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In the first MCAD Industry Commentary published May 2003 in MCADCafé.com, 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 Commentary was followed by four quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The entities covered are ANSYS, Autodesk, Dassault Systèmes, UGS PLM, ESI Group, Moldflow, MSC.Software, PTC and Tecnomatix. The current article in the sequel recounts the financial performances for the nominal second quarter of calendar 2004. Waiting for the announcement of 2nd quarter financials for MSC.Software allowed the authors of this issue of the MCAD Commentary to include actual results for Autodesk for its quarter ending July 31, 2004. Thus there will be no need this time for an Autodesk MCADcafe supplement. MCAD Vendors' Financial Performances in Q2 2004 We visit here the recent financial progress of the same group-of-nine MCAD vendors covered in earlier MCAD Commentaries. For the second quarter of 2004, Table 1 reveals that the group's combined revenue was up nearly 16% from the same period last year, but it was virtually flat sequentially. (Since MSC.Software will not present its results for the quarter until an internal audit is completed, MSC's numbers are not included in this quarter's results). All MCAD vendors grew revenues relative to their respective second quarters last year. Leaders in year-over-year growth were Moldflow at 54%, Autodesk at 32% and ESI Group at 31%. PTC was the only vendor to have less than double digit growth. On a sequential quarter-to-quarter basis, ESI Group and Autodesk were decliners and only Moldflow managed to exceed 10% growth in revenue.  Table 1 Quarterly Revenue of MCAD Vendors
(Millions; U.S. $ except as indicated)
 Figure 1 Quarterly Revenue of MCAD Vendors
(Millions; U.S. $)
Figure 1 provides a bar graph showing the revenue trend for each covered vendor, for the periods mentioned in Table 1.  Figure 2 Relative Sizes by Revenue
(Graph excludes MSC.Software)
Figure 2 is self-explanatory. As mentioned above, MSC.Software did not report results for the quarter, so MSC's slice of the pie is missing. In the previous quarter, MSC had ~6% of the total revenue. While all the vendors in this report are part of the MCAD industry, they both overlap and complement one another. In some cases one vendor OEM's or sells the product of another. Hence Figure 2 shows relative size by revenue rather than market share percentage. The vendors also have different business models according to which various percentages of end user sales are reported as revenue. Autodesk also has significant revenue outside MCAD in AEC and GIS.  Table 2 Quarterly earnings of MCAD Vendors
(ESI does not report quarterly earnings)
Table 2 reveals that the reporting group totals suffered a sequential earnings reduction quarter-to-quarter, but showed an improvement over last year at this time. The large swings in earnings at PTC and UGS PLM are due to one-time events. Dassault Systèmes had 22% increase sequentially and 33% year-over-year. Details on Individual Vendor Performances On July 29, 2004 ANSYS Inc. announced its results for the second quarter. Total revenue was $32.0 million, up nearly 16% compared to $27.6 million in the second quarter of 2003 but up only a more modest 2.1% from the prior quarter. Software revenue was essentially flat sequentially. Net income for the quarter was $7.6 million, a 70% growth year-over-year and a 6% growth sequentially. On June 1, 2004 ANSYS and Autodesk announced that Autodesk will license ANSYS simulation technologies and package them as an integral part of the Autodesk Inventor Professional. This could be seen as a response to SolidWorks' partnership with SRAC for CosmosWorks. The difference of course is that SRAC is now a division of SolidWorks. Jim Cashman, ANSYS President and CEO, stated, "We are extremely pleased to report strong revenue, operating margins, earnings per share and cash flow results for the second quarter and first half of 2004. Over the past several quarters, the Company has worked hard to integrate our diversified product and service offerings, grow sales and continue to improve operational efficiencies, and we are clearly seeing the results of everyone's efforts." On August 5, 2004 ANSYS announced that its Board of Directors has approved a 2-for-1 stock split of the Company's common shares. The stock split will be in the form of a stock dividend to be distributed on October 4, 2004 to holders of record at the close of business on September 3, 2004 On August 19, 2004 Autodesk, Inc. announced financial results for its second fiscal quarter that ended July 31, 2004. Net revenues for the current quarter were $280 million, beyond the 3-month old guidance of $260 to $270 million, and a 32 percent increase over $212 million reported in the second quarter of the prior year, but it was down 6% from $298 million in the prior quarter. Net income was $39 million, including a $4 million pre-tax restructuring charge. This is a 20% year-over-year income growth from $32.6 million last year that included a one-time tax benefit of $19.7 million, but it was an 8% income drop from the prior quarter. Pro-forma income of $42 million compares to $12.9 million last year. Autodesk license revenue (85% of total revenue) was up 30% from the same period a year ago, but it was down 8.5% sequentially. Maintenance revenue (15% of total) was up almost 46% year-over-year and 10% sequentially. Autodesk's revenue in the two most relevant segments is shown below in Table 3:  Table 3 Performance of Key Autodesk Segments
