Supplying Value with Innovation Wolfgang Dehen, Group President Reinhard Pinzer, Chief Financial Officer Financial Market Day, February 17, 2004
We are on track with our financial performance Rigorous use of top + WIP ensures long-term profit and growth FY02 FY03 Q1 FY04 Sales (in billions of euros) 8.5 8.4 2.0 Group profit (in millions of euros) 65 418 100 Group profit margin 0.8 % 5.0 % 4.9 % Employees 43,000 44,000 44,000 R&D (in millions of euros) 708 692 174 2
Automotive production is slowly recovering Excellent growth prospects in the emerging Asian markets NAFTA 5.8% 2.6% (2.6%) 3.7% 4.2% 1.4% 9.1% (0.8%) 24.3% 16.7 CY02 16.3 CY03 (1.8%) 16.8* CY04 Western Europe (1.4%) 1.7% World 10.4% 2.0% 4.2% 59.0 59.9 62.1* CY02 CY03 CY04 Light Vehicle Production Heavy Vehicle Production [mill.] Units Others 0.4% 6.2% 9.9% 0.3% 1.1% 4.9% 16.9 16.6 16.9* CY02 CY03 CY04 Asia 10.3% 6.1% 4.2% (5.9)% 10.4% 8.8% 6.2 6.6 7.3* CY02 CY03 CY04 Source: Insight 12/2003 * estimate 22.0% 2.3% (7.3)% 19.2 20.3 21.1* CY02 CY03 CY04 3
Automotive suppliers must cope with various factors Regional aspects! Further globalization and consolidation of OEM! Strong growth in emerging markets like Asia and Eastern Europe! Saturated markets in US and Europe Cost and contractual aspects! Annual price decline over product life time for orders! Demand for active participation in cost reduction programs year over year! Fewer up-front payments for engineering and application work! Extended warranties / guarantees for all markets Innovation aspects! Increased pressure on OEM to differentiate themselves by technology! Shortened development cycles force suppliers to provide perfect products right from start of series production! Good opportunities for suppliers with innovative portfolios and optimized cost structures 4
Innovation is essential for staying competitive Nearly 90 % of our product portfolio will be in No. 1 or No. 2 market positions by 2008 No. 4 or below No. 4 or below ~ 15 % ~ 25 % No. 1 ~ 50 % No. 2 No. 3 No. 1 No. 3 ~ 10 % No. 2 ~ 60 % in No. 1 or 2 positions 2003 ~ 90 % in No. 1 or 2 positions 2008 5
First-to-market innovations ensure our global competitiveness We continue to grow with trendsetting technologies for customer-oriented products Earlier first to markets : Speedometer - 1901 Metal substrate catalyst - 1987 Immobilizer - 1993 In-car navigation (Philips) - 1994 IAFM Module Intelligent switching unit 1 st European gasoline DI Mechatronic module for AT Cockpit Module Integrated Multi Media System P-sensor for side airbag Diesel CR with Piezo Valvetronic Keyless Go Integrated Driver Information System IDIS 3D-Camera (CMOS) for Occupant Detection Modular, scalable Gasoline DI upgradable SW with Piezo platform (TLA) radiator motors Finger print sensor C-IQ Tire Guard HUD Digital Tachograph Electrical Parking Brake Active Noise Tailoring Advanced Weight Sensing 1995 2000 2005 6
Our high number of patents is a key success factor Our rapidly growing patent portfolio reflects the high rate of innovation in all business segments Number of patents/ IPR * 20% p.a.! Patents are among our most important assets! We secure our position with consistent management of patents and intellectual property rights (IPR)! We focus on patents for trendsetting technologies to support the competitiveness of our customers CY01 Inflow (new patents/ipr) CY02 CY03 Outflow (abandonment of patents)! For our customers, we leverage Siemens technology leadership based on more than 45,000 Siemens patents Patent portfolio (current status) * Intellectual property rights 7
In line with market needs: our innovation-oriented portfolio EasyControl Head-Up Display Excellent market prospects with innovations for comfort & convenience safety performance & service Intelligent Pedestrian Protection Systems C-IQ - Intelligent Content on Demand Intelligent networks for commercial vehicles 3rd generation piezo diesel injection 8
The focus of innovation: customer benefits We are in line with market trends and upcoming legal regulations Tire Guard II: Second generation of tire pressure monitoring system! improved functionality with indirect power supply! enables constant monitoring of tire status! products available before US regulations take effect in 2006 We offer trendsetting technologies and excellent components * Engine Management System Piezo direct injection for gasoline engines! increases torque! Reduces fuel consumption by up to 20%! greater flexibility with EMS* 2 hardware and software platform for diesel and gasoline DEKA VII innovative valves for port injection! fuel is finely atomized and burned efficiently! minimizes exhaust emissions! Modular design for easy application in the development phase 9
