Commentary: MCAD Industry View - A March 2007 Update
[ Back ]   [ More News ]   [ Home ]
Commentary: MCAD Industry View - A March 2007 Update


MCAD Industry View - A March 2007 Update

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In the first MCAD Industry Commentary published May 2003 in, then-recent yearly and quarterly financial performances of a selected group of public Mechanical Computer Aided Design (MCAD) companies were analyzed and compared. Expectations of future financial performances of these same MCAD entities were documented. The May 2003 MCAD Commentary was followed by fifteen quarterly updates in, one for each subsequent calendar quarter. URL's on all past articles are available. The entities covered were ANSYS, Autodesk, Dassault Syst mes, UGS PLM, ESI Group, Moldflow, MSC.Software, PTC and Tecnomatix.

As a result of the acquisition of Tecnomatix by UGS that closed April 1, 2005, Tecnomatix was eliminated from coverage thereafter as a separate entity.

Accordingly, this sixteenth article in the sequel recounts the financial performances of the remaining group-of-eight (G8) MCAD/PLM entities for the nominal fourth quarter of 2006.

Recent MCAD & PLM News Highlights, & Some Commentary on same

On January 25, 2007 Siemens Automation and Drives (A&D), Nuremberg, Germany, moved to expand its industrial software portfolio through a definitive agreement to acquire a leading MCAD/PLM firm UGS. The agreement was made between Siemens and the current UGS owners Bain Capital, Silver Lake Partners and Warburg Pincus. The planned purchase price amounts to US $3.5 billion, including assumption of existing debt. The activities of UGS are to be assigned to the Siemens Automation and Drives Group (A&D). According to a spokesman, Siemens A&D will become the first supplier to manufacturing industries to provide an end-to-end software and hardware portfolio encompassing the complete lifecycle of products and production facilities. The Siemens/UGS transaction is subject to the approval by the relevant German and US authorities.

Industrial products offered by Siemens A&D include standard products for manufacturing and process industries and for the electrical installation industry, as well as system solutions, for example for machine tools, and solutions for whole industries such as the automation of entire automobile factories or chemical plants. Supplementing this range of products and services, A&D also offers software for linking production and management (horizontal and vertical IT integration) and for optimizing production processes. Siemens A&D says it employs 70,528 people worldwide and in fiscal year 2006 (to September 30) earned a group profit of �1.572 billion on sales of �12.848 billion (and orders of �14.108 billion).

Table 1 below describes the approximate UGS' market position:

Siemens said that in 2005, the PLM market was about $5.2 billion and is projected to grow to an estimated $8.6 billion in 2011. Siemens said that UGS currently has 47,000 customers worldwide, 4.3 million licensed seats, a workforce of over 7,000 and 13 consecutive quarters of profitable year-over-year growth. A&D expects the UGS acquisition to be accretive from FY2008 onward.

Klaus Kleinfeld, President and CEO of Siemens AG, said, “With the acquisition of UGS, we combine its competence in the sector of digital factories with our leading know-how in industrial automation. This combination makes our customers' processes faster, better and more cost efficient. With the unique combination, we underscore our position as a trendsetter in automation systems and bring this business into a new dimension.”

It seems only a brief while ago, on March 14, 2004, that the private equity group of Bain Capital, Silver Lake Partners and Warburg Pincus announced that they had reached an agreement to purchase UGS PLM Solutions for $2.05 billion in cash from EDS. This was a leveraged buyout where the investors put up a certain amount of cash and then used the assets of the company to arrange for loans. The interest on the loans was to be paid by UGS. In 2003, UGS PLM Solutions had generated $897 million in revenue and $104 million in net income. The March 2004 investors clearly intended to obtain their ROI by subsequently selling UGS.

At the time, the UGS LBO reportedly represented the largest private equity investment ever made. The question of the moment was, if UGS were to be sold later, who would buy? Since the UGS deal was the biggest private equity investment ever made, it was doubtful that the buyer would be another private equity investor. So who else? One could arguably perceive benefits accruing to UGS competitors (e.g. Dassault Systemes, PTC, or Autodesk) to acquire UGS. It would give Autodesk an entre into high-end PLM. It would deliver GM, Ford and other major customers to Dassault or to PTC. But the price tag for UGS would likely be greater than the market valuation of these MCAD firms themselves. Would the stock price of such an acquirer essentially double to maintain shareholder value? Also, UGS customers would rightly demand continued support for existing UGS products. The MCAD acquirer could not realistically forecast that it could migrate the UGS users to their own product lines, such as to CATIA and Enovia for Dassault, or to Pro/Engineer and Windchill for PTC, could they?

