May 12, 2003
Commentary: MCAD Industry View - Is the Turnaround Near?
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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.
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
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.
1 The revenues for the Design Solutions Segment of Autodesk, which contains Manufacturing Solutions'
MCAD revenue, increased 6% in 2002 vs. 2001.
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-- Russ Henke, MCADCafe.com Contributing Editor.
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