Commentary MCAD Industry View — A November 2006 Update
by Drs. Russ Henke & Jack Horgan Henke Associates

In the first MCAD Industry Commentary published May 2003 in MCADCafé.com, then-recent yearly and quarterly financial performances of a selected group of public Mechanical Computer Aided Design (MCAD) companies were analyzed and compared. Expectations of future financial performances of these same MCAD entities were documented. The May 2003 MCAD Commentary was followed by fourteen quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The entities covered were ANSYS, Autodesk, Dassault Systemes, UGS PLM, ESI Group, Moldflow, MSC.Software, PTC and Tecnomatix.

As a result of the acquisition of Tecnomatix by UGS that closed April 1, 2005, Tecnomatix was eliminated from coverage thereafter as a separate entity.

Accordingly, this fifteenth article in the sequel recounts the financial performances of the remaining group-of-eight (G8) MCAD/PLM entities for the nominal third quarter of 2006.

Recent MCAD & PLM News Highlights

On October 18, 2006 PTC announced it had acquired ITEDO Software GmbH and ITEDO Software LLC (collectively, ITEDO), headquartered in Germany, for approximately $17 million in cash.

On November 16, 2006 ANSYS, Inc. announced that affiliates of Willis Stein & Partners have agreed to sell 3,350,356 shares of ANSYS common stock that represent approximately 8.7% of ANSYS' currently outstanding shares of common stock and that were originally acquired by Willis Stein in connection with the Company's acquisition of Fluent Inc. in May 2006.

On November 16, 2006, MSC.Software Corporation announced that the staff of the SEC has formally notified the company that the SEC has terminated its investigation that has been underway since April 2005. No enforcement action has been recommended as a result of this investigation.

MCAD Vendors' Financial Performances in Q3 2006

As a group, the G8 MCAD vendors generated combined revenues of $1.45 billion in the third quarter of 2006. This was a robust revenue increase of nearly 22% from the $1.2 billion reported in the third quarter of 2005, and a 2.3% rise from the $1.4 billion in the just prior quarter.

Table 1 - Quarterly Revenues of G8 MCAD Vendors (US$ millions)

ANSYS led the percentage-growth pack with a year-over-year rise of 80%. Dassault Systemes was in second place at 34.5% growth. PTC, Autodesk and ESI Group had over 20% growth. MSC.Software was the only decliner at -23%. On a sequential quarterly basis, PTC and ANSYS had low double-digit percentage growth. MSC.Software and Moldflow were the largest decliners at -14% and -11%, respectively.

Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 1.

Figure 1 - Quarterly Revenues of the G8 MCAD Vendors

(US $ Millions)

Figure 2 - Relative Sizes by "Q3 2006" Reported Revenue

For the quarter, Autodesk was the share leader at 30%. Dassault Systemes was second with 23%, and UGS was third at 20%. PTC is next at 16% share (Figure 2).

(As always, it needs to be pointed out that unlike the other vendors in this report, Autodesk earns a portion of its revenue outside of the MCAD space. Autodesk does not break out its mechanical contribution. Also, both Autodesk and Dassault Systemes sell mostly through third parties, while UGS sells mostly direct).

Table 2 - Quarterly earnings of G8 MCAD Vendors (US$ Millions)

The combined earnings for the G8 was $130 million, a significant decrease of 35.5% from the $201 million in the same quarter last year. Autodesk and Moldflow reported substantial drops in earnings year-over-year. PTC was the percentage-rise leader, with a 62% increase in earnings. Dassault Systemes (DS) was the only other firm with increased earnings. On a sequential basis, DS had 40% growth in earnings, and PTC had 15.8%.

As a result of an internal review of historical stock option granting practices and the related accounting, Autodesk did not release earnings data for the prior quarter and gave only estimated earnings for the current quarter. In the prior quarter, ANSYS showed a significant loss, due mostly to a one-time charge of $28.1 million related to in-process research and development associated with the acquisition of Fluent that was completed on May 1, 2006.

