Attention VARs: Siemens Sees Software as Key to Surviving Digital Transformation

German engineering firm Siemens is doubling down on software. The company just announced an agreement to buy U.S.-based Mentor Graphics in a $4.5 billion all-cash deal. Mentor makes software for designing semiconductors—that is, software for designing hardware.

The deal increases the investment in software capabilities that’s been a growing focus for the company in recent years. Earlier this year, Siemens acquired another US software engineering firm, CD-adapco.

As huge tech companies try to adapt to the digital transformation, we’ve seen over and over again how hard it is to turn a giant ship on a dime. And for a company such as Siemens, which made its fortune on equipment sales, there will be some sacrifices on the road to shifting to managing solutions.

So as the company gains software assets, it’s shedding non-core business units in hopes of increasing its profitability like many other tech giants are doing these days. Just last week, Siemens announced plans to sell off its $15 billion healthcare business. The unit is the most profitable of Siemens’ trains-to-turbines group, but the company decided the investment needed to transition from healthcare equipment sales to managed services outweighs the potential gains. Investors agreed—shares of the company rose to a 16-year high after the announcement.

At its core, Siemens is still a mechanical engineering company with a declared focus on areas such as power generation, smart grids and power transmission/distribution, factory automation and energy application.

But as it articulates in its “Vision 2020” growth plan, achieving and maintaining dominance in such areas requires software expertise, especially in digital-twin software, which allows engineers to do things like perform endurance tests, integrate product design and plan production in the virtual world.

The plan also emphasizes an area dear to the channel’s heart: business analytics and data-driven services, software and IT solutions. In essence, they want to ape what partners are trying to do and become their customers’ trusted advisors, and software is the key to that strategy. The goal is to use data analysis to provide insights that drive business improvement.

“The resulting competitive advantages for our customers are increasingly derived from cloud-based solutions and services powered by data-analytics software,” said the company.