we monetize. Would we then go into a token base? This is really more the future. We are looking into that. Give you one example where we did not do that. Our Eigen Engineering Agent, which is by design priced as what it is. It's an engineering tool, and in that market people used to pay license. We are charging license fees. Customers are ready to pay. We have doubling and tripling over the last weeks of customers.
I think this is one of the fastest-growing products, at least as long as I can look back, which we launched in the market. It's a very dynamic environment and we are definitely looking into how we can change our models going forward, pricing models. Of course, we are looking more and more for ARR-like models because they have a lot of advantage, again, in driving innovations faster because you can update. Last point is on this amount of seats going down. We believe the usage goes up, which we eventually then charge via a usage of agents and/or engineers because we have now much more powerful tools which can be used thanks to AI by many more people. We are democratizing our software away from scientists or physicists who are making models. Give you one example.
Currently, when you simulate something, you have to mesh your object. Our software avoids this whole cumbersome meshing exercise, you can start right away with simulations. Check out for our re:Invent streamings, you can see that's what we offer there.
Thank you.
Next question, please.
The next question comes from Phil Buller from JP Morgan. Please go ahead.
Good morning. Thank you. Just to clarify, firstly, if I may, Veronika, on your economic equation commentary, did you suggest or say you put two additional pricing actions in the quarter? My question though is on SI margins. 20% is obviously very strong. I appreciate there's some tariff refund in there, but your performance is now at or around the high end of the medium-term guidance. You are booking huge orders. Is there any reason to believe that those orders are margin diluted by nature because of the data center dynamics, or should we anticipate further progression in 2027, or is there a need to step up investments? Thanks.
With regards to the economic equation in this quarter, we could really compensate cost inflation as well with the relevant pricing measures. Therefore, we are here very well underway and with regards to the tariff refunds, I already mentioned that really a net, the impact out of tariff was only 50 basis points. Therefore, the tariff impact was really on a lower level here. Going forward, the teams are extremely committed to level out the relevant price increases and to, in a very diligent manner, steer that as well with the relevant pricing of our products. That's the current approach. Therefore, I confirmed as well that we are committed to a net positive economic equation for the entire fiscal year. Going forward, we will maintain this very ambitious productivity approach going forward within SI.
I guess I was asking as well in terms of the order momentum in SI is huge. Should we assume that there's a lot more investment to come or is that potentially higher margin activity that might be something to consider for 2027?
In terms of capital allocation, we are of course, very diligent and we are adjusting our capacities within the SI, in particular EA and EP environment as needed. Depending as well on the order intake and the relevant growth momentum we are having here. We are kind of streamlining that in such way that we adjust our capacities accordingly. As I already mentioned in another context, we look very much into our global footprint, to as well further diversify our manufacturing footprint. Therefore, the focus, besides Europe is really on Europe to adjust really step by step our manufacturing footprint, but in such way that it stays very modular in the approach so that we can, in a very fast manner, adjust as well our capacities.
Thank you.
Next question, please.
Next question comes from Martin Wilkie from Citi. Please go ahead.
Yeah, thank you. Good morning. It's Martin at Citi. I just wanted to come back to the comments you made on profitability in software. You talk about a sharp improvement, and I know there's a lot of moving parts, including some lower integration costs. Just to understand, to X that integration cost, what's driving that pickup? It looks like EDA was stronger, so potentially it's mixed. We're also going through probably the final part of the SaaS transition. Has that been the driver? Is it early synergies from the recent deals? Just if you could step through what's driven that pickup in software profitability. Thank you.
I go first. With regards to Altair and Dotmatics, we are very happy with the integration performance. We see as well first indicators as well of revenue synergies. We are very confident that we can execute as planned and maybe even in certain areas, faster than originally planned. Therefore that is of course something which is translating into our activities. Then if we look at our SaaS transition, we are at the end of the belly of the fish. Here as well, the performance and the conversion is increasing step by step. That is as well something which makes us very confident. If you look, I already mentioned, for Q3, the integration costs are 70 basis points. Since we are accelerating to our overall plan, we are very confident, going forward that we will execute as expected.
On a general note, regarding the SaaS, above and beyond our integration again with Altair and Dotmatics, which we are really happy about. It runs as planned and better. There's a couple of elements in there. Number one is if you want to cloudify your software, you have to rewrite some code. You have to bring it on the cloud, which has benefits as well because you can release features faster, which is obviously driving the usage. Therefore, this is an investment in our software. Just to get it right, we do not write all the 100% of our code, it's only pieces of that, but we are rewriting. This investment we took in the beginning of our SaaS transition.
We still continue to rewrite software code, obviously, again, now supported with AI technology. Therefore, this major investment is behind us. Again, still some forward investment, but this is the going concern once you have the SaaS transition. Then you have offerings, which we have, SaaS offerings where we run the infrastructure. This comes with a higher margin. Some hybrid as well. Then you have the business mix. We have customers, new customers, small and medium sized customers, and higher growth, of course. Growth drives also profitability. Remember, we have tens of thousands of small and medium sized customers, which we didn't see before. Therefore, this is the package, and it really plays out as planned.