Details on Individual Vendors' Q3 2006 Performances

On November 2, 2006 ANSYS, Inc reported the results for the third quarter, the period ended September 30, 2006. Total revenue for the quarter was $70 million, an increase of 80% from the $39 million in the same quarter a year earlier and nearly a 13% increase from the $62 million in the just prior quarter. The $70 million was above the range given as guidance last quarter. Software license revenue was $42 million, accounting for 60% of total revenue. This was a 101% increase year-over-year, and a 21% increase sequentially. Maintenance and service revenue was $27.9 million, or 40% of total revenue, a 54% rise year-over-year, and a 1.5% rise sequentially.

70% of ANSYS' business is direct. Repeatable business accounts for 74% of the total. On a geographic basis, North American revenue was up 102%, European 96% and General International grew at 96%. Keep in mind that the current quarter contained a full quarter of Fluent revenue. (Fluent had annual revenue of $122 million in 2005).

Net income for the current quarter was $8.4 million, a 25% drop from the $11 million in the third quarter last year, but a significant rebound from the $19.4 million loss in the just previous quarter. The prior quarter contained a $28 million charge related to in-process research and development associated with the May 2006 acquisition of Fluent.

ANSYS president and CEO Jim Cashman said, "We believe that today's reported results highlight continued progress in the core business, as well as the positive impact of our integration efforts to date. They are also a clear indication that our dedication to customers and our focus on execution against a long-term strategy translates to sustained profitable growth and ultimately drives value for the benefit of our stockholders."

On November 16, 2006, Autodesk, Inc. reported financial results for the third quarter of its fiscal 2007 year. Total revenue for the quarter was $457 million, an increase of 21% over the $378 million in the same quarter last year, but less than a 2% rise from the $450 million in the previous quarter. The $457 million revenue figure was somewhat above the median guidance given last quarter. License revenue was $346 million, accounting for 76% of total revenue, nearly a 14% increase year-over-year and basically flat sequentially. Maintenance revenue was $11 million, accounting for 24% of total revenue, a 50% increase year-over-year and almost a 7% increase from the just prior quarter.

Revenue from new seats increased 24%. Revenue from 3D solutions (Inventor, Revit and Civil 3D), constituting 22% of total revenue, was up 36%. More than 38,000 commercial seats of 3D were shipped in the quarter, including 13,000 seats of Inventor.

Revenue from new seats of AutoCAD and AutoCAD LT increased by 24% compared to the third quarter of last year. Subscription revenue increased 50% compared to the third quarter of last year, to $111 million or 24% of revenue. Revenue from new seats and emerging businesses continues to represent approximately two-thirds of total revenues, with subscription and upgrade revenue representing the other third.

Table 3 Autodesk Revenue in Key Segments

The Platform segment, which accounts for nearly 45% of revenue, includes AutoCAD and AutoCAD LT products that service multiple markets. Other segments are Building, Infrastructure and Media/Entertainment (previously named Discreet). The Manufacturing segment (which includes the Inventor product lines) grew 19% year-over-year and 12% from the prior quarter. A "guesstimate" of MCAD revenue would be about $150 million for the quarter.

Table 4 Autodesk Revenue by Geography

The Americas accounted for 43% of total revenue, Europe for 35% and Asia for 22%. All three segments grew about 20% year-over-year. Revenue from the Americas grew nearly 16% sequentially, whereas revenues from Europe and AP regions declined 8% and 4%, respectively.

Carl Bass, Autodesk president and CEO, said, "Autodesk had a very solid quarter. Customers around the world increasingly recognize the innovation and productivity that Autodesk products provide. Customer adoption of Autodesk's industry-leading 3D products is increasing and customer demand for our 2D solutions remains very strong. Revenues from emerging economies increased to 15% of total revenue. Long term market trends favor Autodesk and we continue to gain share as we execute our key strategies."