In the MCAD Industry, as in others, acquistions are a way of life. Recall that historically, PTC had acquired ComputerVision, who had itself acquired Calma. Dassault had acquired CADAM, SolidWorks and more recently Abacus and MatrixOne. UGS had acquired Applicon and also merged with SDRC. In the cases of the acquisitions of Calma, CADAM and Applicon, one could argue that these were declining firms with large installed customer bases attractive to the then-industry-leaders. While not always smoothly, the acquirers were able over a period of time to migrate most of these existing customers over to the acquiring company's product lines.

However, if PTC, Dassault or Autodesk were to acquire UGS now, the large UGS customers would almost certainly demand that UGS software products continue to be supported. Recall that the UGS/SDRC merger (consummated September 4, 2001) was a merger of near equals. Major SDRC customers such as Ford immediately demanded that UGS continue to support most of the SDRC products despite considerable functional overlap with UGS products. It took a massive effort by UGS/SDRC over several years to get the best of both worlds into a single integrated product line.

The market capitalizations of Autodesk, Dassault and PTC were recently $9.4 billion, $5.88 billion and $2.24 billion, respectively. Assuming that an acquisition by another MCAD/PLM vendor would have to be mostly stock, is it likely that the stock prices of any of these three firms would rise on the news of a UGS acquisition sufficiently to make the its stockholders whole?

Large end-user firms in aerospace and automotive industries had either originated CAD systems (Lockheed - CADAM, Dassault Aviation-CATIA, Toyota-Caellum), or acquired (McDonnell Douglas - UGS, GM/EDS-UGS) and/or developed internal CAD systems (Ford-PDGS, Boeing-Tiger). However, this is a distant memory. None of these firms have shown any public interest in getting back into commercial CAD or PLM.

So who would buy UGS? Now of course we know: Siemens A&D. Going forward the question will be: How much independence will Siemens give UGS and how much synergy can be obtained between the two firms?

Moreover, as Brad Holtz of Cyon Research opined on January 24, 2007, it's likely that UGS' MCAD competitors will like the Siemens/UGS acquisition as well.

For more on the Siemens/UGS deal, you may wish to check out MCAD Weekly editor Jeff Rowe's two articles from February 5 and February 12, 2007:

Jeff Rowe also has some further comments on UGS in the March 5, 2007 EDA Weekly:

Pioneer Lost

Since the previous quarterly MCAD Industry Commentary was published in November 2006, the world lost a bona fide pioneer in mechanical Computer Aided Engineering (CAE). Dr. Jason R. (Jack) Lemon, CEO of International TechneGroup Incorporated (ITI), Milford, OH, passed away on December 27, 2006 after a 20-year battle with cancer. He was 71 years old. In addition to starting ITI in 1983, Dr. Lemon earlier founded Structural Dynamics Research Corporation (SDRC) in 1967, as an outgrowth of the University of Cincinnati. SDRC was ultimately merged with UGS in 2001 and SDRC still forms an important piece of UGS.

Lemon attended the University of Cincinnati and graduated in 1958 in Mechanical Engineering. He continued his education at Ohio State University, where he received his MS in Mathematics in 1960 and PhD in Mechanical Engineering in 1962. After graduation, he worked full time at Cincinnati Milacron. In 1964, he left to teach and do research in mechanical engineering as a faculty member at the University of Cincinnati.

{Co-author of these MCAD Commentaries Russ Henke first met Dr. Lemon at Cincinnati Milacron in 1962. Dr. Lemon became Henke's mentor and thesis advisor for Henke's MSME thesis in 1965; Lemon also served on Henke's PhD thesis committee along with major professor Dr. R. Sridhar of Cal Tech in 1968. Henke joined the 20-person SDRC in 1969 and served as SDRC president & COO and BOD member till 1982, reporting to CEO Lemon. The SDRC business grew to a profitable global business of approximately 300 people by 1982 and was an internationally recognized leader in CAE/CAD/PDM engineering and application software development. Henke left SDRC in mid-1982 to join Schlumberger Applicon in Boston, as EVP reporting to CEO Don Feddersen}.

Dr. Lemon's diverse experience included advanced product and manufacturing process development, together with in-depth knowledge of related application software integration. Within aerospace, automotive, electronic, mechanical, CAE/CAD/CAM/CAT, and PDI technical organizations, Dr. Lemon was internationally recognized as a pioneer, leader, and salesman extraordinaire. He will be sorely missed by all who knew him.

