Software AG and the state of IoT and industrial edge services

Software AG can be considered a significant player in industrial IoT. It has managed to grow the Cumulocity IoT platform business after acquiring the company in 2017 and has continued to build its IoT and digital transformation story with services for data and application integration and partnerships with companies like AWS, Bosch, Siemens and more. After recently reporting quarterly earnings, are there any answers to our question?

Q1 2020 earnings: IoT perspectives

Software AG has multiple lines of business, including Adabas & Natural, which provides mainframe application migration and application integration. The focus here is on the Cloud and IoT revenues within the company’s Digital Business Platform line of business. Inside this business line, the company offers products subdivided into Business Transformation (ARIS, Alfabet), Integration & API (webMethods), and IoT & Analytics (including Cumulocity IoT, Apama, TrendMinder, Zementis).

DBP overall underperformed as some deals didn’t close during the quarter, suggesting that some aspects of digital transformation efforts are being delayed or otherwise impacted by COVID-19 and resulting economic issues.

Executives reported that the impact of project cancellations on revenues would be in the low single-digit percent of annual revenue. Cumulatively speaking, the company also says it has low exposure to companies in travel, tourism and hospitality, and others that have been significantly impacted by COVID-19, and the company has 800 customers.

Key data for IoT

“On the IoT side…remote connectivity and managing of assets, being able to run operations more effectively also plays very tightly to the way companies need to operate right now,” said Sanjay Brahmawar, CEO of Software AG on an earnings conference call.

• IoT bookings were up 65% y/y, owing in large part to a single deal.
• Cloud and IoT annual recurring revenue (ARR) reached €45.8 million as of the end of Q1 2020, an increase of 27% at constant currency.
• 2020 revenue for cloud and IoT product bookings is expected to show a growth range of 20% to 40%.

As the IoT business is focused on subscription revenue, executives said that it has been able to react to economic conditions by adding 90 days to contracts to enable customers to start projects on a later timetable. Executives said that there hasn’t yet been discounting on prices.

The company’s deal with Schindler Group is significant in terms of size and scope. One million elevators and escalators for asset management. The revenue has mostly been recognized in the first quarter, so it’s not clear if more large deals like this are in the pipeline-though management certainly hopes a new benchmark has been set.

Product/partner news roundup

Along those lines, Brahmawar announced that the company is partnering with Tech Mahindra. The companies will work on offering customers IoT analytics and integration technologies as well as services and support to enable communication service providers and manufacturers to drive digital transformation. Software AG said they will be Tech Mahindra’s exclusive IoT software platform and won out over companies like PTC. Software AG will also invest in Tech Mahindra’s factory for the future program and make its technology available to the Tech Mahindra IoT labs.

Canadian wireless and IoT product design company Swift Labs has joined Software AG’s PowerUp Partner Program to provide customer access to Software AG’s Cumulocity IoT platform and Swift Labs’ cellular hardware platform powered by “Design Blocks.” This will ensure fast IoT deployment in real-time, operational dashboards, and analytics. Customers can use Swift Lab’s Design Blocks hardware to view data in real-time through LTE-M & NB-IoT networks to the Cumulocity IoT platform. Following this partnership, Swift Labs plans to boost sales of its wireless IoT cellular platform.

In terms of product developments for broader digital transformation efforts, Software AG released a configurable control plane for microservices, APIs, and service mesh dubbed webMethods AppMesh. Developed as an extension of its webMethods API Management Platform, the control plane improves how microservices operate as business apps and can be plugged into any service mesh. Organizations now gain more transparency over app governance and can benefit from custom access protection, sophisticated policy-based control, traffic monitoring and control, and enhanced service visibility through the AppMesh dashboard. webMethods AppMesh is non-intrusive, pre-integrated with service meshes, and enables reuse through API signatures for each service.

Conclusion

There is no certainty in any predictions for technology adoption right now. We’ve been surveying results in a variety of sectors of IoT and edge computing and, so far, have seen only minor impacts from COVID-19 on projects and company revenues. Software AG’s IoT products and services for IoT look to stay on track for growth in 2020, although they aren’t the company’s biggest revenue generator by far. That could certainly change-the possibility that slowdown effects show up in Q3 or Q4 results if the pandemic flares up again later this year ad causes a need for more lockdowns.

Our perspective, for now, is that many companies in the edge computing and IoT markets can be in a position to provide service continuity and resilience. Results are suggesting that this is the case, but we’ll continue to keep an eye on developments.

Jim Davis, Principal Analyst, Edge Research Group

Article Topics

Cumulocity  |  digital transformation  |  earnings  |  IIoT  |  Software AG  |  Tech Mahindra