As previously disclosed, the Audit Committee of the Autodesk Board has reached a preliminary conclusion that the actual measurement dates for financial accounting purposes of certain broad-based employee stock option grants issued in the past differ from the recorded grant dates of such awards. As a result, the Audit Committee believes the company will record additional non-cash stock-based compensation expense related to stock option grants, but it is not yet able to determine the amount of such charges or the resulting tax and accounting impact of these actions or whether any historical periods would require restatement. Any additional non-cash stock-based compensation expense recorded will not affect the company's previously reported cash positions or revenues.

Subject to the Audit Committee review, Autodesk net income for the current quarter was estimated at $49 million.

October 26, 2006 Dassault Systemes reported its financial results for the third quarter, the period ended September 30, 2006. Total revenue for the quarter was 276 million euros, an increase of 30% from the same quarter a year earlier, but a decrease of 1.3% from prior quarter. The �276 million was at the high end of the guidance given a quarter ago. Software revenue was �225 million, a 23% increase year-over-year, but a decrease of 5.3% sequentially. Service revenue was �51 million, an increase of 67% year-over-year, and an increase of 21% sequentially. New license revenue accounted for 34% of total revenue, recurring software revenue for 47%, and services for 18%.

Net income for the quarter was �40.9 million, an 8.2% increase from the �37.8 million in the third quarter of 2005, and a 39% increase from the �29.4 million in the just previous quarter.

Last quarter, Dassault renamed its product categories by brand name rather than generic label, e.g. Enovia rather than PDM, and SolidWorks rather than Design Centric. "Enovia now encompasses old Enovia, SmarTeam and MatrixOne offerings and services. In the current quarter SolidWorks, accounted for 18% of total revenue, Enovia 18% and PLM excluding Enovia 64%.

Table 5 Dassault Systemes Revenue by Product Segment

From a regional perspective, non-GAAP revenue in the quarter increased 48% in Europe, 27% in the Americas (33% in constant currencies), and 14% in Asia (24% in constant currencies).

Net income for the quarter was �40.9 million, an increase of just over 8% from the �37.8 million in the third quarter of 2005, and a 39% increase from the �11.5 million in the prior quarter.

Bernard Charlès, Dassault Systèmes President and Chief Executive Officer, commented, "In particular, we are very pleased with how well our two major acquisitions have performed. Abaqus has had an excellent first year - with four consecutive quarters of solid execution, revenue growth and operating margin contribution. As a core component of our SIMULIA brand, Abaqus' strong results confirm the importance of virtual testing for customers around the world. MatrixOne is continuing to exceed financial targets and to demonstrate good momentum with its wins in high tech, semiconductors and other key industries. Our teams, both within ENOVIA and across the DS organization, are working closely together, with promising business opportunities already emerging."

On September 12, 2006 ESI Group reported the financial results for its second quarter and half-year, the periods ending July 31, 2006. ESI Group's sales for the second quarter of FY2006 totaled 13.6 million euros, up +14.6% on the same period last year and up +16.4% on a constant exchange rate basis. This significant increase in activity is a combination of buoyant growth in license sales of +18.7% and slight growth in services of +2.2%.

The geographical breakdown in half-year sales was as follows: Europe 42%, Asia 43% and America 15%. Organic growth was particularly strong in Asia, and notably in Korea and China, where the Group recently increased its position through the integration of the service and distribution engineering teams of IPS International and ATE Technology.

Alain de Rouvray, ESI Group's Chairman and CEO, commented, "The excellent level of license sales over the second quarter enabled us to record first-half revenues in line with our expectations. Given the shifts in license renewals over the calendar year observed over the first quarter, there should still be a substantial seasonal skew over this current financial year."

On November 6, 2006 Moldflow Corporation announced the financial results for its first quarter of fiscal 2007. the period ended September 30, 2006. Total revenue of $15.3 million was flat from the corresponding quarter of fiscal 2006 and represented an 11% sequential decrease from $17.1 million, consistent with usual seasonal trends. Product revenue of $8.0 million represented a decrease of 9% over the same period of the prior year, and -19% sequentially. Services revenue of $7.3 million represented an increase of 12% over the same period of the prior year, and +1% sequentially.