Selected G8 MCAD Vendors' Financial Performances in Q4 2006

As a group, the G8 MCAD vendors generated combined revenues of an impressive $1.7 billion in the fourth quarter of 2006, a notable 17% increase over the $1.46 billion in the fourth quarter of 2005 and a 13% increase over the $1.5 billion in the just prior quarter. ANSYS was the year-over-year percentage revenue growth leader at +95%, due largely to its acquisition of Fluent in February 2006. Autodesk, Dassault and PTC also reported double digit year-over-year quarterly growth. MSC.Software was the only decliner at -22%. On a sequential basis, both ANSYS and Dassault had growth over 20%. MSC, PTC and UGS had percentage revenue increases in the teens. ESI Group was the only sequential decliner, largely due to seasonal purchases. See Table 2.

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 share leader at 29%. Dassault Systemes was second with 26%, and UGS was third at 21%. PTC is next at 13% share (Figure 2).

(As always, it needs to be pointed out that unlike the other vendors in this report, Autodesk earns a 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 UGS sells mostly direct).

The combined earnings for the G8 MCAD vendors were $135 million, a whopping 82% increase over the $74 million in the fourth quarter of 2005, and a very healthy 50% increase over the $90 million in the third quarter of 2006. UGS was the only vendor with a loss, mostly due to debt financing. Only UGS and ANSYS earnings declined year-over-year. Autodesk earnings picture was most improved with a swing from a net loss of $21 million to a gain of $16 million. MSC.Software and PTC had year-over-year earning increases over 100%. On a sequential basis, Moldflow, PTC and UGS had lower earnings than the previous quarter. Autodesk and Dassault were the percentage earnings growth leaders at 167% and 94%, respectively.

Details on Individual Vendors' Q4 2006 Performances

On February 20, 2007 ANSYS Inc reported the financial results for its fourth quarter and the year, the periods ending December 31, 2006. Total revenue for the quarter was $85.2 million, an increase of 95% over the $437 million in the fourth quarter of 2005, and an increase of 22% from the $70.1 million in the prior quarter. Software license revenue was $53 million, accounting for 62% of total revenue. This was up 118% year-over-year, and up 26% sequentially. Maintenance and service revenue was $32 million, accounting for 38% of total revenue. This was an increase of 66% year-over-year, and increase of almost 15% sequentially.

Note that ANSYS acquired Fluent in February 2006. Fluent had total sales of $121.9 million in 2005.

ANSYS net income for the fourth quarter of 2006 was $12.3 million, a slight drop of 7.6% from the $13.2 million in the same quarter a year earlier, but an increase of 47% from the just previous quarter.

Jim Cashman, ANSYS President and CEO, said, “I am pleased to report another record year for our company. During 2006, despite the significant time and resources that were invested in our Fluent integration activities, the results for the fourth quarter and the year demonstrate the outcome of the continued focus of and execution by the ANSYS team.”

ANSYS CEO Jim Cashman noted, "2006 has been a very productive and successful year for ANSYS as we completed a significant acquisition that has transformed our business and significantly extended the capabilities of our broad-based engineering simulation portfolio. We have also further expanded the diversity of our customer base, our geographic presence and our wealth of employee talent.”

On February 27, 2007 Autodesk, Inc. reported financial results for the fourth quarter and fiscal year 2007, the periods ended January 31, 2007. For the fourth quarter Autodesk reported record quarterly revenues of $497 million, an increase of 19% over the $417 million in the fourth quarter of fiscal 2006 and an increase of 9% over the $457 million in the previous quarter. License revenue in the quarter was $375 million, accounting for 75% of total revenue an 11.4% increase year-over-year, and an 8.4% increase sequentially. Maintenance revenue was $123 million, accounting for 25% of total revenue, an increase of 53% year-over-year and an increase of 10.8% sequentially.

Maintenance revenues from subscriptions increased 53% compared to the fourth quarter of fiscal 2006 to $123 million or 25% of total revenues. Upgrades from AutoCAD and AutoCAD LT generated 37% of total revenues. 3D design products accounted for 24% of total revenues.

The Platform segment, which accounts for nearly 41% of revenue, includes AutoCAD and AutoCAD LT products that service multiple markets. Other segments are Building, Infrastructure and Media/Entertainment (previously named Discreet). The Manufacturing segment (which includes the Inventor product lines) accounted for almost 20% of total revenue and grew 32% year-over-year and 15% from the prior quarter. A “guesstimate” of MCAD revenue would be about $160 million for the fourth quarter.

