MCAD Industry View - A DECEMBER 2008 Update
by Dr. Russ Henke and Dr. Jack Horgan
This December 2008 issue of the MCAD Industry Commentary recounts the financial performances of a selected group-of-six MCAD/PLM vendors for the nominal third quarter of 2008. Commentary on the Collapse of the Economy is also covered.
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-one 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 this 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.
On June 25, 2008 Autodesk completed its acquisition of Moldflow Corporation, so now Moldflow must be eliminated here from separate coverage.
Accordingly, this twenty-third MCAD Industry article in the sequel recounts the financial performances of the remaining group-of-six (G6) MCAD/PLM entities for the nominal third quarter of 2008.
The impacts of the current economic collapse on MCAD vendors are also discussed.
The Big News - The COLLAPSE of the ECONOMY
The financial results of the G6 MCAD vendors for nominal Q3 2008 are only just beginning to reveal a glimpse of the economic troubles ahead, as the data in the sequel herein will show. As a group, the G6 MCAD vendors generated combined revenues of $1.593 billion in nominal Q3 2008, a presumably healthy increase of almost 15% from the $1.386 billion in the year ago quarter (Q3 2007). But as a harbinger of future difficulty, in nominal Q3 2008, the G6 suffered collectively a 0.4% revenue decline from the $1.599 billion achieved in the just prior (second) quarter of 2008.
Moreover, the impending reality of the economic downturn has only slightly dented the MCAD revenue forecasts for Q4 of 2008, although only 4 of the G6 even offered forecasts. As a group, those four still forecast a combined revenue growth of 8% over the same period a year ago. On a sequential basis the combined forecast is for 6% growth; still, pretty meager for a traditionally strong fourth quarter.
Part of the reason that the fear of a world in increasing economic trouble may not be coloring the near-term MCAD vendor forecasts so much, may be the nature of longer term contracts and commitments involved with many MCAD customers.
But don't be fooled - worse times are coming fast!
Some vendor executives do acknowledge the advancing storm, speaking in mid-November 2008 rather than mid-October merely based on when their fiscal Q3's close. For example, Autodesk CEO Carl Bass said, “The sharp downturn of the global economy is substantially impacting our business. Demand for our products fell dramatically in October in all geographies as the financial crisis worsened. With many of our customers and partners unable to secure credit, projects are being delayed and our business is being impacted. While our currency hedge will provide a net benefit to our third quarter, the considerable strengthening of the U.S. dollar and our unusually low ending level of backlog will likely create a significant headwind for the next few quarters.” Bill Weyand, CEO and Chairman of MSC.Software, said, “We are mindful of the global macroeconomic environment; we believe that a prolonged economic downturn could adversely impact our customers, IT spending patterns, and thereby our business as well."
Of course falling stock prices are way ahead of the vendors' revenue forecasts in signifying impending gloom. In Q3 2008 alone, the combined stock prices of the G6 MCAD vendors fell in absolute terms by 14% year-over-year and 9% sequentially. On average, the G6 stock prices in Q3 fell 10% year-over-year and almost 5% sequentially. Despite these losses, the G6 themselves actually faired slightly better than the stock markets as a whole, which endured a year-over-year decline of 20% for the average of the major stock indexes, and a 7.4% decline from the just previous quarter.
Since December 31, 2007, through November 26, 2008, the following has occurred to the share prices of these MCAD vendors:
|Dassault Systemes||- 35.4%|
“Tells” Long Visible…
Of course, the “tells” indicating that the US economy (followed by the rest of the industrial world) is now collapsing around our ears, have long been visible to those who were looking. An economy as intrinsically great as the US economy cannot forever withstand the years of extraordinary unchecked greed on Wall Street, rampant deregulation, continued outsourcing of the US manufacturing base, and deep government deficits that we have endured. It's just that these seeds sown so widely over the last eight years in the United States are now reaping their most devastating negative results in 2008.
Remember, the US unemployment rate zoomed to a 14-year high in October 2008 as another 240,000 jobs were cut, far worse than expected, providing unquestionable evidence of Bush 43's deepening second recession. The new data, released November 7, 2008 by the US Labor Department, showed the US jobless rate rose to 6.5% in October from 6.1% in September. Current unemployment has now surpassed the high seen after Bush 43's first recession in 2001, when the US jobless rate peaked at 6.3% in June 2003.
The October 2008 decline marked the 10th straight month of payroll reductions, and Labor Department revisions showed that job losses in August and September 2008 were actually much deeper than first estimated. Employers cut 127,000 positions in August, compared with 73,000 previously reported. And some 284,000 jobs were cut in September, compared with the 159,000 job cuts first reported. So far in 2008, 1.2 million jobs have disappeared; over half the decrease occurred in the past three months alone. The total number of US unemployed in October was just over 10 million, the most in 25 years. November's jobless numbers, due on December 5, 2008, are likely going to continue the heartbreaking trend.