Revenue from Design Analysis Solutions totaled $11.6 million, or 76% of total revenue, and this $11.2 million represented a 2% increase when compared to the same period last year (but a 9% sequential decrease). Revenue from Manufacturing Solutions totaled $3.7 million, or 24% of total revenue, and represented a 6% decrease when compared to the same period last year, and a 14% sequential decrease.

Regionally, revenue in the Asia/Pacific region represented 36% of total revenue, while the Americas represented 35% and the European region represented 29% of total revenue, respectively.

Net income for the quarter was $1.7 million, essentially flat year-over-year but a considerable improvement from the net loss of $440K in the previous quarter.

Roland Thomas, Moldflow Corporation's president and CEO, said, "We are pleased to report that both of our business divisions are operating in-line with our expectations. Overall, we demonstrated increased operational leverage and corresponding improvements in net income and earnings per share in our first fiscal quarter. Revenue for the first quarter in our Design Analysis Solutions division showed slight growth year-over-year, which is consistent with our expectations. We continued to hire new direct sales representatives and establish new distributors to further our geographic expansion objectives. Our Manufacturing Solutions division produced expanded gross margins and operating profit despite lower year-over-year revenues."

On November 9, 2006 MSC.Software Corporation announced financial results for the third quarter, the period ended September 30, 2006. Total revenue for the quarter was $58.4 million, a decrease of 23% from the $75.6 million in the third quarter of 2005, and a decrease of 14% from the $67.9 million in the prior quarter. Software revenue was $22.6 million, accounting for 39% of total revenue. This was a 39% decrease year-over-year, and a 28% decrease sequentially. Maintenance and service revenue was $35.7 million, a decrease of nearly 8% year-over-year, and a decrease of just over 2% sequentially.

Revenue from the Americas was $17.1 million, accounting for 29% of total revenue; revenue from EMEA was $23 million or 40% of total revenue; and revenue form AP was $18.2 million or 31% of total revenue. Revenues from Americas, EMEA and AP decreased year-over-year by 16%, 14% and 36%, respectively.

Table 6 MSC.Software Revenue by Geography

William Weyand, CEO and Chairman of MSC.Software, said, "We believe that the software revenue decreases in the quarter are the result of our transition to selling enterprise platform applications, overall weakness in our Asia Pacific operations, and challenges with revenue recognition as it relates to transitioning our legacy contracts and products. Selling enterprise simulation solutions results in larger transaction sizes that typically require a longer decision making process within our customers' organizations. That process has caused a general lengthening of the overall sales cycle from what was approximately three to six months, to about six to 12 months."

"The decrease in our services revenue is the result of a managed transition away from low margin simulation services contracts in favor of higher margin consulting engagements. We want our services business to be based on a contemporary practice model that is in alignment with our new enterprise solution strategy," continued Mr. Weyand. "Although it is hard to predict with certainty when larger enterprise software and services transactions will close, we do know that we have not lost any major customers and our pipeline for transactions that exceed $100,000 is bigger than ever."

On November 1, 2006 PTC reported financial results for its fourth quarter and the entire year of fiscal 2006. Total revenue for the quarter was $245 million, an increase of 26% from the $195 million in the same quarter a year ago, and an increase of 13% from the $217 million in the just prior quarter. The $245 million was above the range given as guidance a quarter ago. License revenue was $84 million, accounting for 34% of total revenue. This was a 39% increase year-over-year and a 29% increase sequentially. Maintenance revenue was $98 million, accounting for 40% of total revenue. This was a 12% increase year-over-year and just over 2% increase sequentially. Global services revenue was $63 million, accounting for 26% of total revenue and representing a 26% increase year-over-year, and a 12% increase sequentially.