The Company's model-based 3D products, Inventor, Revit and Civil 3D, continue to increase their market penetration. Combined revenues from these model-based design products increased 40% over the fourth quarter of fiscal 2006 to a record $121 million, or 24% of total revenues in the quarter. In total, Autodesk shipped more than 47,000 commercial seats of 3D in the quarter, including 23,000 seats of Revit, over 15,000 seats of Inventor, and nearly 9,000 seats of Civil 3D.

The Americas accounted for 41% of total revenue, Europe for 38% and Asia for 21%. Europe was the revenue growth leader both year-over-year and sequentially. Asia Pacific revenue declined sequentially. All three segments grew about 20% year-over-year.

Carl Bass, Autodesk president and CEO, said, "We are pleased to finish another year of outstanding execution and revenue growth. In fiscal 2007, we delivered revenues of $1.84 billion, nearly double the level of three years ago. Our fourth quarter growth was driven by strong performance from emerging economies, our subscription program and, most significantly, record revenues from our model-based 3D products. Looking to fiscal 2008, we expect Autodesk to continue to focus on delivering industry-leading 3D design software solutions that help our customers be more productive, improve quality and foster greater innovation."

By the way, on February 12, 2007, Carl Bass outlined the Autodesk's strategic direction at its World Press Day event, and articulated his vision of a fundamental transformation in the design process to encompass performance, aesthetics and user experience. See the following URL for some of his remarks:

You can also see Jeff Rowe's MCAD Weekly comments on the Autodesk Strategy at:

In a separate announcement, Autodesk stated that the Audit Committee of the Autodesk BOD has completed its voluntary review of the company's stock option grant practices. As a result the firm expects to restate its previously-issued financial statements for fiscal years 2003 through 2006, to make adjustments related to accounting for stock-based compensation expense. The Company currently estimates that the pre-tax, non-cash charges to be incurred are in the range of $38 million to $45 million for stock-based compensation expense over the period of the review.

On February 14, 2007 Dassault Syst?mes reported financial results for its fourth quarter and year ended December 31, 2006. In $US, total revenue for the quarter was $449 million, an impressive increase of 24% over the $362 million in the fourth quarter of 2005, and a 28% increase over the $351 million in the previous quarter. Software revenue was $368 million up 23% year-over-year and 29% sequentially. Software revenue accounted for 82% of total revenue. This included $172 million in new license revenue and $196 million in recurring revenue. Service and other revenue was amounted to $81 million up 31% year-over-year and 25% sequentially.

The Enovia brand, which includes Enovia, MatrixOne and SmarTeam, generated $89 million in the quarter, or 20% of total revenue. This was a 60% increase year-over-year and a 1% drop sequentially. SolidWorks generated $74 million, accounting for 16% of total revenue. The $74 million represented increases of 22% year-over-year and 15.5% sequentially. CAD generated $288 million, or 64% of total revenue. This was slightly down year over year, but up 31% sequentially in the usually very strong fourth quarter.

Revenue from America was $140 million, or 31% of total revenue. Revenue from Europe was $220 million, or 49% of total revenue. Revenue from Asia was $91 million, or 20% of total revenue. Year-over-year revenue from America was up 42%, from Europe 17% and from Asia 19%.

Bernard Charl?s, Dassault Syst?mes President and Chief Executive Officer, commented, “2006 was a remarkable year for DS. We delivered strong financial results growing revenue by 27% in constant currencies and earnings per share by 15%. We successfully integrated two major acquisitions within a twelve-month period. And we redesigned our 25-year strategic partnership with IBM to jointly expand the enterprise PLM offering sold by IBM and to transition to a DS-managed PLM indirect channel. Thanks to everyone's focus across DS on innovation and execution to serve our customers, DS reached an important leadership milestone, with a total PLM market share estimated at 25%.”

On November 29, 2006 ESI-Group reported financial results for its third quarter, the period ended October 31, 2006. Turnover for the third quarter of the 2006 financial year totalled 12.6 million euros, up 4.7% organically on the same quarter of the previous financial year. At constant exchange rates, the increase was +7.3%. The performance of License activity over the third quarter was marked by very dynamic growth (+ 17.9% at constant exchange rates), thus continuing the trend noted the previous quarter. The weakness of Consulting & Services activity (-18.4%) is essentially due to projects delays in the Asian zone, notably with a significant fall in Japan associated with the halting of low value-added projects.

Consolidated turnover for the first 9 months of the year totalled 39.0 million euros (+4.2%). The surge in Asia has been reaffirmed.

