February 12, 2007
Siemens Acquiring UGS – Part 2
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Jeff Rowe - Managing Editor

by Jeff Rowe - Contributing Editor
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Editor’s Note: As we stated last week, this story continues to unfold and will be tough to top for this year, and probably much longer than that. It caught a lot of people by surprise with regard to its timing, as well as who did the acquiring. It also got a lot of reader attention last week. UGS has seen a lot of activity the past few years, and the acquisition by Siemens seems to be the final chapter for all of this activity, at least for the foreseeable future. Actually, in some ways, the acquisition is a continuance of a joint business relationship that UGS and Siemens started in 2003. We felt that literally this was such a big deal that we should run a Part 2, so what
follows is a rerun of the acquisition announcement followed by some specific questions that we posed to UGS that were not addressed in the initial press conference regarding the acquisition.

Siemens moves to expand its industrial software portfolio through a definitive agreement to acquire UGS Corp., a worldwide leading provider of PLM software and services. The agreement was made between Siemens and the current owners Bain Capital, Silver Lake Partners and Warburg Pincus. The purchase price amounts to US $3.5 billion, including assumption of existing debt. The activities of UGS are to be assigned to the Siemens Automation and Drives Group (A&D). A&D will thus become the first supplier for the manufacturing industries to provide an end-to-end software and hardware portfolio encompassing the complete lifecycle of products and production facilities. The transaction is
subject to the approval by the relevant authorities.

With a global workforce of 7,300 and more than 46,000 customers in 62 countries, UGS, headquartered in Plano, Texas, U.S., is a worldwide leader in PLM software and services. PLM is a mission-critical, enterprise business platform that helps companies innovate and grow by enabling them to digitally create, build and manage their products. UGS is a supplier to customers in the automotive, aerospace and defense, consumer goods, electronics and machinery industries around the world. UGS and Siemens A&D already started their business relationship in 2003 with joint projects addressing digital manufacturing technology.

The offer of Siemens A&D is based on a comprehensive, technologically consistent product portfolio ('Totally Integrated Automation'), enabling Siemens to provide every customer with an integrated package of engineering and automation systems. By integrating more than 3000 software engineers of UGS, the Group will employ around 7000 software experts in total. Helmut Gierse, President of Siemens A&D, explains: "Seamless flow of information and data enable collaboration across the whole value chain. This is becoming crucial to increase productivity in the manufacturing industries where the competitive pressure is constantly rising. With the combined portfolio of A&D and UGS,
our customers will be able to enter a complete new scale of efficiency, whether they are manufacturers, engineering service partners, system integrators or machine builders. Integrated solutions will lead to reduced production costs, higher product quality, shorter time to market and increased flexibility toward market trends. On the basis of our unique offer, we aim at a long term continuation of sustainable value enhancement for A&D.”

The world market for PLM software and services has a volume of approximately US$13 billion with projected yearly growth rates of 7 percent to 9 percent. From a technological point of view, the market will be influenced by the convergence of product lifecycle, manufacturing and enterprise information technologies in many segments. The previous islands of product development, manufacturing and service software will increasingly transform into one integrated systems business. This enables a complete-solution supplier to achieve higher growth rates, greater value added and possibilities for differentiation from competitors.

The design of future production systems will reach from the creative product-design process with CAD tools to the choice and design of logistics, service and recycling strategies. Through the use of smart and modular mechatronic systems, production will be changed and adjusted swiftly and flexibly. One of the key differentiating factors of success will be the early engineering phase establishing a digital link between product development and production, including product traceability facilities and possibilities to synchronise with merchandise management systems.

UGS is a leading global provider of product lifecycle management (PLM) software and services with 4.4 million licensed seats and 46,000 customers worldwide. Headquartered in Plano, Texas, UGS’ vision is to enable a world where organizations and their partners collaborate through global innovation networks to deliver world-class products and services while leveraging Uppsala’s open enterprise solutions, fulfilling the mission of enabling them to transform their process of innovation.

Siemens Automation and Drives (A&D), Nuremberg, Germany, is the worldwide leading supplier in this field. Products developed by A&D include standard products for the manufacturing and process industries and for the electrical installation industry as well as system solutions, for example for machine tools, and solutions for whole industries such as the automation of entire automobile factories or chemical plants. Supplementing this range of products and services, A&D also offers software for linking production and management (horizontal and vertical IT integration) and for optimizing production processes. A&D employs 70,528 people worldwide and in fiscal year 2006 (to
September 30) earned a group profit of 1.572 billion on sales of 12.848 billion and orders of 14.108 billion.

Commentary By Jeffrey Rowe, Editor

In its initial telephone press conference to discuss the acquisition, Siemens said the purchase of UGS would add industrial software for planning, design and simulation to the automation-technology portfolio of its factory-automation unit, A&D. Siemens saw value in UGS because it can sell its software to automakers and other UGS software customers that are also Siemens hardware customers. Based on its history, it’s pretty obvious that the company has had a great interest in software and its market potential. The acquisition seems like a good opportunity because it makes Siemens the software and hardware “big dog” across the PLM spectrum.

UGS’ largest customer is General Motors and I’ve seen statements from the company that says it views both UGS and Siemens as strong companies and does not expect any negative impact on its business resulting from the acquisition. This is very important because approximately 15,000 GM designers and engineers use NX for product development, and over 40,000 use UGS’ Teamcenter for collaboration.

While details were lacking last week, we felt that at least outwardly the acquisition looks like a positive move. Trying to fill in some holes, I posed a number of questions to UGS regarding the acquisition and the responses below are all attributed to John Clendening, Senior VP of Corporate Marketing, UGS.

MCADCafe: Who will decide about a name change for the new organization?

UGS: There are no plans to change the brand.

MCADCafe: Will branding be any different in the short term?

UGS: There are no plans to change the brand.

MCADCafe: Do you expect UGS PLM employee levels to remain stable for atleast the foreseeable future?

UGS: The companies will work through these issues when the time is right . . . however, there appears to be very little duplication between the two organizations.

MCADCafe: It appears that present management will stay in place, correct?

UGS: The operating team will stay intact . . . in fact, they have long-term commitments to the company.

MCADCafe: Where does Solid Edge figure in equation? Is it safe to say that it will remain part of the UGS PLM mix, or might it get sold off because it somewhat dilutes potential UGS PLM sales?

UGS: All UGS products and services will continue to be offered in the market.

MCADCafe: Will R&D efforts remain at their current levels?

UGS: The company expects this acquisition will accelerate R&D and thus enhance its technology leadership in the market. We will continue to invest strongly in our products in order to achieve our market-leading vision. With the existing software engineers at Siemens and the 3000 that exist at UGS the A&D organization will now bring the power of 7000 software engineers together who are focused on delivering the world's first end-to-end software and hardware portfolio encompassing the complete lifecycle of products.

MCADCafe: Is anything/will anything be done to assure current customers that product development and product support will continue at least at their current levels.

UGS: The driving vision behind the transaction is that Siemens and UGS would become the world's first supplier of software and hardware across the complete lifecycle of products. This vision encompasses UGS' entire software portfolio. As a result of UGS' continuing commitment to R&D, the latest results of which the market will see this year with our new NX and Teamcenter launches, as well as Siemens' expertise in R&D, we expect the combination of the companies to enhance both product development and product support beyond their current levels.

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-- Jeff Rowe, MCADCafe.com Contributing Editor.


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