Desktop Solutions revenue was $159 million, accounting for 65% of total revenue, while Enterprise Solutions revenue was $86 million, accounting for 35% of total revenue. Desktop license revenue of $52 million grew 38% year-over-year. Enterprise license revenue of $32 million was a 40% increase year-over-year.

Table 7 PTC Revenue by Segment

In the quarter PTC sold 4,800 seats of Pro/Engineer and 32,050 seats of Windchill. Cumulative seats of Pro/Engineer reached 348,950 and of Windchill 434,500.

North American revenue was $116 million, accounting for 47% of total; European revenue was $74 million, accounting for 30% of total revenue; and Asia Pacific revenue was $56 million, accounting for 23% of total revenue. NA revenue was up 37% year-over-year, European revenue up 30% year-over-year and AP revenue up 12% year-over-year. On a sequential basis, North America was up 27%, Europe up 2.5% and AP up 4.2%.

Net income for the quarter was $28 million. a 62% increase from the $17 million in the same quarter last year, and an increase of 66% from the $16.9 million in the just prior quarter.

For fiscal year 2006, total revenue was $854 million, an increase of nearly 19% from the $721 million in fiscal 2005. License revenue was $263 million, accounting for 31% of total revenue and an increase of 26%. Service revenue was $591 million, accounting for 69% of total revenue and an increase of nearly 16%. Desktop revenue was $561 million, accounting for 66% of total revenue and an increase of nearly 12%. Enterprise revenue was $278 million, accounting for 34% of total revenue and an increase of 28%. However, net income for the year was $63 million, a decrease of 26% from the $86 million in fiscal 2005.

C. Richard Harrison, PTC president and chief executive officer, said, "Fiscal 2006 was an exceptional year marked by customer success and strong financial results. In particular, we delivered robust Desktop Solutions results, record Enterprise Solutions revenue, and significant operating leverage. Our performance is attributable to three key differentiators: our expanding solution capability footprint, which includes Arbortext, Mathcad and, for fiscal 2007, ITEDO solutions, our single platform architecture, and a thorough understanding of our customers' product development challenges."

On October 18, 2006 PTC announced it had acquired ITEDO Software GmbH and ITEDO Software LLC (collectively, ITEDO), headquartered in Germany, for approximately $17 million in cash. The ITEDO's IsoDraw family of products delivers software solutions for creating and maintaining technical illustrations. ITEDO is said to have more than 2,400 customers in multiple discrete manufacturing vertical markets, such as automotive, aerospace and defense, and industrial equipment

On November 16, 2006 UGS Corporation announced the financial results for the third quarter, the period ended September 30, 2006. Total revenue for the quarter was $295 million, an increase of just under 2% from the $290 million in the third quarter of 2005, and drop of 0.4% from the $297 million in the just prior quarter. Software license revenue, accounting for 29% of total revenue, was $85.5 million, a decrease of 4.8% year-over-year and a 0.6% drop sequentially. Maintenance revenue, accounting for 46.5% of total revenue, was $137 million, an increase of 6% year-over-year and nearly 2% sequentially. Services revenue was $72 million, accounting for 24.5% of total revenue, an increase of 2.5% year-over-year and a decrease of 4% sequentially.

Software revenue from the CAX segment was $140 million, down less than 1% both year-over-year and sequentially. Software revenue from cPDm was $62 million, up 6.3% year-over-year and down 1% sequentially.

North American revenue accounted for 42% of total revenue, European revenue was 37% and Asia Pacific 21%. This was just about the same percentage breakdown in the prior quarter and the year ago quarter.

Table 8 UGS Revenue by Geography

UGS recorded a 35% increase in its indirect channel license revenue year-over-year. The company has a goal to increase this figure to 50% at year-end.

Net loss for the quarter was $7.4 million, compared with net losses of $4.8 million and $6.4 million a year ago and a quarter ago, respectively. EBITDA was +$69 million, or an 8.3% growth over the same period a year earlier.