Taking the lead in infotainment and interior We develop key enabling technologies for infotainment Human Machine Interface Java-based TLA Navi Audio/TV Phone Entertain TLA Top Level Architecture! open scalable hard- and software platform! modular approach for high-end multimedia and mass market navigation! constant updates in running series We increase value added through modularity CESAR Modular Cockpit Architecture! greater flexibility for configuring interior modules! plug-and-play technology for four modules! modular electronics architecture! mechatronic integration ensures increased functionality and drastic variant reduction CESAR: Cockpit Electro-mechanical System Architecture 10
Driving innovation through systems orientation and standardization Software & Systems Initiative @ SV basis for a higher degree of innovation improved SW quality (CMMI 3 Level) Modular approach in R&D Top Level Architecture for multimedia EMS 2 platform for improved engine management Systems Orientation Standardization Modularity Vehicle Systems Group Cross-divisional systems orientation design of E/E* systems competence for functional integration AUTOSAR** *electric/electronic standardization initiative of OEM's and suppliers **Automotive Open System Architecture (A consortium of BMW, DaimlerChrysler, VW, Bosch, Continental and Siemens VDO) 11
Cooperate on standards, compete on functions The AUTOSAR initiative Targets Tasks! facilitate integration of functional modules from different suppliers for different OEM vehicle and platform variants! ensure reusability of software! provide constant updates or upgrades over vehicle lifetime! establish standard core solutions for OEM and suppliers! define standards for scaleable, modular electrical / electronic architecture Results! increase in functionality independent from hard- and software! shortened development cycles! reduced risk for OEM and suppliers! volume scale effects 12
To increase profitability, we are improving our innovation process Central lever for improvement: the technology board! supports standardized and transparent innovation process! improves Siemens VDO's technology roadmap through a marketdriven evaluation of new ideas! allocates limited R&D resources according to a funding structure! controls performance of technology projects! shortens the time between product idea and SOP (start of production)! ensures higher and faster ROI for customers and Siemens VDO! helps increase flow of innovations 13
Our aim: profitable growth through innovation Short-term focus focus Customers Business excellence! Become EVA positive in FY 05! Focused execution of top+ WIP program within Siemens Management System! Achieve best-in-class quality / quality benchmark in industry! Sustain profitable, above-average growth! Reach more No.1 and 2 positions in all competence areas! Rapid expansion of business in NAFTA and Asia! Focus on total customer satisfaction through total customer care! Establish Process House for optimizing all processes! Enforce our cross-divisional initiatives (quality, software, project management, design-to-cost)! Improve innovation process through technology board! Strengthen advanced and basic engineering Employees! Our highly motivated and skilled employees are driving the worldwide process of innovation Our Commitment: Supplying value 14
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Business overview: Our organizational structure Customers Powertrain Siemens VDO Automotive in FY 03: Sales: EUR 8.4 bn., Employees: 44,000 Chassis & Carbody Interior & Infotainment Service & Special Solutions Dr. Egger Dehen Hauptmann Dehen! Gasoline Systems! Diesel Systems! Air Fuel Modules! Engine Actuators & Emission Management! Fuel Supply Systems! Sensors! Electronics & Drivetrain! Restraint Systems, Safety Electronics! Body & Chassis Electronics! Electric Motor Drives! Information Systems Passenger Cars! Commercial Vehicles! Cockpit Modules & Systems! Infotainment Solutions! Service & Special Solutions Market Segment Units: Independent Aftermarket / Consumer Electronics, Special Original Equipment Manufacturers/Parts& Accessories, Fleet, Original Equipment Services 16
Customer-focused innovation will help us exploit growth potential in Asia and NAFTA Growth by Region NAFTA East. Europe Asia ROW 19 % 3 % 7% 2 EUR 8.4bn. West. Europe 69 % Asia NAFTA 10 % ROW 29 % 56 % 3 % 2 West. Europe East. Europe 2003 2008 17
Siemens Investor Relations Team Marcus Desimoni +49-89-636-32445 Constantin Birnstiel +49-89-636-36165 Christina Schmöe +49-89-636-32677 Claudia Wagner +49-89-636-33693 Webpage: http://www.siemens.com Investor Relations e-mail: Investorrelations@siemens.com Fax: +49-89-636-32830 Disclaimer: This presentation contains forward-looking statements based on beliefs of Siemens' management. Such statements reflect the company's current views with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here. Siemens does not intend or assume any obligation to update these forward-looking statements. 18