Thank you. Is the SaaS transition now done? I mean, should we assume that the drag from that no longer repeats next year?
You know the saying, software is never ready. It's done as much as software is never ready.
Great. Thank you.
Next question, please.
The next question comes from Max Yates from Morgan Stanley. Please go ahead.
Hi. Thank you. Good morning. I just wanted to ask about the Smart Infrastructure division and a little bit around the revenue conversion as we go into 2027. There's maybe two ways to look at this. Your SI orders will be something around EUR 30 billion this year. Your revenue's around EUR 25 billion. Or maybe zooming into your data center business where your orders may be EUR 3 billion or EUR 4 billion higher than your revenue. I guess what I'm just trying to understand, within the capacity constraints that you have, the duration of the backlog, how much of that additional data center orders, that EUR 3 billion or EUR 4 billion, do you think gets delivered in 2027? I guess what I'm really asking, it looks like based on your backlog, you should see quite a healthy acceleration in revenue growth next year.
Is there anything we should consider in terms of timing of backlog constraints around capacity that wouldn't allow that to be possible? Thank you.
Thanks for the question. With regards to capacity constraints, of course, with such a steep order intake, the translation into the revenue and the respective execution for the teams is always a challenge. However, the teams are very well prepared and the respective ramp-up of capacity where needed is well underway. Therefore, we don't see, as of now, any implications that we could not execute as planned in terms of revenue.
And maybe.
Yeah. Maybe just to give you another indicator in terms of execution. We reported that we have a record quarter, and if you look at SI and the last six quarters, the increase in revenue is really on a top level for this quarter. It shows that the teams are very capable to execute on the respective order backlog. You see it in the annex. Here we have the backlog for SI, this is the EUR 23.7 billion, and for next year, it is really close up to EUR 12 billion, which we intend to execute, yeah, as of now. Yeah.
Okay, that's helpful. Thank you very much.
Maybe a short comment. Look in our book-to-bill. If you look at that, our order intake last year, revenue order intake projection in this year, you will see that obviously it's building up, and we convert it as we speak. We take care that we are fulfilling the demand of our customers in capacity expansions, driving productivity at the same time in our plants that we are sure that we can take this momentum.
Great. Thank you very much.
Next question, please.
The next question comes from Alex Virgo from Evercore ISI. Please go ahead.
Yeah, morning, Roland and Veronika. Thanks for taking the question. I wondered if you could just help me a little bit with the margins in Q4 in DI. Given the guidance on the top line in terms of software and automation mix, I would have expected a more positive mix benefit from that software strength. If you could just give us a sense of why the margins are flat Q- on- Q. Then if I could just follow up on SI margins, is there any tariff impact or tariff refund impact implicit in the guidance for SI margins? Thank you.
First, to SI, with regards to our guidance for the entire fiscal year. Here, what we have reflected is really the net benefit of 50 basis points in the third quarter. In the fourth quarter, it is just the regular refunds we have from a daily operation, but there are no major implications baked into our outlook. That's with regards to SI. It's really coming from the operational execution within SI. As of now, there are no special effects baked in out of tariff. For DI, in terms of profitability, we always need to look at the mix between automation and software. Therefore, that really plays, as well, a role and in particular in the discrete industry. Yeah, that is something we take into consideration and as well in certain markets.
If you further even drill down, within the discrete industry, what is more tied to the machinery. Roland and myself, we reported that we have a strong growth in the machinery environment, therefore that is as well reflected in the overall mix.
Okay. Thank you.
We will take one last question.
Today's last question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my question. I'll try to be quick. We have seen several of your peers embarking in larger M&A in the last couple of weeks. Just wondering if you could give us an update in terms of digital versus product and sort of what are the areas where you think it might be interesting to strengthen your portfolio. Thank you.
Yeah, we are watching these acquisitions also with interest. We are looking definitely in the software space, but not only in the core software pieces in our PLM EDA, we have some bolt-on EDA acquisitions, which we talked about recently, which are super interesting. Small, though, but very interesting and complement our portfolio. We are looking into also the infrastructure space, if there's our grid control, grid automation infrastructure, and software is still in our focus. We are expanding our focus, as I said in the last call, also in operation software. Now software coming from design space now into the operation space on the ground, but also in the maintenance space. Another dimension is the whole data layer environment.
This goes a little bit also with our organic development, looking to our Intelligence Center X portfolio, with the products which we have also via Altair with RapidMiner, but also Graph Studio. We're looking into ontologies and databases, which is a little bit a kind of a cross-reading to Cognite. Cognite is very focused on upstream business. We are looking into that space too. We are also having a view on, since you maybe refer also to the acquisition, which is done by ABB on just solid instruments with, I think they come with good margins. If we find assets where we have data creating assets which are connected, which are supporting our strategy, or again, supporting our strong EA or EP portfolio, we would definitely look into this space too.
Very clear. Thank you.
Thanks a lot to everyone for participating today. As always, the team and I will be available for further questions. We wish you a relaxing summer break and look forward to meeting many of you in September on various occasions. Have a nice day and goodbye.
Ladies and gentlemen, that will conclude today's conference call and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.