MCAD Industry View - A DECEMBER 2008 Update


On a geographic basis, North America accounted for 34% of total revenue, Europe 43%, Japan 9% and Pacific Rim 13%.


There were 25 customers from which PTC recognized more than $1 million of license and services revenue in fiscal Q4 (calendar Q3). This compares to 13 customers last quarter, and 22 in the same period last year.

Reseller revenue was $75 million, or 25% of total revenue. This was an increase of 46% year-over-year, and an increase of 7% sequentially.

Net income for the quarter was $36.5 million, an increase of 19% from the $30.6 million in the year ago quarter, and increase of 152% from the $14.4 million in the prior quarter. During the quarter, PTC recorded a $4.7 million restructuring charge related to ongoing globalization.

For fiscal 2008, PTC reported total revenue of $1,070 million, an increase of almost 14% from the $941 million in fiscal 2007. License revenue was $316 million, or almost 30% of total revenue. This was an increase of 6.8%. Maintenance and service revenue was $754 million, an increase of almost 17% over the prior year. Net income of the year was $79.7 million, a 44% drop from the $144 million in the fiscal 2007.

Richard Harrison, PTC president and chief executive officer, commented, "We achieved record revenue in our fourth quarter and full fiscal year. Our non-GAAP year-over-year revenue growth was 13% in the fourth quarter and 14% for the full year, reflecting contribution from the CoCreate Software business acquired on November 30, 2007, favorable currency impact and organic growth.” MCAD Vendor Stock Performances

As revealed in the discussion of the economy earlier, the combined stock prices of five of the MCAD vendors fell in absolute terms in Q3 2008 by 14% year-over-year and 9% sequentially. On average the stock prices fell 10% year-over-year and almost 5% sequentially. ANSYS stock price increased nearly 11% year-over-year. PTC saw a 5.6% increase. Autodesk had the steepest stock price decline at 33%. MSC.Software and Dassault Systemes saw drops around 20%. On a sequential basis, PTC was only firm to see a rise (+10.4%) in stock price. ANSYS saw the largest decline at nearly 20%. See Table 7.

This MCAD stock performance slightly outperformed a year-over-year decline of 20% for the average of the major indexes, and to a 7.4% decline from the previous quarter. See Table 8.


The month of October 2008 was also not been kind to those with money in the stock market. The three major indexes fell an average of 16%. The MCAD vendor stock prices fell an average 29%. The largest decliner was Autodesk at -36.5% and the smallest decliner was MSC.Software at -19.6%.



Forecast Guidance from Individual MCAD Providers

Only four MCAD firms offered guidance for the next quarter. As a group they forecast a combined revenue growth of 8% over the same period a year ago and an average growth rate of 11%. ANSYS is the most bullish compared to the fourth quarter of last year with a forecast of revenue growth at over 25%. The other three are more cautious with single digit growth expectations. On a sequential basis the combined forecast is for 6% growth. PTC expects a downturn of nearly 15%. Dassault is the most optimistic at 18% growth expectation with ANSYS second at 13.7%.




Individual Company Guidance

As guidance ANSYS expects revenue for the quarter ending December 31, 2008 to be in the range of $137million to $141 million. This compares to $122 million in the quarter just reported and to $111 million in the same quarter a year earlier. For fiscal 2008 ANSYS expects revenue in the range of $480 million to $484 million. This is a 25% increase relative to the $385 the previous year. For fiscal 2009 the company expects revenue to be in the range of $602 million to $622 million, a 26% rise from the projection for fiscal 2008.

As guidance Autodesk expects revenue for the fourth quarter of fiscal to be in the range of $525 million and $550 million, compared to $607 million in the quarter just reported and compared to $599 million in the same quarter a year earlier. For the year this forecast translates into annual revenue in the range of $1.818 billion to $1.843 billion, versus $2.172 billion million in the previous year.

Thibault de Tersant, Dassault Systemes Senior Executive Vice President and CFO, said, “Turning to our outlook, we expect 2008 to be a year of strong, organic software growth for DS. We have factored into our fourth quarter and full year outlook the signs of weakening we saw in September due to the economic crisis. However, thanks to our diversification strategy, sales channels expansion, recurring revenue model and year-to-date results, we continue to target a non-GAAP software revenue growth objective of 12% in constant currencies.”

More specifically Dassault revenue objective for the fourth quarter is about €385 to €395 million. The objective for the year is about €1.340 to €1.350 billion. These objectives are based upon exchange rate assumptions for the 2008 fourth quarter of US$1.45 per €1.00 and full year exchange rate assumptions of US$1.50 per €1.00. Therefore the fourth quarter objective in US currencies is $558 million to $572 million compared to $477 million in the quarter just reported and compared to $526 million in the fourth quarter of last year. The forecast for the full fiscal year becomes $2.01 billion to $2.02 billion compared to $1.725 billion for fiscal 2007.

While MSC.Software did not give guidance, Bill Weyand, CEO and Chairman of MSC.Software, said, “While we are mindful of the global macroeconomic environment, we believe a number of important factors will allow MSC to weather this storm. As a software company with more than 45 years serving the aerospace and automotive industries, we have seen these cycles before and we know how our customers behave. We believe they will look at their internal processes to improve productivity by reducing physical prototype testing in order to save costs, speed time to market and accelerate product innovation. However, we believe that a prolonged economic downturn could adversely impact our customers, IT spending patterns, and thereby our business as well."

As guidance for next quarter PTC CEO Harrison said, "Looking forward to (fiscal) Q1, we are currently expecting revenue to be between $250 million and $260 million”. This compares to $300 million in the quarter just reported and compares to $252 million in the first quarter of fiscal 2008. For the fiscal year ending September 30, 2009, PTC currently expects revenue to be approximately $1,100 million, compared to $1,070 million in fiscal 2008.”

MCADCafè.com MCADCafè.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. As a result of the acquisition of UGS by Siemens, UGS will no longer provide any financial data and therefore has also been dropped from the list. Moldflow was acquired in June 2008 by Autodesk and has been dropped from the list

The combined worldwide total annual revenue of these companies is over $5 billion, not an insignificant sum. But it is, in fact, less than a few percent of the hundreds of billions spent annually on all types of software. 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 MCADCafè.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.

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 many of 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 has been taken over increasing responsibility for managing IBM Business Partners. 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 always considered the revenues from the remaining public companies ( ANSYS, ESI Group, Moldflow, and MSC.Software ) to be 100% MCAD.


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