Commentary: MCAD Industry View - A November 2006 Update

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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