Alain de Rouvray, ESI Group's Chairman and CEO, said: “Our sector's growth drivers are currently moving to emerging zones such as China and India. ESI Group's participation in the French State's recent visit to China reflects the quality and soundness of our relationships in Asia. Despite structural and situational difficulties in Consulting & Services, the ongoing dynamism of our Licence activity and the intensification of our S&M efforts - notably in Asia - should, in the short term, allow an acceleration in growth, a reduction in our average costs through the globalisation of our teams, and an improvement in our profitability, a direct consequence of an essentially fixed-cost structure”.

On February 6, 2007 Moldflow Corporation announced the results for its second quarter of the 2007 fiscal year. Total revenue of $17.7 million was up 15% sequentially, and up 4% from the corresponding quarter of fiscal 2006.

Total product revenue of $10.4 million represented a 30% sequential increase, and a 3% increase over the same period of the prior year.

Total services revenue of $7.2 million represented a sequential decrease of 1%, and a 6% increase over the same period of the prior year.

Revenue from Design Analysis Solutions totaled $14.0 million, or 79% of total revenue, and represented a 21% sequential increase, and a 10% increase when compared to the same period last year.

Revenue from Manufacturing Solutions totaled $3.6 million, or 21% of total revenue, and was flat sequentially, and represented a 13% decrease when compared to the same period last year.

Regionally, revenue in the Asia/Pacific region represented 38% of total revenue, while the European region represented 35%, and the Americas represented 27% of total revenue, respectively.

Net income for the quarter was $1.8 million, including a charge of $451K for stock-based compensation expense, compared to a net loss of $109K.

Roland Thomas, Moldflow Corporation's president and CEO said, "Our second quarter results, which continue to validate our fiscal 2007 business model, produced increased revenue, net income and earnings per share on both a sequential and year-over-year basis. During the quarter, we continued to see increased leverage coming out of our Design Analysis Solutions business. When compared to the same period of the prior fiscal year, Design Analysis Solutions product revenue grew 11% and total revenue grew 10%, representing another step in this division supporting our longer-term business model. As planned, our Manufacturing Solutions business continued to operate close to breakeven, with increased gross margins on slightly lower revenue during the second fiscal quarter."

On February 27, 2007 MSC.Software Corporation reported financial results for the fourth quarter and the year, periods ending December 31, 2006. Total revenue for the quarter was $66 million, a drop of 22% compared to the $85 million in the fourth quarter of 2005, but an increase of 13% from the $58 million in the prior quarter. Software revenue was $28 million, or 42% of total revenue, down 40% year-over-year, but up 223% sequentially. Maintenance and service revenue was $38 million, or 58% of total revenue, down 1% year-over-year, but up 6.7% sequentially. The fourth quarter included $1.2 million of PLM services revenue.

On a geographic basis, America accounted for 27% of total revenue, EMEA 44% and Asia Pacific 29%. In the quarter there were 77 deals of more than $100K. In the previous three quarters, the average number of such deals was only 47.

Net income for the quarter was $11.2 million, more than double the $5.2 million in the same quarter a year ago. Note that the 2006 fourth quarter included a tax benefit totaling $11.0 million that was generated primarily by the release of valuation allowances on deferred tax assets.

On January 19, 2007, the firm announced that it will streamline its global operations by reducing its current workforce by approximately 85 people. Severance costs and other one-time charges will total between $6 and $8 million. At the time, CEO Bill Weyand said, "Along with our new global business partners, we feel that MSC is well positioned to efficiently and profitably execute our 2007 plan."

Bill Weyand also said, on February 27, "We saw good traction with our enterprise simulation products in the fourth quarter, which will result in renewed software license growth opportunities in 2007. In addition, by leveraging our relationships with key global partners like IBM and Microsoft, we have positioned MSC to deliver sustained revenue growth both from our established engineering products as well as with our new family of enterprise simulation solutions. Along side our key channel partners including INCAT in Europe and the Americas, and ISID in Japan, we have a significant new revenue opportunity with our SimOffice channel product. Fiscal 2006 was a year of both significant accomplishments and important challenges for MSC. We completed the accounting restatement begun in 2004, we became current with all financial filings with the SEC, we successfully divested two non-core business activities and we began trading on NASDAQ, while at the same time completely revamping our product portfolio with a series of significant new product launches that positioned MSC to deliver enterprise simulation solutions."

On January 24, 2007 PTC reported financial results for its first quarter of fiscal 2007, the period ended December 30, 2006. Total revenue was $221.7 million, up 15% from the same period last year. Total license revenue for the first quarter of 2007 was $66.6 million, accounting for 30% of total revenue, up 14% from the same period last year. Service revenue was $221 million, accounting for 70% of total revenue, up nearly 16% from last year.

Net income for the quarter was $15.2 million, compared to $7.5 million in the year-ago period.