Platform includes AutoCAD and AutoCAD Light that service multiple markets. Other segments are Building, Infrastructure and Discreet.  Table 4 Autodesk Performance by Geography
Table 4 shows that Autodesk's revenue performance is relatively consistent percentage-wise across geographies. "Autodesk had an outstanding quarter by all measures," said Carol Bartz, Autodesk chairman and CEO. "We are executing on all fronts. Our products are strong and the market is responding to their quick implementation, ease of use and fast return on investment." On July 29, 2004 Dassault Systèmes announced results for the second quarter. Total revenue was €192.5 million, up 6% as reported and up 8% in constant currencies. Dassault's 3-month old guidance was for 2nd quarter revenues of €180 to €185 million. Software revenue of €159 million was up 5% as reported and up 6% in constant currencies. PDM revenue (Enovia and Smarteam) was up 11% as reported and up 13% in constant currencies. PDM end-user software revenue totaled US$35.2 million in the second quarter of 2004. Design-centric revenue was up 19% as reported (up 26% in U.S. dollars). Service revenue, representing 17% of total revenue, increased sharply reflecting work on the 7E7 project with Boeing, and an increase in PLM projects in general, including a number of projects focused on best practices. Net income for the quarter was $43 million, an increase of $7.7 million or 22% sequentially and an increase of $10.8 million or 33% year-over-year. "Dassault Systèmes has delivered another good quarter. Our strong performance has solid and consistent underpinnings. In the design-centric market, SolidWorks continues to offer the compelling benefits of its software solutions to 2D users migrating to 3D, as illustrated by its 26% revenue growth in U.S. dollars. Our PDM business, with 13% revenue growth (in constant currencies), constitutes one of the key elements of our integrated V5 PLM offer which aims to increase innovation by creating a truly collaborative environment for Product Lifecycle Management," commented Bernard Charles, President and Chief Executive Officer of Dassault Systèmes. On June 10, 2004 ESI Group reported results for its first fiscal quarter of 2004, which ended on April 30, 2004. Total revenue was 13.6 million, up 24% year-over-year but down 25% from the seasonally strong fourth fiscal quarter. License revenue (78% of total revenue) grew 35% to 10.6 million. The license renewal rate was 90%. Consolidated Q1 sales broke down as follows: Europe: 39%; Asia: 45%; and America: 16%. Q1 sales were positively affected by acquisitions, which accounted for 17% of sales growth. Organic growth amounted to 7% (including 12% for license revenues), versus a 2% drop in Q1-2003. This growth amounted to 10% at constant perimeter and exchange rates, compared with 4% in Q1-2003. As of April 30, 2004, sales generated abroad accounted for 84% of total sales. The seasonal skew of quarterly sales is expected to continue in 2004 as in the previous years. Alain de Rouvray, Chairman and CEO of ESI Group, stated: "Sales in the first quarter of FY2004/05 confirmed our cautiously optimistic forecast that business is on the upturn, expecting a double-digit growth, while we will remain focused on profitability restoration." On August 3, 2004 Moldflow Corporation announced results for its fourth quarter of fiscal 2004 which ended on June 30, 2004. Total revenue was $15.4 million, up 54% from the $9.9 million in the same quarter last year and up 15% sequentially from $13.3 million. Moldflow's 3-month old guidance was for fourth fiscal quarter revenues of between $14.1 and $14.7 million. Actual product revenue of $9 million (60% of total revenue) was up 90% and 20% respectively. On a regional basis, revenue from the Americas represented 35% of Moldflow's total revenue, while revenue in Europe and the Asia Pacific regions represented 32% and 33% of total revenue, respectively. In total, 91 new customers were added during the quarter. For the fiscal year, total revenue was $48.7 million up 33% from $36.5 million in fiscal 2003. Net income was $2.6 million versus a net loss of $118 thousand last year. During the quarter Moldflow announced MoldflowXpress, a new entry-level plastics design validation tool that will ship in August 2004 with SolidWorks 2005 In January of 2004, Moldflow acquired privately-held American MSI Corporation who had $9 million in annual revenue. Roland Thomas, president and chief