Commentary: MCAD Industry View - An August 2007 Update


C. Richard Harrison, president and chief executive officer, said, "Our third quarter license revenue shortfall reflects two major factors: several large transactions that we expected but did not close, and a reduction in add-on sales of Desktop Solutions in North America and Japan. Though our third quarter results did not meet our expectations, we continue to have confidence in the strength of the PLM market and in PTC's competitive position. As evidenced by our record maintenance revenue in the third quarter and our revenue growth year to date, we have a large and loyal customer base that continues to benefit from the use of PTC's differentiated solutions."



MCAD Vendor Stock Performances

The combined year-over-year stock prices of the MCAD vendors declined 5.6% in absolute dollars, and declined 5.5% in average price over the first quarter of 2006. This compares to an average increase of 8.2% for the major stock indexes over the same period. PTC was the only firm with a year-over-year gain in stock price at 16.4%. The largest decliner was MSC.Software at -31%. The others had a drop of low to middle single digits. On a sequential basis, the combined stock prices rose 3.3% in absolute dollars, and 2.7% in average price. The major stock indexes were essentially flat relative to the prior quarter. ANSYS was the sequential growth leader at nearly 17% with Moldflow and PTC trailing with 8.2% and 5.4%, respectively. MSC.Software and Autodesk had the largest quarterly drop at nearly -10% and -7%, respectively.




Forecast Guidance from Individual MCAD Providers

Those MCAD companies providing guidance for the next quarter, forecast a growth of almost 14% compared to the same period last year, and a meager 2% gain sequentially. All firms are calling for quarterly year-over-year quarterly growth. On a sequential basis, Moldflow is most bullish at 33%, with PTC a distant second at 7.4%. ANSYS and Dassault are projecting small sequential drops in revenue.


As guidance ANSYS expect revenue in the next quarter to be between $89 million and $90 million compared to $92.2 million in the quarter just reported, and compared to $71.1 million in the same quarter a year ago. For fiscal 2007 ANSYS forecasts revenue on the range of $367 million to $371 million ,compared to $263 million in fiscal 2006.

CEO Jim Cashman said, “Based on our first half performance, we are increasing our 2007 full year guidance and believe we are poised to drive 2007 to be the most successful year in the Company's 37 year history."

As guidance Autodesk expects net revenues for the third quarter of fiscal 2008 to be in the range of $530 million to $540 million. This compares to $526 million in the quarter just completed, and compares well to $457 million in the third quarter a year ago. The firm also expects revenues for the fourth fiscal quarter to be between $575 million and $585 million. For fiscal year 2008, net revenues are expected to be between $2.14 billion and $2.16 billion, compared to $1.84 billion last year.

Thibault de Tersant, Senior Executive Vice President and CFO of Dassault Systemes, commented, “Looking to our full year 2007 objectives, our non-GAAP constant currency revenue objective is for growth of about 14-15%, increasing from 13% previously. Thanks to our strong second quarter performance and the inclusion of ICEM following completion of its acquisition, we are increasing our revenue objective. In addition, we are adjusting our yen currency exchange rate assumption, leading to 2007 reported revenue range of about £1.285 to £1.30 billion. We are reconfirming our earnings per share and operating margin objectives.”

This means a third quarter non-GAAP total revenue objective of about £300 to £305 million, and a 2007 non-GAAP revenue range of about £1.285 to £1.30 billion, updated from the prior range of £1.275 to £1.285 billion.

Moldflow CEO Roland Thomas said “… our total revenue (should be) 14% higher year-over-year, a marked improvement over fiscal 2006. As we head into fiscal 2008, we are confident in the strength of our core business and believe we are strongly positioned to take advantage of the continuing growth of the worldwide CAE market and further our leadership position."

MSC.Software did not provide guidance for the next quarter. The company said, “It will evaluate its decision to provide guidance in the future, as it continues to move through this transition period and visibility improves.”

As guidance PTC expects revenue in the next quarter to be between $240 million and $250 million, compared to $225 million in the quarter just completed, and to $245 million in the same quarter last year. This is a reduction from prior guidance. Full year revenue is projected to fall between $915 million and $925 million, or 8% year-over-year growth.

MCADCafè.com currently tracks the financial performance of multiple public companies in the Mechanical CAD market. Eight (8) companies were chosen for the authors' first (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 then 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 authors' 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 (2005) and hence has been removed from this report. As a result of the acquisition of UGS by Siemens, UGS no longer provides separate financial data starting in Q2 2007, and therefore UGS has also been dropped from the aurhors' list of covered vendors.

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 MCADCaffè.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, AEC , 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.


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