On November 13, 2006 UGS Corp announced it has signed a new reseller agreement with Microsoft. whereby UGS becomes the first PLM company authorized to sell Microsoft SQL Server 2005 directly.

Tony Affuso, chairman, CEO and president of UGS, said, "We've continued to be successful at working our strategic plan while still focusing on expanding our EBITDA and cash flow, and retooling our sales engine. Our continued product excellence and focus on customer success earned us contracts or additional business in the quarter … These contracts reflect the confidence we are receiving across the board from the market, as highlighted most notably by our ranking in the leaders quadrant of the new Gartner Magic Quadrant."

MCAD Vendor Stock Performances

The combined stock prices of the MCAD vendors declined 1.6% in absolute dollars and 2.1% in average price over the third quarter of 2005. This compares to an average increase of 8% for the major stock indexes over the same period. ANSYS' and MSC.Software's stock price increased by low double-digit percentages year-over-year. Both Autodesk and Moldflow declined by roughly 25%.

On a sequential basis, the combined stock prices rose over 2.5% in absolute dollars and over 6% in terms of average price. This compares to an average increase of 8% for the major stock indexes over the same period. PTC was the clear leader at 37%. Dassault was a distant second with growth at 5%. ANSYS was the only decliner (-7.6%)

Table 9 Stock Prices of MCAD Vendors ($)

(Note: UGS is no longer publicly traded)

Table 10 Stock Market Indices

Figure 3 - Stock Prices of MCAD Vendors

Forecast Guidance from Individual MCAD Providers

Table 11 Forecasts for Next Quarter

As guidance ANSYS expects revenue in the next quarter to be in the range of $77 million to $79 million. This compares to $70 million in the quarter just completed and to $44 million in the fourth quarter of last year. For fiscal 2006, the firm expects revenue in the range of $255 to $257 million, compared to $158 million in 2005. For fiscal 2007 ANSYS expects revenue in the range of $358 million to $363 million. This would be a 40% increase from the fiscal 2006 projection.

As guidance Autodesk expects revenues in the next quarter, the fourth quarter of fiscal 2007, to be between $490 million and $500 million. This compares to $457 million in the quarter just completed and to $417 million in the fourth quarter of fiscal 2006. For the fiscal year 2007 net revenues are expected to be between $1.832 billion and $1.842 billion. Net revenues for the first quarter of fiscal 2008 are expected to be approximately flat with the fourth quarter of fiscal 2007. For fiscal year 2008, net revenues are expected to be between $2.075 billion and $2.125 billion.

As guidance Dassault Systemes expects the revenue for the next quarter to be in the range of �350 million to �355 million. This compares to �276 million in the quarter just completed and to �313 million in the same quarter a year ago. This translates into revenue objectives for the year of about �1.175 to �1.118 billion. Thibault de Tersant, Executive Vice President and CFO, stated, "Based upon our year-to-date results and outlook with respect to the fourth quarter, we are updating our 2006 financial objectives. Specifically, we are reconfirming our revenue growth objective in constant currencies and our operating margin objective. We are raising our EPS objective, leading to a 2006 EPS growth objective of about 12% to 13% on a non-GAAP basis."

As guidance Moldflow expects revenue for its full fiscal 2007 year to grow in the range of 5% to 7%. If this happens in every quarter, revenue in the next quarter would be about $18 million.

William Weyand, CEO of MSC.Software, said, "We believe that conditions in the Americas are improving, and we've gained traction selling our enterprise simulation solutions. Further, we believe that although the third quarter was challenging in Europe, our EMEA operations are poised to benefit from enterprise sales in the fourth quarter and in 2007, both within key aerospace accounts and alongside our IBM partnership activity. Our Asia Pacific operations were most heavily impacted by the longer sales cycles and a significant decrease in services activities."

