Commentary: MCAD Industry View - A March 2007 Update

Jeff Rowe also has some further comments on UGS in the March 5, 2007 EDA Weekly:

Pioneer Lost

Since the previous quarterly MCAD Industry Commentary was published in November 2006, the world lost a bona fide pioneer in mechanical Computer Aided Engineering (CAE). Dr. Jason R. (Jack) Lemon, CEO of International TechneGroup Incorporated (ITI), Milford, OH, passed away on December 27, 2006 after a 20-year battle with cancer. He was 71 years old. In addition to starting ITI in 1983, Dr. Lemon earlier founded Structural Dynamics Research Corporation (SDRC) in 1967, as an outgrowth of the University of Cincinnati. SDRC was ultimately merged with UGS in 2001 and SDRC still forms an important piece of UGS.

Lemon attended the University of Cincinnati and graduated in 1958 in Mechanical Engineering. He continued his education at Ohio State University, where he received his MS in Mathematics in 1960 and PhD in Mechanical Engineering in 1962. After graduation, he worked full time at Cincinnati Milacron. In 1964, he left to teach and do research in mechanical engineering as a faculty member at the University of Cincinnati.

{Co-author of these MCAD Commentaries Russ Henke first met Dr. Lemon at Cincinnati Milacron in 1962. Dr. Lemon became Henke's mentor and thesis advisor for Henke's MSME thesis in 1965; Lemon also served on Henke's PhD thesis committee along with major professor Dr. R. Sridhar of Cal Tech in 1968. Henke joined the 20-person SDRC in 1969 and served as SDRC president & COO and BOD member till 1982, reporting to CEO Lemon. The SDRC business grew to a profitable global business of approximately 300 people by 1982 and was an internationally recognized leader in CAE/CAD/PDM engineering and application software development. Henke left SDRC in mid-1982 to join Schlumberger Applicon in Boston, as EVP reporting to CEO Don Feddersen}.

Dr. Lemon's diverse experience included advanced product and manufacturing process development, together with in-depth knowledge of related application software integration. Within aerospace, automotive, electronic, mechanical, CAE/CAD/CAM/CAT, and PDI technical organizations, Dr. Lemon was internationally recognized as a pioneer, leader, and salesman extraordinaire. He will be sorely missed by all who knew him.

Selected G8 MCAD Vendors' Financial Performances in Q4 2006

As a group, the G8 MCAD vendors generated combined revenues of an impressive $1.7 billion in the fourth quarter of 2006, a notable 17% increase over the $1.46 billion in the fourth quarter of 2005 and a 13% increase over the $1.5 billion in the just prior quarter. ANSYS was the year-over-year percentage revenue growth leader at +95%, due largely to its acquisition of Fluent in February 2006. Autodesk, Dassault and PTC also reported double digit year-over-year quarterly growth. MSC.Software was the only decliner at -22%. On a sequential basis, both ANSYS and Dassault had growth over 20%. MSC, PTC and UGS had percentage revenue increases in the teens. ESI Group was the only sequential decliner, largely due to seasonal purchases. See Table 2.

Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 2.

For the quarter, Autodesk was the share leader at 29%. Dassault Systemes was second with 26%, and UGS was third at 21%. PTC is next at 13% 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).

The combined earnings for the G8 MCAD vendors were $135 million, a whopping 82% increase over the $74 million in the fourth quarter of 2005, and a very healthy 50% increase over the $90 million in the third quarter of 2006. UGS was the only vendor with a loss, mostly due to debt financing. Only UGS and ANSYS earnings declined year-over-year. Autodesk earnings picture was most improved with a swing from a net loss of $21 million to a gain of $16 million. MSC.Software and PTC had year-over-year earning increases over 100%. On a sequential basis, Moldflow, PTC and UGS had lower earnings than the previous quarter. Autodesk and Dassault were the percentage earnings growth leaders at 167% and 94%, respectively.

Details on Individual Vendors' Q4 2006 Performances

On February 20, 2007 ANSYS Inc reported the financial results for its fourth quarter and the year, the periods ending December 31, 2006. Total revenue for the quarter was $85.2 million, an increase of 95% over the $437 million in the fourth quarter of 2005, and an increase of 22% from the $70.1 million in the prior quarter. Software license revenue was $53 million, accounting for 62% of total revenue. This was up 118% year-over-year, and up 26% sequentially. Maintenance and service revenue was $32 million, accounting for 38% of total revenue. This was an increase of 66% year-over-year, and increase of almost 15% sequentially.

Note that ANSYS acquired Fluent in February 2006. Fluent had total sales of $121.9 million in 2005.

ANSYS net income for the fourth quarter of 2006 was $12.3 million, a slight drop of 7.6% from the $13.2 million in the same quarter a year earlier, but an increase of 47% from the just previous quarter.

Jim Cashman, ANSYS President and CEO, said, “I am pleased to report another record year for our company. During 2006, despite the significant time and resources that were invested in our Fluent integration activities, the results for the fourth quarter and the year demonstrate the outcome of the continued focus of and execution by the ANSYS team.”

ANSYS CEO Jim Cashman noted, "2006 has been a very productive and successful year for ANSYS as we completed a significant acquisition that has transformed our business and significantly extended the capabilities of our broad-based engineering simulation portfolio. We have also further expanded the diversity of our customer base, our geographic presence and our wealth of employee talent.”

On February 27, 2007 Autodesk, Inc. reported financial results for the fourth quarter and fiscal year 2007, the periods ended January 31, 2007. For the fourth quarter Autodesk reported record quarterly revenues of $497 million, an increase of 19% over the $417 million in the fourth quarter of fiscal 2006 and an increase of 9% over the $457 million in the previous quarter. License revenue in the quarter was $375 million, accounting for 75% of total revenue an 11.4% increase year-over-year, and an 8.4% increase sequentially. Maintenance revenue was $123 million, accounting for 25% of total revenue, an increase of 53% year-over-year and an increase of 10.8% sequentially.

Maintenance revenues from subscriptions increased 53% compared to the fourth quarter of fiscal 2006 to $123 million or 25% of total revenues. Upgrades from AutoCAD and AutoCAD LT generated 37% of total revenues. 3D design products accounted for 24% of total revenues.

The Platform segment, which accounts for nearly 41% 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) accounted for almost 20% of total revenue and grew 32% year-over-year and 15% from the prior quarter. A “guesstimate” of MCAD revenue would be about $160 million for the fourth quarter.

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