Commentary: MCAD Industry View - A May 2008 Update

During the analysts call announcing this acquisition, the MCAD Industry Commentary authors learned, in response to questions, that the average sales price of Moldflow's primary product (~75% of total revenue) starts at $30,000 and the average transaction lies in the $50- to $60,000 range. The other Moldflow products start at $5,000, but the average transaction for such products is around $20,000. Approximately 85% of sales are direct. Revenue from the Asia Pacific region accounts for 45% of the total, from Americas 16% and from Europe 35%.

The thrust of the analysts' questions was, ”Does a relatively-expensive (Molfdlow) niche product that has been historically sold mostly by a direct sales force make a good fit for Autodesk?”

Autodesk CEO Carl Bass responded by pointing out that the overall plastics market is the fourth largest manufacturing segment in the US, with annual sales above $320 billion. He sees Moldflow's products fitting into Autodesk's Digital Prototyping product segment, which offers solutions to visualize, simulate and analyze products; in other words, to explore virtually complete products before they are built. Bass noted that in August 2007, Autodesk acquired Opticore AB of Gothenburg, Sweden. That 25-person company's product offerings focused on interactive and realistic 3D digital visualizations and presentations for conceptual product design.

Moldflow has reported lower margins than those of Autodesk, but Bass expects that efficiencies and broader marketing and distribution will bring Moldflow products in line with Autodesk's margins. While Bass considers Moldflow as a leader in an established market, as a relatively small company Moldflow endured considerable added expenses that being a public company entailed, and which Autodesk can more easily absorb. Bass also hinted that current Moldflow prices and packaging might be “re-engineered”. In general, Bass wants to democratize technology and sees pricing as a key.

Finally, Bass noted that $400 million or about 15% of Autodesk's business currently is through direct sales. He further pointed out that Moldflow's sales figures were average transaction size, not average seat price.

On May 21, 2008, Dassault Systèmes (DS) announced that Lenovo, an IT and Personal Computing (PC) company, will deploy DS SIMULIA software to establish a simulation technology center within Lenovo's Innovation Design Center (IDC). The new center will use Abaqus finite element analysis (FEA) software from SIMULIA to evaluate realistic product performance during the design of Lenovo's PC and portable electronics products. Lenovo uses Abaqus during the design process to simulate dynamic impact, heat transfer, vibration, fatigue, and other realistic performance characteristics of their products. To evaluate and reduce noise and vibration in their desktop computers, Abaqus is used to compute the natural frequencies of the assembled computer. This enables design engineers to determine what parts to modify and where to add damping materials in order to make the computer quieter and more durable. For virtual drop testing of cell phones, Lenovo uses Abaqus to simulate the stress and strain on the cell phone design as it is dropped from various directions. Such virtual tests help to identify appropriate design changes-if necessary and to determine if the product will meet performance requirements. Lenovo has research centers in Yamato, Japan; Beijing, Shanghai and Shenzhen, China; and Raleigh, North Carolina.

On May 19, 2008, MSC.Software announced the 2008 release of its engineering analysis suite as well as its MD Technologies - a core component of MSC SimEnterprise that includes MD Nastran and MD Adams. The concurrent release leverages existing MSC.Software single analysis point tools to MD's multiple discipline analysis. MSC says that MD complements MSC.Software's engineering foundation technology with enhanced solver integration that enables greater simulation accuracy and improved system level analysis, to reduce the gap between systems simulation and physical testing.

On April 30, 2008 QLogic Corporation, a provider of networking for storage and high performance computing (HPC), announced that ESI Group has joined the QLogic(r) HPCtrack(tm) program. The addition of ESI Group to the HPCtrack program will help to expand the growing QLogic HPC ecosystem which now includes more than 50 members. The QLogic HPCtrack program provides its alliance partners with access to the resources they need to create, test and certify their solutions' interoperability with QLogic storage and high performance clustering technologies. The program is designed to provide the building blocks for partner companies to certify and optimize storage area network (SAN) and HPC solutions. "The extremely low latency and high bandwidth of QLogic InfiniBand solutions make it possible for ESI Group customers to provide faster 'times-to-solution' with more complex models," said Raymond Ni, ESI Group Computational Structure Mechanics Development Director. "The high performance networking infrastructure of the QLogic HPC ecosystem will allow users to include significantly more details in their models, minimize assumptions and reduce turnaround time."

On May 20, 2008, PTC announced the appointment of James Heppelmann to the PTC Board of Directors. Heppelmann remains as PTC's executive vice president, software products and chief product officer. In this position, Heppelmann is responsible for PTC's overall product direction, development, and marketing. He has worked in the software industry since 1985 and has extensive experience developing and deploying large-scale product development systems within the manufacturing marketplace. Prior to joining PTC, Heppelmann was founder and chief technical officer of Windchill Technology, a Minnesota-based company acquired by PTC in 1998. Before founding Windchill Technology, Heppelmann served as chief technical officer at Metaphase Technology, Inc.

On May 20, 2008 Siemens PLM Software (formerly UGS) announced new versions of the complete Velocity Series™ portfolio, including Solid Edge® software with “synchronous technology.” Siemens PLM Software made the announcement in conjunction with its annual industry analyst event that began May 20 in Boston. Velocity Series is said to be the PLM industry's first comprehensive, preconfigured portfolio of digital product design, analysis, manufacturing and data management software for the mid-market. “The portfolio was introduced two-and-a-half years ago and since then has achieved consistent and strong growth for Siemens PLM Software”, Siemens said. The PLM group also announced the release of NX™ 6 digital product development software that provides features driven from Siemens PLM Software's synchronous technology. Finally, announced May 20 was the introduction of Solid Edge® software with synchronous technology, the first version of Solid Edge to incorporate Siemens PLM Software's new history-free, feature-based design technology for digital product development announced last month. “Solid Edge with synchronous technology is a core component of the Velocity Series™ portfolio and combines the speed and flexibility of direct modeling with the control of dimension-driven design,” Siemens said.

"In the one year since Siemens AG announced the close of its acquisition of UGS, we have successfully integrated our operations into those of Siemens while concurrently growing our business and capturing market share in the PLM industry," said Tony Affuso, chairman and CEO of Siemens PLM Software on May 13, 2008. Headquartered in Plano, Texas. Siemens PLM Software currently claims 4.6 million licensed software seats and 51,000 customers worldwide.

MCAD Vendors' Financial Performances in Q1 2008

As a group, the G7 MCAD vendors generated combined revenues of $1.546 billion, an increase of nearly 18% from the $1.31 billion in the year ago quarter, but a slight drop of 2.4% sequentially from the traditionally-strong fourth calendar quarter. On a year-over year basis, Autodesk quarterly revenue was basically flat. ANSYS and Dassault Systemes reported revenue growth of over 20% and ESI Group also had revenue growth approaching 20%. On a sequential basis ESI Group was the clear percentage growth leader at 135%, reflecting its seasonal pattern. Dassault and MSC.Software had significant sequential declines of around 13% with respect to historically strong fourth quarters.

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 clear market share leader at 38% of reported revenue. Dassault Systems was in second place at 30% and PTC was third at 17%.

(As always, it needs to be pointed out that unlike the other vendors in this report, Autodesk earns a major 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 PTC sells mostly direct). The figure of course excludes UGS, which does not report revenue for the quarter separately from Siemens.

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