PTC's revenue forecast for the first quarter of fiscal 2007 is between $215 million and $220 million. This compares to $245 million in the quarter just completed and to $195 million in the same quarter a year ago. For the fiscal year ending September 30, 2007, PTC expects revenue to be about $945 million, compared to $855 million in the fiscal year just ended.

MCADCafé.com currently tracks the financial performance of multiple public companies in the Mechanical CAD market. Eight (8) companies were chosen for the author's May 8, 2003 Commentary. Four of these companies (Autodesk, Dassault Systemes, PTC and EDS PLM Solutions (now named UGS, a privately-held company) represented approximately 85 percent of the total revenue in this grouping, and each of these four companies offers a wide array of software and services products across the entire design to manufacturing space. The remaining four public companies (ANSYS, Moldflow, MSC.Software and Tecnomatix) offered specialized software/services products in specific MCAD niches and together they created the remaining 15 percent of the total group-of-8's revenue. Indeed, these latter four companies frequently partnered with the initial four to provide end-customers with broader solution suites. For the author's August 2003 Commentary in MCADCafé.com, a ninth company, the ESI Group, was added. All nine were studied thereafter for comparison purposes. Tecnomatix has since been acquired by UGS and hence has been removed from this report. The combined worldwide total annual revenue of these companies is over $4 billion, not an insignificant sum. But it is, in fact, less than 3 percent of the >$200 billion spent annually on all types of software (source IDC). So why study MCAD companies at all? The key to MCAD's importance lies in the leverage its users apply to create the everyday durable goods with which we are all familiar: automobiles, trucks, military gear & weapons, appliances, farm & construction equipment, aircraft & aerospace vehicles, etc. In short, MCAD is arguably responsible for enabling today's manufacturing industries, which are the centerpieces of creating real productivity and wealth in every modern economy. Understanding the comparative MCAD revenue content of various vendors is not merely academic. For example, it helps observers better understand the likely future competitive MCAD strength of each vendor relative to its peers in such areas as amount of money available for R&D, for potential new acquisitions, for financial stability to weather economic cycles, and for other key business factors. In comparing financial performances of the four largest MCAD companies tracked by MCADCafé.com, it's instructive to account for the actual MCAD content of each. For example, the revenues of Dassault and PTC can arguably be considered 100% MCAD in nature, whereas Autodesk's total revenue is only partially made up from its business in MCAD. Some Autodesk revenue (~15%) stems from a segment which provides systems and software for creating and animating imagery. Even in the remaining 85% of Autodesk's total revenue, derived from its Design Solutions Segment, is divided among solutions for Manufacturing, GIS, the building industry, and the platform technology group. Only the solutions of the Manufacturing Group (Inventor, AutoCAD Mechanical, Mechanical Desktop, Streamline, Point A, etc.) might be thought of as "pure" MCAD revenue.

It should also be noted that the companies have different business models. IBM, both direct and through Business Partners, is the exclusive marketing and sales arm for Dassault Systems high end product lines: CATIA, Enovia and Delmia. The IBM channel also carries SmarTeam solutions in a non-exclusive basis. IBM records the end user revenue and pays DS a royalty of approximately 50%. DS subsidiary SolidWorks is sold through value added resellers. Autodesk sells its products overwhelmingly through valued added resellers. The other MCAD vendors sell mostly on a direct basis. Direct sales result in greater percentage of end user revenue recognition but also involve higher cost of sales and risk.

UGS annual revenues are right there at similar levels as the world's other MCAD revenue leaders Autodesk, Dassault and PTC. For purposes of our discussion, we considered the revenues from the remaining public companies (ANSYS, ESI Group, Moldflow, and MSC.Software) to be 100% MCAD.

Geopolitical Opinion:

Ten words: The November 7, 2006 national election results for the US Congress: Priceless!

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About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. A Professional Engineer, Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented at COFES2006 in Scottsdale, AZ.

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this November 2006 MCAD Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDACafé Weekly.

Since May 2003 the authors have now published a total of forty-seven (47) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net.