executive officer of Moldflow said, "Once again, I am pleased to report quarterly and annual results that reflect a strong operating performance highlighted by significant year-over-year growth in both revenues and profits. We executed on our plan and benefited from the continuing positive global economic growth and expansion in our end markets" On July 1, 2004, MSC.Software Corp. announced preliminary second quarter results and also announced the completion of the settlement terms set forth under the agreement with the FTC in October 2002. At that time, MSC expected total revenue for the 2004 second quarter to be in the range of $65 - $67 million and diluted earnings per share would be in the range of breakeven to $0.03, including $0.03 in legal fees associated with an ongoing independent audit review. The Company had previously provided guidance for the second quarter of revenue between $65 - $70 million, and EPS between $0.06 - $0.08. However, on August 11, 2004, MSC.Software Corp. announced only the current status of the independent review led by the Company's Audit Committee. According to the company's quarterly press release "During this process, the Company's Audit Committee, with advice from outside legal counsel and independent accountants, determined that, in addition to the previously disclosed restatement of certain elements of the Company's financial statements, the Company's revenue for the periods subsequent to January 1, 2001 should be restated to reflect adjustments to the timing and allocation of revenue. Furthermore, the Company is taking appropriate action to strengthen its internal financial controls. The Company believes that the primary impact of the restatement of revenues will be adjustments to the timing and allocation of revenue for paid-up software contracts between recognized software license revenue and deferred revenue. The Company also believes that the periods in which revenue is recognized may change, positively or negatively, from amounts previously reported and that this restatement will have no impact on the Company's cash or cash flow for any of the restated financial periods. The Company believes that the restatement will be completed in the next several months. Upon delivery of the restated numbers to the independent auditors and completion of their audit, the Company will file its Form 10-K for the year ended December 31, 2003 and its Form 10-Q's for subsequent quarters. No estimate can be given regarding the exact timing of the completion of the internal review or the restatement process. No assurances can be given that additional revisions will not be required. Since the Company is unable to quantify the exact impact of the restatement on its financial results at this time, the Company will delay the full release of second quarter results and the Company's published financial statements and guidance should not be relied upon." MSC.Software stock dropped about 20% in the days following the announcement of a delay in quarterly conference call. It has rebounded somewhat in recent days. On July 21, 2004 PTC announced its results for its third quarter of fiscal 2004, the period ending July 3, 2004. Near the upper end of its 3-month old guidance, total PTC revenue was $168 million, up 2% both sequentially and year-over-year. Nearly 90% of license revenue ($52.4 million) was from existing customers. As shown in Table 5, total PTC design solutions revenue for the third quarter was $121.6 million, down 1.1% compared to $123.0 million in the second quarter. Design solutions license revenue was $35.9 million, down 5.6% from $38.0 million in the second quarter due to fewer large transactions. In the quarter 3,750 seats were sold bring the total to 310,450 at 38,266 customers. Total Windchill revenue in the third quarter grew 12% sequentially to $46.8 million, from $41.7 million in the second quarter. Windchill license revenue was $16.5 million, up 27% from $12.9 million in the prior quarter and up 56% year-over-year. Windchill Link solutions license revenue represented 44% of overall Windchill license revenue. Windchill ASP was $1,632. In the quarter 10,100 new seats were sold bring the total to 288,600 at 1,332 customers. Improved revenue performance from consulting services and maintenance contracts also contributed to the total Windchill growth during the quarter.  Table 5 PTC Revenue by Sector ($000)
