What's going on?

Shares of Siemens, the German electronics and electrical engineering giant, rose 8% on Tuesday as the company reported a big increase in profits in its most recent quarter and even raised its expectations for the coming year.

What does this mean?

Siemens has undergone a big transition in the past few years under CEO Joe Kaeser. The plan has been to focus on �electrification, automation and digitalization,� which means, very broadly, that Siemens is utilizing its strength in electrical power generation and layering on digital expertise to help clients better automate their manufacturing processes. In short, there has been a big emphasis on developing new technology. It appears to be working, with profits in the past quarter growing by more than 40% versus one year earlier (and beating analyst expectations by even more).

Why should I care?

For the stock: Siemens is boosting profits through revenue growth rather than just cutting costs. Lots of companies have spent the past few years reducing costs to increase their profits and investors like to complain that Siemens isn�t doing enough of that. But companies can�t rely on cost-cutting forever; eventually they need to focus on growing revenues in order to generate long-term, sustainable success. Only by being innovative � by providing new/improved services that add�value to their clients� lives � can companies achieve that.

Bigger picture: Siemens isn�t the only company of its ilk looking for a �digital transformation.� General Electric, perhaps its biggest competitor, is also aiming to become a �digital industrial company.� However, GE�s earnings weren�t nearly as robust when they were announced last week. The trick, of course, for both of them is to execute on their plans � something that Siemens appears to already be doing.