Commentary: MCAD Industry View - A May 2008 Update

Commentary:

MCAD Industry View - A May 2008 Update


by Dr. Russ Henke and Dr. 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 twenty 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 Systèmes, 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.

On May 7, 2007 UGS announced the close of its acquisition by Siemens AG effective May 4. Thereafter, the business went to market as UGS PLM Software, a global division of the Siemens Automation and Drives (A&D) Group. Over the years UGS has bounced back and forth between being a public company and a private company under different ownerships. Although not required to do so, UGS has frequently reported on its financial results even when privately held. For the first quarter of 2007 there was only a terse statement from Tony Affuso, chairman and CEO of UGS PLM Software, “We had a very strong quarter in Q1, coming in near 11 percent on total revenue growth and 16 percent on software license growth.” This translates to about $300 million. According to a company spokesperson at the time, UGS would no longer report results separately from Siemens, a very common practice with large corporations. In the first quarter of this year, the entire A&D Group generated €3.9 billion of the €20.2 billion total Siemens revenue. Regrettably, we can expect very little insight into UGS performance itself from public Siemens' reports going forward.

Accordingly, this twenty-first MCAD Industry article in the sequel recounts the financial performances of the remaining group-of-seven (G7) MCAD/PLM entities for the nominal first quarter of 2008. .


Recent MCAD & PLM News Highlights

ANSYS + ANSOFT:

On March 31, 2008 ANSYS announced a definitive agreement whereby ANSYS would acquire Ansoft for a purchase price of approximately $832 million in a mix of cash and ANSYS common stock. ANSYS said that the strategic, complementary business combination of ANSYS and Ansoft would create the leading provider of 'best-in-class' simulation capabilities, with combined trailing 12-month revenues of $485 million (Ansoft's share = $98 million. Note: Ansoft has been covered every quarter in the authors' EDA Industry Commentaries in EDAcafe.com).

When completed, ANSYS currently anticipates that the transaction will be modestly accretive to non-GAAP earnings per share in its first full year of combined operations. With over 40 direct sales offices and 21 development centers on three continents, the combined company will employ approximately 1,700 people. The two companies have headquarters in the Pittsburg, PA area.

Engineers use Ansoft software to achieve first-pass system success when designing mobile communication and Internet-access devices, broadband networking components and systems, ICs, PCBs and electromechanical systems. High performance electronics products account for 82% of revenue, electromechanical products 18%. In the latter group are electromagnetic field simulation software that is used for the design and analysis of 3D/2D structures, such as motors, actuators, transformers and other electric and electromechanical devices common to automotive, military/aerospace, and industrial systems and a software program that speeds the design and optimization process of rotating electric machines. (One of the authors of this MCAD Industry Commentary, Dr. Russ Henke, came to know Ansoft when he helped sell the electromagnetic division of MCAE vendor MacNeal Schwendler Corporation to Ansoft in 1996. Henke served on the Board of Directors of MSC at the time).

IC's, systems on chips, and PCB's almost always end up as components in a larger system that has a mechanical engineering aspect, if only to house and to supply power and cooling to PCBs. Likewise, products from the consumer product segment like MP3 Players, digital cameras, GPS units, and cell phones are also a combination of electrical and mechanical elements. Hence the term “electromechanical” or “mechatronic”. Products that have long been thought of as principally mechanical, such as airplanes and automobiles, now are festooned with significant and increasing electronic content. Accordingly, most companies that manufacture industrial and consumer products today use a combination of EDA, MCAD and MCAE software tools.

Just in case some readers question this marriage, there is plenty of historical precedent for Computer Aided X (CAX) system and software vendors offering both electrical and mechanical software products. In the seventies and eighties, Burlington, MA-based Applicon (where both your current MCAD Industry Commentary authors were once executives) offered three separate systems: PCB design; mechanical design, solid modeling, FEM analysis & manufacturing software; and IC photomask generation. Nearby neighbor ComputerVision also provided electrical and mechanical offerings. Both firms also developed and manufactured their own system hardware, incorporating OEM'd minicomputers to run the software. The highlight of any customer visit to either firm at that time, was a tour of the vendor's manufacturing facility.

CADAM was principally a mainframe-based 2D drafting system developed inside Lockheed. One of its major applications, however, was the creation of elementary wiring diagrams. CADAM also offered a mainframe PCB design system called PRANCE. In the late eighties, CADAM acquired PCAD, a microcomputer-based PCB systems.

Several firms today (e.g. Mentor Graphics, Dassault Systemes and UGS) offer products related to the creation, editing, routing and flattening of wire harnesses. Thermal analysis software is also often provided.

Most CAX firms also offer some form of data exchange between MCAD and EDA systems and some form of electronic schematic capture.

The reality is that the end-user engineers that sit in front of an EDA system to design chips and printed circuit boards, are almost never the people who sit in front of MCAD systems designing, say, aircraft engines or auto bodies. Likewise, these designers must eventually cooperate. For example, there may be a requirement for a 3D description of a PCB to be passed to a MCAD system to check for fit and clearance. There may also be a requirement for passing back a PCB's thermal profile to those concerned with the sizing of fans and with the control of air flow. These latter experts generally employ tools based on computation fluid dynamics (CFD) analysis. AEs and sales personnel of EDA and MCAD companies have considerably different educational backgrounds, experience and expertise. Offering both EDA and MCAE tools by one vendor becomes an interesting management challenge, but such challenges have been overcome successfully in the past.



Another Acquisition among the G7 MCAD Vendors: AUTODESK + MOLDFLOW

On May 1, 2008 Autodesk announced that it had signed a definitive agreement to acquire Moldflow for $22 per share, or approximately $297 million, less the amount of Moldflow's cash balance at the time of closing and less the proceeds from options exercises. (Both Autodesk and Moldflow have been featured MCAD suppliers since the inception of these MCAD Industry Commentaries in May 2003).

Headquartered in Framingham, MA, Moldflow operates research and development offices in Melbourne, Australia, and Ithaca, N.Y., as well as sales offices in various geographies around the world. Moldflow currently has 285 employees and reported revenues for its fiscal 2007 of $55.9 million. The proposed purchase price is a 36% premium over the last 90 days of Moldflow's stock price. In the next quarter Autodesk is expecting the acquisition to be dilutive, because of purchase accounting rules that will require write downs related to the purchase in the amounts of $11 million in deferred revenue, $14 million in IPR&D (In-process R&D), and $14 million in stock option vesting. In fiscal 2009, Autodesk expects Moldflow to contribute $30 million in revenue after a $7 million write down of deferred revenue.

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