Net PTC income for the quarter was $16.1 million, compared with a net loss of $33.8 million in the year-ago period. On a sequential basis, net income improved from $3.2 million. The third quarter net income includes restructuring charges of $3.5 million, compared with restructuring and other charges of $15.1 million in the year-ago period, and restructuring and other charges of $16.7 million in the second quarter of 2004. "Solid execution has resulted in significant earnings improvement and a return to year-over-year revenue growth," said C. Richard Harrison, president and chief executive officer. "The work we've done to bring exciting new products to market, combined with significant restructuring of our distribution and services delivery models, has enabled us to improve our third quarter net income by nearly $50 million year-over-year. We are proud of this performance and of the dedication of PTC employees who helped achieve these results." On July 28, 2004 Tecnomatix Technologies Ltd. announced its financial results for the second quarter. Revenues for the second quarter of 2004 were $24.2 million, up 20% compared to $20.2 million for the second quarter of 2003 and up just over 1% sequentially. Net income was $353 thousand, up 106% from the same period last year and nearly 8% from the prior quarter. "The second quarter was a period of very solid performance for Tecnomatix, where we accomplished our strategic and financial goals," said Jaron Lotan, president and chief executive officer of Tecnomatix Technologies Ltd. "This is the third sequential quarter that we are reporting year-over-year growth in revenues, and another quarter that we are reporting year-over-year growth in operating and net profits. In addition, we continue to report a positive cash flow from operating activities. These results are mainly attributable to continued strength in the Automotive sector, continued improvement in the Electronics sector, and growing sales momentum in the Automotive Tier-1 Supplier sector." UGS PLM Solutions Back on March 14, 2004, a private equity group of Bain Capital, Silver Lake Partners and Warburg Pincus announced it has reached a definitive agreement with EDS to purchase UGS PLM Solutions, EDS' product lifecycle management subsidiary, for $2.05 billion in cash. The transaction, in which each private equity firm is an equal investor, represents the largest private equity investment ever made. During EDS's ownership, EDS reported only UGS' total revenue in constant currency and operating income. However, this quarter UGS gave considerable insight into its prior financial performance, as shown below.  Figure 3 UGS Historical Performance
On July 26, 2004, UGS reported its own financial results for the second quarter. Total revenue of $236.2 million was an 11% growth over the same period a year earlier but flat sequentially. The components of the revenue were software at $70 million, maintenance at $106 million and service at $61 million. Software and service revenue grew about 13% year over year, while maintenance grew 9%. Sequentially maintenance and service had modest growth, while software dipped 4%. For the last six months UGS reported revenue of $470.9 million or 13% growth as compared to the same period a year earlier. During the 2nd quarter the company signed 20 contracts valued at greater than $1 million each. The company also launched the UGS Partner Program, a completely redesigned partnership program uniting the company's more than 300 business partners worldwide under a common, integrated structure. Net income for the quarter was a loss of $33.3 million which included an in-process research and development charge of $43.7 million and about $5 million in additional acquisition related expenses. In the previous quarter, UGS had net income of $25.5 million and a net loss of nearly $18 million in the same period last year. On an EBITDA basis, UGS reported $52.4 million, down 8% sequentially but up 22% year over year. UGS recently completed the acquisition of D-Cubed Ltd, a Cambridge, England-based supplier of embedded component software technology used by many leading computer-aided design, manufacturing and engineering analysis (CAD/CAM/CAE) application developers. In particular, D-Cube provides 2D and 3D constraint management software that supports variational sketching, part shape modification and assembly positioning. The firm also offers motion simulation, interactive collision detection and clearance measurement and hidden line view creation. These are core capabilities for their OEM customers. This acquisition coupled with its Parasolid kernel modeler makes UGS the clear leader in CAD component technology. The only other major player is Spatial, a subsidiary of Dassault Systèmes, with its ACIS kernel modeler. While most of the leading CAD companies have their own modeling technology, they rely on D-Cubed for constraint management. Autodesk that had been using ACIS from Spatial, struck out on its own with ShapeManager based upon ACIS 7. D-Cubed had been helping with this effort. John Owen, Managing Director of D-Cubed, sent a letter in early June to D-Cubed customers assuring them that "agreements with D-Cubed regarding the products and services we provide will not be affected in any way by this transaction." "The second quarter was a landmark quarter for UGS in several ways, most notably with our launch as an independent software business in partnership with our new sponsors, and one of significant strategic achievement across the board," CEO Tony Affuso said. "We are extremely enthusiastic about our prospects for continued long-term growth as more leading organizations realize the value of PLM as a true enterprise strategy." Stock Performances  Table 6 Stock Prices of MCAD Vendors
