Schneider Electric, Riding Tailwinds across Multiple Sectors
A leader in energy management and automation
From smart cities and renewable energy to industrial automation and digital transformation, Schneider Electric's diverse portfolio has positioned it to capitalize on the growing demand for sustainable and efficient energy solutions. The company's strategic focus on digitalization and revenue stability is now yielding impressive results. Additionally, the increasing demand for data centers is driving significant growth for Schneider Electric.
This article will explore Schneider Electric's operations across various sectors. By examining the company's strategic initiatives, key metrics, performance, and competitive advantages, we uncover why Schneider Electric is a compelling company to watch.
Company overview
The company activities are divided into 2 main divisions.
Energy Management - 3/4 of the sales
Schneider Electric is a global leader in energy management, offering solutions that enhance energy efficiency, sustainability, and reliability across various industries. Their energy management activities encompass:
Power distribution and control. Schneider Electric provides advanced power distribution solutions, including circuit breakers, switchgear, and transformers.
Energy efficiency solutions. The company offers comprehensive energy efficiency solutions that help organizations optimize their energy use, reduce costs, and lower carbon emissions.
Renewable energy integration. Schneider Electric supports the integration of renewable energy sources like solar and wind into the grid. They provide solutions for energy storage, microgrids, and smart grid management.
Digital energy management Platforms: Through platforms like EcoStruxure™, Schneider Electric delivers digital solutions that provide real-time monitoring, analytics, and control of energy systems.
Industrial Automation - 1/4 of the sales
Schneider Electric is also a key player in industrial automation, offering technologies that drive efficiency, productivity, and innovation in manufacturing and industrial processes. Their industrial automation activities include:
Automation and control products. Schneider Electric provides a wide range of automation and control products, including programmable logic controllers (PLCs), human-machine interfaces (HMIs), sensors, and variable speed drives.
Industrial software solutions. The company offers industrial software for design, operation, and maintenance. This includes solutions for process automation, manufacturing execution systems (MES), and industrial IoT.
Robotics and motion control. Schneider Electric's robotics and motion control solutions enhance precision and efficiency in manufacturing processes. Their offerings include robotic controllers, servo drives, and motion control systems that support advanced automation applications.
Digital transformation services. This includes consulting, implementation, and support for digital initiatives such as predictive maintenance, digital twins, and smart manufacturing.
End markets
Schneider Electric serves 4 main end markets.
Industry - 34% of the sales. The industrial sector is the largest contributor to Schneider Electric's revenue, encompassing a wide range of manufacturing and industrial operations (industrial automation, process optimization, …)
Buildings - 32% of the sales. The buildings sector is one of Schneider Electric's largest end markets, encompassing residential, commercial, and institutional buildings. Its offertings include: smart building technologies, energy efficiency, building management systems.
Data centers & networks - 21% of the sales. Data centers and networks represent a significant portion of Schneider Electric's business, driven by the explosive growth in digital data.
Infrastructure - 13% of the sales. The infrastructure market, though the smallest segment, is vital for supporting essential services and public utilities. Schneider Electric's role in this sector includes smart grid solutions or transport and public services.
Digital transformation
The SCALE digital transformation project is designed to improvethe business model, benefiting customers, partners, and employees alike. It focuses on two main objectives: accelerating growth and increasing recurring revenue. The transformation hinges on four key activities:
Software and Digital Services
Field Services
Connectable Products
Edge Control
These areas are growing significantly, with a 17% increase in 2023, and currently account for 56% of the group's revenue. The goal is to expand this share to 60-65% by 2027. In particular, the company aims to boost the recurring revenue from agnostic software solutions to 80%, up from the current 70%.
The software and digital services segment is experiencing a robust 18% growth rate and represents a core strategic focus for the company. One of the major assets in this area is the acquisition of Aveva, which has been a significant step toward enhancing synergies and integration within the software offerings.
The roadmap includes a shift in business models, emphasizing subscription-based revenues for Aveva and Platform & Data as a Service (PaaS & DaaS) for the EcoStruxure software.
Signs of the transformation success
There are clear signs that the company is successfully undergoing its transformation.
Notably, the net profit margin, EBITDA margin, ROE, and growth profile are consistently improving. The company also projects further enhancements in its EBITDA margin in the coming years.
Megatrends
Schneider Electric presents 5 key megatrends:
Digitization & Artificial Intelligence. We find in this megatrends the data centers with high density power and cooling addressing specific needs of AI
Climate Change. Leveraging technology to address climate change to reshape the energy landscape (energy efficiency, …)
Energy Transition. Technologies to support the global shift toward electrification.
Evolution of Wealth & New Global Equilibrium. Schneider is responding to shifting global wealth patterns by developing affordable energy solutions for rapidly urbanizing areas in emerging markets and catering to the growing demand for smart home technologies and energy-efficient appliances in wealthier regions. They aim to transform future cities into digital hubs.
However, automation remains a powerful megatrend where Schneider is well-positioned, despite experiencing short-term lower momentum.
R&D is the key to sustaining leadership
R&D is a crucial factor in identifying the leaders of tomorrow. Let's compare Schneider with two of its peers for the year 2023:
Schneider: €1.94B (5.4% of sales)
Eaton: $0.75B (3.3% of sales)
Emerson: $0.52B (3.4% of sales)
The results are clear: greater investment in R&D leads to better outcomes and sustained leadership.
Stock metrics
You can find all the data I am using through the following link to marketscreener.com. I use this website daily, and I am confident it can be helpful to you as well. (Please note that this is an affiliate link)
After a presentation of the company’s metrics, there will be a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis and a fair price estimation.
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