by Dr. Russ Henke
Is there a high tech turnaround ahead? In particular, what does the landscape look like for the MCAD sector? One industry observer offers his thoughts on the subject
In the overall high tech sector, what do the broad Q1 2003 financial results tell us about the status of the three-year technology slide that began with the March 2000 NASDAQ meltdown? Despite the current ~9 percent unemployment rate in places like Silicon Valley, there are some fresh business statistics from Q1 2003 that provide optimists with hope for an eventual high tech turnaround. US Government Commerce Department figures show a Q1 2003 up-tick of 15 percent in business purchases of computers and software. Earnings for 60 tech companies in the S&P 500 Index are up 16% in Q1 2003 vs. Q1 2002, according to Thomson First Call.
However, gloom still grips many high tech companies. The gains mentioned above are from just a few companies, analysts speculate. Modest improvements here and there still leave the vast majority of high tech companies in the doldrums, because the protracted market slide has been so severe.
Indeed, Oracle Corp. Chairman & CEO Larry Ellison has been quoted as saying that the software industry will never again be as strong as it was in the late 90's. Others are more sanguine, since software spending is almost half of every dollar spent on technology these days. Most observers believe, however, that a high tech recovery will follow any general economic recovery, which probably means (notwithstanding promised "stimulus packages" from the White House) that the real high tech rebound and more high tech jobs are 12 to 24 months away.
Is the picture in the MCAD portion of high tech any better?
To gain a better understanding of what this means for the MCAD sector, let's take a closer look at some of the top players in this category. MCADcafe.com currently tracks the financial performance of eight (8) public companies in the Mechanical CAD market. Four of these companies (Autodesk, Dassault Systemes, PTC and EDS PLM Solutions) represent 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) offer specialized software/services products in specific MCAD niches and together they create the remaining 15 percent of the total group-of-8's revenue. Indeed, these latter four companies frequently partner with the initial four to provide end- customers with broader solution suites.
The combined worldwide total annual revenue of these eight companies is nearly $4 billion, not an insignificant sum. But it is, in fact, less than 3 percent of the $150 billion 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 MCADcafe.com, it's
instructive to account for the actual MCAD content of each.
For example, the revenues of Dassault and PTC could 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 its Discreet 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, the building industry, 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.
EDS' MCAD revenues are created by EDS PLM Solutions, the mid-2001 union of SDRC and UGS. While EDS PLM Solutions represents less than five percent of EDS' total revenues ($21.5 billion in 2002), EDS PLM Solutions annual revenues are right there at similar levels as the world's other MCAD revenue leaders Dassault and PTC.
For purposes of our discussion, we'll consider the revenues from the remaining four public companies (ANSYS, Moldflow, MSC.Software and Tecnomatix) to be 100% MCAD.
So how did the eight MCAD Companies do in calendar 2002?
In an industry striving for double-digit compounded annual growth rates (CAGR), clearly 2002 was not kind to most of these companies (see Figure 1). Indeed, anything better than "flat with 2001 revenues" might be viewed as a minor 2002 victory. MSC.Software was the only company with more than double-digit percent growth in 2002, driven primarily through it acquisitions, but the company's 2002 net income was way off from 2001.
As shown in Figure 1, only three of the eight companies improved their net income performances in 2002, with Dassault Systemes leading the pack with $142 million. Notably, ANSYS continued its steady multi-year growth of both revenues and net income, apparently unperturbed by the harsh economic times.
|% of 2001||
|EDS PLM (est.)||935||*|
Figure 1 – Eight public MCAD Companies' Yearly Financial Performances2
1 The revenues for the Design Solutions Segment of Autodesk, which contains Manufacturing Solutions' MCAD revenue, increased 6% in 2002 vs. 2001.