(UGS is not publicly traded)
 Table 7 Stock Market Indices
Combined MCAD vendor stock performance way outperformed the major stock markets, growing nearly 60% year-over-year versus only 26% for the tech heavy NASDAQ and ~17% for the DOW and S&P. (See Tables 6 & 7 above). At 66%, Autodesk stock grew at more than twice the rate of its nearest rival PTC. Ansys (+50%), Dassault Systèmes (+43.8%) and MSC.Software (+32%) all had stellar year-over-year growth. While the sequential quarterly performance was not as spectacular, the MCAD vendors once again far outpaced the indexes. Only Tecnomatix declined in the quarter. Autodesk (+36%) and ANSYS (+18%) led the pack.  Figure 4 Stock Prices of MCAD Vendors
Guidance for next quarter  Table 8 Forecast of MCAD Vendors for 2Q Calendar 2004
Table 8 reveals that the MCAD vendors are optimistic about revenue growth in the next 2004 quarter relative to the same quarter in 2003. All are predicting increases and only PTC is forecasting less than double digit growth. Moldflow (+46%) and Tecnomatix (+40%) are the most positive. The MCAD vendors were more cautious about revenue projections relative to their most recent quarter. The third quarter is usually down due to vacations in Europe. Only Tecnomatix is predicting any significant growth. ESI Group is forecasting a decline of 18%. ANSYS currently projects that full year GAAP diluted earnings per share will be in the range of $1.75 - $1.79 and adjusted diluted earnings per share will be in the range of $1.90 - $1.94. Management previously forecasted adjusted diluted earnings per share in the range of $1.76 - $1.80 for 2004. Industry analysts estimate revenue in the next quarter to be ~$32 million. The approximate $0.15 difference between the GAAP diluted earnings per share estimate and the adjusted diluted earnings per share estimate discussed above includes an estimated $0.14 related to acquisition-related amortization and $0.01 related to the purchase accounting adjustment for acquired deferred revenue. Autodesk expects net revenues for the traditionally down third quarter of fiscal 2005 to be approximately flat with the second quarter of fiscal 2005 or $280 million, versus $234 million last year. Pro-forma earnings per diluted share for the third quarter of fiscal year 2005 are also expected to be approximately flat with the second quarter. GAAP basis earnings per diluted share are expected to be $0.31 versus $0.20 last year. "We continue to see strong demand across all industry groups and all geographies. There have been some recent mixed signals in the economy. However, we are not seeing any slowdown in our business. … We expect a robust upgrade cycle in the second half, particularly as we approach the retirement of AutoCAD 2000i family of products in January 2005. Our current revenue forecast is well beyond expectations at the beginning of the year." Net revenues for the fourth quarter of fiscal 2005 are expected to be in the range of $310 million to $320 million versus $295 million in fiscal 2004. Earnings per diluted share for the fourth quarter of fiscal year 2005 are expected to be in the range of $0.49 to $0.53 on a GAAP basis and $0.51 to $0.55 on a pro-forma basis. Expenses in Q4 are expected to include $24 million in bonuses and sales accelerators. For 2005, annual revenue is expected to be in the range of $1.167 billion to $1.177 billion versus earlier estimates of approximately $1billion. This would be about a 22% rise in revenue over fiscal 2004. Earnings per diluted share for the full year are expected to be in the range of $1.48 to $1.52 on a GAAP basis and $1.60 to $1.64 on a pro-forma basis. Restructuring charges for the year are expected to be approximately $24 million of which $15 million has already been incurred. Dassault Systèmes President and CEO Bernard Charles stated "We are seeing signs of higher demand and renewed growth as companies are increasing their investments in an expanding PLM market. We are entering the second half of the year with good visibility and a high level of confidence based upon discussions with customers and sales channels. We are raising our 2004 growth objectives for revenue, operating income and earnings to reflect our higher than anticipated second quarter results." "We are increasing our 2004 growth objectives for revenue and EPS before acquisition costs to reflect the higher than anticipated level of activity in the second quarter. Our revenue growth objective is about 9% in constant currencies, and our EPS before acquisition costs objective is 13% to 15% growth in constant currencies," added CFO Thibault de Tersant stated. "For the purposes of calculating reported revenue, operating margin and EPS objectives, we are maintaining our previous assumption of a U.S. dollar to euro exchange rate of $1.25 per 1.00 leading to a reported revenue objective of about 795 million, up from 785 million and an EPS before acquisition costs