Desktop Solutions total revenue was $144.3 million, accounting for 57% of total revenue. Year-over-year revenue growth of 14% was driven by license revenue growth of 20%, training and consulting service revenue growth of 15%, and maintenance revenue growth of 11%. License revenue included revenue attributable to the recently acquired Mathcad and IsoDraw products, which were acquired in the third quarter of fiscal 2006 and first quarter of fiscal 2007, respectively. On a sequential basis, Desktop revenue was down 9.5%.

Enterprise Solutions revenue was $77.4 million accounting for 33% of total revenue. The 14% year-over-year growth was driven by training and consulting service revenue growth of 27%, maintenance revenue growth of 18%, and license revenue growth of 4%. License revenue growth was impacted by a significant customer transaction in the first quarter of fiscal 2006. On a sequential basis, Enterprise revenue was down 10.1%.

Total revenue from the reseller channel was $47.3 million, up 20%.

North American revenue was $86 million, accounting for 39% of total; European revenue was $83 million, accounting for 37% of total revenue; and Asia Pacific revenue was $52 million, accounting for 24% of total revenue. NA revenue was up 14% year-over-year, European revenue up 37% year-over-year and AP revenue up 24% year-over-year. On a sequential basis, North America was down 25%, Europe up 12% and AP down 6.4%.

C. Richard Harrison, president and chief executive officer, said, "We are off to a great start in fiscal 2007 with revenue and earnings growth above our targets. We continue to deliver strong financial results because we are driving customer satisfaction with our highly differentiated offerings. We have brought together the world's leading solutions for engineering calculations, CAD/CAM/CAE, content and process management, and technical publications to drive competitive advantage for our customers."

“As a result, we have increased confidence in our business outlook and we are raising our revenue and earnings per share targets for fiscal 2007. Additionally, we have established new long-term financial goals to achieve $1.5 billion in revenue and 22% non-GAAP operating margins by 2010. This reflects about 15% annual revenue growth, which should primarily come from organic revenue. We plan to continue to drive operating margin growth through a combination of productivity improvements in our distribution and service delivery models, as well as by leveraging top-line growth."

On February 22, 2007 UGS Corporation reported the results for the fourth quarter and for the year, the periods ended December 31, 2006. Total revenue for the quarter was $353 million, an increase of nearly 8% from the $326 million in the fourth quarter of 2005, and almost a 19% increase form the $297 million in the previous quarter. License revenue was $128 million, up 12% year-over-year and up 49% sequentially. License revenue accounted for 36% of total revenue. Maintenance revenue was $143 million, an increase of 6% year-over-year and an increase of 5.6% sequentially. Software revenue, the sum of license and maintenance revenue, was up 9% year-over-year and over 22% sequentially. Services revenue was $82 million, a rise of 5% from the prior year and 8.4% sequentially.

License revenue for all product portfolios grew: Collaborative Product Development Management (cPDM) license revenue increased 22%, digital manufacturing license revenue increased 28% and UGS Velocity Series portfolio license revenue increased 30% over the same period a year earlier. CAX license revenue increased 2% over the same period a year earlier.

Revenue from Americas accounted for 39% of total revenue, revenue from EMEA accounted for 42% of total revenue and revenue from Asia accounted for 19% of total revenue.

Because of the income tax impact of currency fluctuations on intercompany debt in one of the company's foreign subsidiaries, the company is restating its earnings for 2004 and 2005 by increasing its deferred income tax expense by a currently estimated amount of US$12.0 million in both 2004 and 2005.

IBM and UGS recently announced a new agreement to support the cPDM requirements of small- to medium-sized businesses (SMBs) on a global basis. IBM and UGS will jointly market Teamcenter Express software and services to SMB customers in six countries: the U.S., Canada, France, Germany, Japan and China.

Tony Affuso, chairman, CEO and president of UGS, said, “We are pleased with our strong performance in the quarter and that execution of our strategic plan delivered solid earnings and top-line organic revenue growth as planned, with 12% license revenue growth in the quarter. Our vision continues to be supported by customers who are market leaders and invest in UGS PLM to further their global innovation networks. We look forward to more growth in 2007 driven by our world-class product portfolio to be enhanced with major releases of Teamcenter and NX.”

MCAD Vendor Stock Performances

Despite good earnings, the combined stock prices of the MCAD vendors declined 2.6% in absolute dollars and 1.0% in average price over the fourth quarter of 2005. This compares to an average increase of 13% for the major stock indexes over the same period. PTC was the clear year-over-year growth leader at 18%. ANSYS at almost 2% growth was a distant second. The other MCAD vendors had stock price declines compared to the same quarter a year ago. On a sequential basis Moldflow and Autodesk led the pack at over 16%. PTC had a slight sequential increase in stock price. The other firms saw stock prices declines. MSC.Software brought up the rear with declines of 10.4% year-over-year and 15% sequentially.

