commentary: MCAD Industry View -- What did the Last Quarter Bring?

Could it be that stock prices are better harbingers of future company performances than trailing financial data? Do investors in the MCAD businesses anticipate something positive that's less visible to the rest of us? Time will tell!

Finally, it might be observed that the equity price rises for May 1 to August 1 for the MCAD Companies listed in Figure 3 are probably just as well. This is because, historically speaking, August is the absolute worst month for stocks in the Dow Jones Industrial Average (DJIA) and Standard & Poor's 500 index, according to the SmallCap MarketWatch Newsletter of August 4, 2003. During the past fifteen years, the DJIA has lost an average of 1.9% in August and the S&P 500 has lost an average 1.6% in August (Stock Trader's Almanac). August is only the second worst month of the year for the Nasdaq Composite; that distinction is reserved for September.

MCAD Company Guidance for next Quarter:

Autodesk's May 22, 2003 guidance for its next quarter: "Net revenues for the second quarter of fiscal 2004 (Note: to be reported around August 22, 2003) are expected to be in the range of $207 million to $212 million (Note: Flat with last sequential quarter). Earnings per diluted share for the second quarter of fiscal year 2004 are expected to be in the range of $0.07 to $0.10." (Note: Autodesk has about 113.5 million shares outstanding). For the Full Year Fiscal 2004: "Net revenues for fiscal 2004 are still expected to be in the range of $875 million to $900 million. Earnings per diluted share for fiscal year 2004 are expected to be in the range of $0.50 to $0.60. Despite a constrained spending environment and the uncertainty of SARS, we remain conservative yet highly confident in the outlook for the company. There is less visibility on the full year and more potential for geopolitical and economic forces to impact our anticipated results of operations." Note: Autodesk's total revenue for the whole year 2003 may eclipse that of 2002, but it'll soon need near term results far in excess of management's current 2003 projections to come even close to 2001's revenue total. Barring a revenue/earnings disaster in the next few quarters, however, Autodesk should eclipse 2002's net income and maybe even 2001's, an indication that, like many U.S. companies, operating costs (i.e. people) have been deeply slashed since 2001.

Dassault Systemes forecasts next quarter's revenue to be € 175 to € 180 million. On July 24, 2003 Thibault de Tersant, Executive Vice President and CFO, commented, "While we continue to be cautious with respect to any improvement in the economic environment in the second half of the year, based upon first half results and our business outlook, we are reconfirming our full year revenue growth objective of about 7% (in constant currencies) and our operating margin growth objective of up to 1 percentage point above the 27.7% operating margin achieved in 2002." Note: While Dassault's CATIA pricing & packaging scheme remains very complicated, Dassault made a significant improvement in the features & functions in its SolidWorks 2004 release announced on July 7, 2003.

PTC plans more cost cuts and layoffs. PTC's July 16, 2003 guidance for its next quarter: "For the fourth quarter of 2003 (Note: to be reported around October 16, 2003), we expect revenue to be in the range of $160 million to $170 million and net loss per share to be in the range of $0.10 to $0.14. (Note: PTC has about 264 million shares outstanding). This guidance includes a restructuring charge of approximately $15 million for the quarter related to the cost reduction initiatives." For the future: "Our goal is to be profitable in our next fiscal year (2004)."

EDS' July 23, 2003 guidance was as follows: "While we met our financial commitments in the (last) quarter, the results highlight continuing issues in our sales and operating efficiency," said EDS Chairman and CEO Mike Jordan on July 23, 2003. "We are taking aggressive steps through our ongoing transformational process to improve our cost structure, productivity and competitiveness. We also fortified our balance sheet with a significant infusion of capital. Now we must translate our improved competitive position into greater marketplace success."

EDS also announced July 23 that it is finalizing its analysis of the expected EITF 00-21 adjustment, which it believes will result in a net reduction of unbilled receivables and deferred revenue and the deferral of system construction costs on its IT service contracts using percentage-of-completion accounting. EDS will restate first and second quarter 2003 results to reflect the new accounting rule, as mandated by FASB, and disclose the results as part of its third quarter 2003 earnings announcement in October. Adoption of the new accounting rule will significantly reduce full-year 2003 earnings but will have a positive earnings impact in 2004. (Note: EDS says EITF 00-21 impacts the way all companies recognize revenue on contracts with multiple deliverables. EITF stands for the Emerging Issues Task Force of the Financial Accounting Standards Board. The impact of these restatements on EDS PLM Solutions is unknown at this juncture).

ANSYS' July 31, 2003 News Release was silent on predictions for subsequent quarters. However, ANSYS has firmly established a long-standing trend of improved revenue performances quarter to quarter.

The ESI Group's guidance for the rest of the year was stated by Chairman & CEO Alain de Rouvray on June 4, 2003: "Our performance in the first quarter means that we are cautiously optimistic about business levels in the current year, expecting double digit growth." (Note: The ESI Group's next quarterly financial release will be about September 4, 2003, approximately).

Moldflow gave this guidance in its August 5, 2003 News Release: "Moldflow expects revenues for the first fiscal quarter of 2004 (next quarter) to be between $9.4 million and $9.9 million and net income per diluted share, measured under GAAP, to be between $0.01 and $0.03 per share, assuming an effective income tax rate of 35%." (Note: Moldflow has about 10 million shares outstanding). "Given that there is still a degree of uncertainty in the world economy and our end-user markets in particular, we will continue to monitor the economic conditions and adjust our business model when appropriate to meet these objectives. As we look forward to fiscal 2004, we expect to see continued modest growth in total revenues."

During Q2, MSC.Software Corporation exited its systems business as a hardware reseller and says it will intensify focus on core software and service products. "We expect that revenue from continuing operations will stabilize as we focus all of our resources on our software and services product offerings," said Frank Perna, CEO and Chairman of MSC.Software on July 23, 2003. "We will continue to weather the current difficult economic times around the world and are confident that when the economy turns more positive we are well positioned for double-digit growth," Perna concluded. Mr. Perna's predictions for the future: "Based on current visibility, the Company expects third quarter revenue from continuing operations to be in the range of $60 million to $64 million and earnings to be in the range of $0.03 to $0.05 per diluted share. In addition, based on current visibility, the Company expects revenue from continuing operations for the fourth quarter to be in the range of $65 million to $70 million and earnings to be in the range of $0.06 to $0.10 per diluted share. Based on current visibility, the Company expects revenue from continuing operations for FY 2004 to be in the range of $260 million to $280 million and earnings to be in the range of $0.35 to $0.45 per diluted share." (Note: MSC has about 30 million shares outstanding).

Tecnomatix' guidance for the future on July 30 included these comments from Oren Steinberg, chief financial officer and executive vice president: "Our focus in the third quarter will remain on increasing sales, maintaining our cost controls, closing the acquisition of USDATA and integrating it into our organization. We are receiving positive indications from customers regarding their IT spending and China seems to be recovering from the SARS epidemic. Nevertheless, we are still relatively cautious given the overall difficult business economy. With that said, we expect to achieve revenue growth in the second part of the year of approximately 5% to 10% over the second half of 2002, with improved profitability. "

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