objective of about 1.33 - 1.35 for 2004, up from 1.30 - 1.32.previously." "Based upon our first half results and second half outlook, our operating margin before acquisition costs is likely to be slightly better than our 2003 operating margin of 29.0%. Our revenue objective for the third quarter is about €183 - €188 million, based upon a U.S. dollar to Euro exchange rate of $1.25 per €1.00," Thibault de Tersant concluded. Alain de Rouvray, Chairman and CEO of ESI Group, stated: "Sales in the first quarter of FY2004/05 confirmed our cautiously optimistic forecast that business is on the upturn, expecting a double-digit growth, while we will remain focused on profitability restoration." Based on current visibility, Moldflow expects revenue for the first fiscal quarter of 2005 to be between $13.6 million and $14.1 million compared to $15.2 million in the quarter just completed and $9.5 million in the first fiscal quarter of 2004. For the same period, net income per diluted share is expected to be in the range of $0.04 to $0.07. For the full fiscal year 2005, Moldflow expects revenue between $60.0 million and $63.0 million, with expected net income per diluted share from $0.52 to $0.57. This compares to $48.7 million in fiscal 2004. CEO Roland Thomas said, "As we look forward to fiscal 2005, we anticipate continued increases in capital spending in our markets as manufacturers around the world continue to seek technologies and tools to give them a competitive advantage. Our financial focus will be on profitable growth and increasing our strong cash position to allow us to be acquisitive when the proper opportunity presents itself." MSC.Software stated that "Since the Company is unable to quantify the exact impact of the restatement on its financial results at this time, the Company will delay the full release of second quarter results and the Company's published financial statements and guidance should not be relied upon." The company's global sales pipeline, which is the sales management and revenue-forecasting tool that tracks potential customer contracts and engagements, grew to an all time high of $293 million (Americas $122 million, Europe $76 million and Asia Pacific $95 million). PTC's revenue forecast for the fourth quarter of fiscal 2004 is between $165 million and $172 million versus $168 million last quarter and $164 million a year ago. Total operating expense is expected to be approximately $145 million. The Company expects earnings per share on a GAAP basis to be between $0.05 and $0.08. CEO Richard Harrison commented "We have shown steady improvements in our financial and operating results and have performed well in each quarter of Fiscal 2004 to date. We are on track to achieve our longer-term goal of operating margins in excess of 20%. I am confident in our ability to grow our revenue to reach this goal by leveraging our industry-leading solutions in the growing PLM market, and by focusing on strategic corporate development opportunities." Oren Steinberg, chief financial officer and executive vice president of Tecnomatix Technologies said, "We continue to make steady progress in improving our financial performance and creating value for our shareholders, as we gain sales momentum in our key markets and leverage our cost efficiencies. Based on our current plans and visibility, we expect to achieve revenue growth of approximately 15%-20% for the full year 2004 over 2003, with improved profitability on a quarterly basis." UGS provided no guidance.
Industry Analysts View of PLM Some analysts consider MCAD vendors to be subsets of a larger market segment called Product Life Cycle Management (PLM). In recent press releases, the industry analyst firm Daratech forecast that end user spending on Product Life Cycle Management software and services will top $8.65 billion in 2004, representing growth of 5% over 2003. Daratech further forecasts the PLM market will grow at an annual rate of approximately 8% through 2008. Projected to lead the PLM market in end user spending in 2004 are Dassault Systèmes ($2.06 billion), UGS ($1.15 billion), PTC ($911 million) and Autodesk ($515 million). This year's forecast growth leaders are Autodesk (17%), Tecnomatix (15%), ANSYS (12%), Dassault (12%) and MatrixOne (12%). End user spending is the sum of vendor revenue and partner revenue. Some firms such as UGS and PTC sell software mainly through direct sales, while others like Dassault Systèmes and Autodesk sell through third parties. PLM services are often rendered by ISVs like IBM, EDS, and Accenture. These services account for a significant percentage of total revenue but their revenues are very difficult to determine. Daratech considers PLM to encompass CAD, CAM, Digital Prototyping, CAE, PDM and DMPM (Digital Manufacturing Process Management). The graph below in Figure 5 shows the company's forecast for Digital Prototyping and Simulation (CAE) and Product Data Management (PDM) as well as PLM. The two segments each comprise more than 25% of the total. CAD still accounts for the majority of the revenue.  Figure5 Daratech PLM Forecast