Forecast Guidance from Individual MCAD Providers

UGS and ESI-Group did not give guidance for the next quarter. For those who did the combined total was up nearly 18% from the same quarter a year earlier but down 5% from the traditionally strong fourth quarter. ANSYS is the most optimistic compared to last year in part due to the Fluent acquisition. All MCAD vendors expect increased revenue. All but MSC.Software at 1.5% are forecasting low double digit growth.

As guidance ANSYS expects revenue in the next quarter to be in the range of $83 to $85 million. This compares to $85.2 million in the quarter just reported and to $46 million in the same quarter in 2006. The firm also expects revenue for the year to be in the range of $362 to $365 million. compared to $264 million in 2006.

As guidance Autodesk expects net revenues for the first quarter of fiscal 2008 to be in the range of $490 million to $500 million, compared to the $497 million in the quarter just reported and compared to $436 million in the same period a year earlier. Net revenues for the second quarter of fiscal 2008 are expected to be in the range of $505 million to $515 million. For fiscal year 2008, net revenues are expected to be between $2.075 billion and $2.125 billion compared to $1.840 in fiscal 2007.

With respect to guidance, Dassault commented, “First, we are increasing our 2007 revenue growth objective to 12 to 13 percent from the 11 to 12 percent constant currencies objective which we communicated at the time of our third quarter press release. Our revenue growth objective leads to a reported revenue range of 1.29 to 1.3 billion euros. With respect to the first quarter, which is typically our smallest quarter of the year, we have set a revenue objective of about 282 to 287 million euros. Our financial objectives are based upon a US dollar exchange rate of 1.30 per Euro.”

As guidance Moldflow expects revenue for fiscal 2007 year to grow in the range of 5% to 7% when compared to fiscal 2006.

As guidance MSC.Software expects total revenue in the modest range of $270 - $275 million for the year ended December 31, 2007. This compares to $260 million in 2006.

As guidance PTC expects revenue in the next quarter to be between $225 million and $230 million, as compared to $222 million in the quarter just completed. For the fiscal year ending September 30, 2007, PTC expects revenue to be about $950 million, as compared to $855 million in fiscal 2006.

USG gave no guidance

MCAD Vendor Financial Results for the Nominal Year 2006 Note that not all MCAD vendors have fiscal years that coincide exactly with the calendar year. In addition, some firms offset their fiscal years by a month. The data below represents the last four reported quarters. Total revenue for the G8 MCAD vendors in the nominal year 2006 was $6.1 billion, up a robust 18% from the $5.2 billion in 2005. ANSYS was the revenue percentage growth leader at 67% due largely to its acquisition of Fluent in early 2006. Dassault Systemes and Autodesk had growth over 20% while PTC was approaching that mark. MSC.Software was the only MCAD vendor with declining revenue.

For the nominal year 2006, the G8 MCAD vendors had combined earnings of $313 million (5.1% ROS), down 5% from the $330 million in nominal 2005. UGS was the only firm with a net loss for the year. ANSYS and PTC had lower earnings this year compared to last. Autodesk rebounded from a $9 million loss to a $1 million gain.

For the year ANSYS had total revenue of $264 million, an increase of 67% from the $158 million in 2005. Software license revenue of $157 million, or 60% of total revenue, was up 83%. Maintenance and service revenue was $107 million, or 40% of total revenue. This was an increase of 47% from the prior year. Net income for the year was $15.1 million, a drop of 67% from the $43.9 million in 2005.

Autodesk revenues for fiscal 2007 increased 21% over fiscal 2006 to $1.84 billion, driven by strength in revenues from model-based 3D products, new seat revenue, maintenance revenue from subscription, and revenue in the emerging economies. Combined revenues from the Company's model-based 3D products increased 41% over fiscal 2006 to a record $399 million. In total, Autodesk shipped nearly 150,000 commercial seats of 3D including nearly 70,000 seats of Revit, nearly 48,000 seats of Inventor and nearly 31,000 seats of Civil 3D.

For the year Dassault Systemes had revenue in $US of $1,482 million, a 28% increase compared to the $1,159 million in 2005. Net income for the year was $230 million, up nearly 6% from the $218 million in 2005.

On a geographic basis America accounted for 31% of total revenue, Europe 47% and Asia 22%. All three geographies grew between 25% and 30%.

ESI-Group did not report earnings.

For the calendar year 2006 Moldflow had revenue of $55.3 million essentially flat compared to 2005. Net income for the year was $4.5 million, up 37% from the $3.3 million in 2005.

For MSC.Software, total revenue for the year was $259.7 million, compared to $295.6 million for 2005. Software revenue totaled $111.2 million, compared to $144.0 million for 2005, which included $4.5 million of non-recurring PLM software revenue. In addition, 2005 benefited by approximately $11.0 million of net restatement adjustments. For 2006 maintenance revenue totaled $115.1 million and services revenue totaled $33.4 million compared to $107.5 million of maintenance revenue and $44.1 million of services revenue in 2005, which included $3.2 million of PLM services revenue.

Total revenue in the Americas for the year ended December 31, 2006 was $75.7 million, a decrease of 13.5% compared to $87.6 million in fiscal 2005. After adjusting 2005 for software and services revenue totaling $7.7 million for the PLM business, total revenue in the Americas decreased by 5.3%. Total revenue in EMEA for 2006 was $103.4 million, a decrease of 9.8% compared to $114.7 million for 2005. In the Asia Pacific region, total revenue for 2006 was $80.5 million, a decrease of 13.7% compared to $93.3 million for 2005. As a percentage of total revenue Americas accounted for 29%, EMEA 40% and AP 31%.

Net income for the year was $13.8 million, an increase of nearly 17% compared to $11.8 in 2005. There was a $6.9 benefit from income taxes in 2006 versus a $13.8 million for income taxes in 2005.

As stated earlier, Bill Weyand, CEO and Chairman of MSC.Software, said, "Fiscal 2006 was a year of both significant accomplishments and important challenges for MSC. We completed the accounting restatement begun in 2004, we became current with all financial filings with the SEC, we successfully divested two non-core business activities and we began trading on NASDAQ, while at the same time completely revamping our product portfolio with a series of significant new product launches that positioned MSC to deliver enterprise simulation solutions."

PTC's total revenue for 2006 was $884 million, up almost 19% from the $744 million in 2005. Net earnings for the year were $60 million, down 16.5% from the $71.9 million in 2005.

USG's total revenue for 2006 was $1.218 billion, up 5.6% from the $1.154 billion in 2005. License revenue was $379 million, or 31% of total revenue, an increase of 5% compared to 2005. Maintenance revenue was $541 million, accounting for 44% of total revenue, a rise of 7.3% compared to 2005. Services revenue was $298 million, accounting for 24.5% of total revenue, which was 2.4% above 2005.

Year-over-year revenue from Americas was up 2%, from EMEA up 7% and from Asia up 10%.

Net loss for the year was 10.4 million compared to a net loss of $10 million in 2005. EBITDA was $297 million up 23% from the prior year.

Stock Prices for Calendar 2006

MCAD versus EDA 2006

The detailed quarterly performances of a selected group of public EDA Vendors has been provided in the authors' February 2007 EDA Commentary recently published on EDACafe.

The 2006 revenue from the top three MCAD vendors was $4.5 billion, 33% more than the revenue from the top three EDA vendors. Net earnings for the top 3 MCAD firms were 8% higher than the earnings for the top 3 EDA companies. Note that UGS' net loss is largely due to financing the debt incurred in the leveraged buyout. Top 3 MCAD earnings were 5.2% of revenue, while Top 3 EDA earnings were 6.3% of revenue.

Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end-user purchases of the latter MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.

The comparison of earnings across the two industries is also difficult general due to a plethora of one-time charges associated with acquisitions. The earnings comparison for UGS is further complicated by purchase accounting adjustments related to its Venture Capital buyout from EDS.

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 MCADCaf?.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.

The combined worldwide total annual revenue of these companies is over $6 billion, not an insignificant sum. But it is, in fact, less than 3 percent of the >$200 billion spent annually on all types of software (source IDC). 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, 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.

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 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 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 considered the revenues from the remaining public companies (ANSYS, ESI Group, Moldflow, and MSC.Software) to be 100% MCAD.


Comments? Feedback? Tell us what you think about this topic, or share any additional information you may have on the subject! Submit your comments to: Email Contact

About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on 'both sides' of both MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. A Professional Engineer, Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented at COFES2006 in Scottsdale, AZ. In February 2007, Dr. Henke added to HENKE ASSOCIATES an affiliation with Cyon Research Corporation.

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this March 2007 MCAD Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDAcafe Weekly.

Since May 2003 the authors have now published a total of fifty-one (51) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafè and EDACafè. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at