Daratech's forecasts end user spending on product data management technology to increase a moderate 1% in 2004 to $1.73 billion, but then to rebound strongly in 2005. It further projects end-user spending on PDM technologies will expand at a compound annual growth rate of 12% through 2008 to $2.7 billion. Daratech research reveals investment in CAE software and services will top $2.1 billion in 2004, a substantial year-over-year increase of 12%. CIMDdata, another analyst firm tracking the PLM industry, issued a press release on August 17, 2004 in which Ken Amann, Director of Research, is quoted as saying "The 2003 overall PLM market grew by 4% over 2002 to approximately $14 billion. Of that, approximately 67% or $9.5 billion was invested in Authoring and Analysis Tools while 33% or $4.6 billion was invested in cPDm. Both PLM segments grew in 2003, with cPDm investments increasing more rapidly with a growth of approximately 9% over 2002." CIMdata projects that the PLM market will have CAGR of 8% and exceed $20 billion in 2008 with more than half the revenue coming from Authoring and Analysis tolls, e.g. CAD and CAE. CIMdata also noted that investments in cPDm software increased from $1.64 billion in 2002 to $1.94 billion in 2003 and comprised 42% of the total cPDm market of $4.6 billion. cPDm services investments grew to $2.6 billion, up from $2.5 billion in 2002 and represented 58% of the 2003 cPDm market. CIMdata predicts that cPDm to be the fastest-growing segment of the PLM market with a 14+% CAGR that will reach $9 billion in 2008 with services accounting for more than $5 billion. While the two analyst firms agree on future CAGR they differ significantly on the size of the PLM market in 2003. Daratech puts end user spending on PLM software and services for 2003 at $8.24 billion versus a $14 billion estimate by CIMdata. This is likely a matter of definition. CIMdata's figures, confirmed by John MacKrell, a senior consultant there, includes ECAD, CASE (Computer Aided Software Engineering) and Technical Publishing and Document Management (Filenet, Documentum), although most of the CIMdata publications deal only with mechanical industry. The authors of this MCAD Commentary reported $3.6 billion in direct revenue for the top nine publicly traded MCAD companies and $3.2 billion in revenue for the top nine EDA vendors in 2003 based upon the firms' financial reports. Commentary on Macroeconomics & GeopoliticsIn May 2004 the authors of today's August 2004 MCAD article published a Commentary (http://www.MCADcafe.com/magazine/commentary_20040510.php) in which then-current macroeconomics and geopolitical issues were discussed, to better understand the worldwide environment in which the EDA, IP and MCAD industries are operating.In that May 2004 Commentary, and in previous such commentaries, the authors suggested that the underlying macroeconomic conditions were in fact not conducive to a sustained economic recovery. In May 2004, the authors worried that the prior spurt of increased non-farm US payroll jobs could not be sustained, and that the US stock markets would eventually reflect those declines. Alas, recent history unfortunately bears us out. On August 6, 2004, the latest monthly jobs figures were published by the US Labor Department. July 2004 saw only 32,000 new jobs created, the fourth consecutive month of declines in that all-important indicator (see Figure 6 below).  Figure 6 Change in US Non-farm Payrolls (thousands)
"This is the second month in a row that we have had a number much weaker than expected and they have revised down the trend. That is a really bad sign," said Robert Brusca, chief economist at FAO Economics. Hiring slowed across most industries in July 2004 to the lowest percentage of the year. Meanwhile, the major stock market indices reflected the ongoing malaise. CBS MarketWatch from August 6, 2004 reported, "Stocks slammed by employment data - July jobs growth about 200,000 below expectations". Previously-published May and June jobs numbers were also revised downward by a cumulative 61,000 as well. On August 6, 2004, the NASDAQ plunged below 1800 for the first time since October 2003 to its lowest close (1777) since August 26, 2003. The Dow Jones Industrial Average (DJIA) closed on August 6, 2004 at 9815, its lowest level since November 28, 2003. Were the (a) steep downslide in new job creation, and the (b) slump in stock markets, the only bad news in the last three months since May 2004? Unfortunately, no. Here are a few more tidbits: "This year's federal deficit will soar to a record $445 billion, the White House projected on July 30, 2004. (This is) contrasted with the $262 billion surplus that (President) Bush projected for this year (back) in 2001 when he was persuading Congress to approve the first of his tax cuts." (AP News, July 31). "The US economy slowed dramatically in the spring to an annual growth rate of 3 percent, as consumers, worried about higher gasoline prices, cut back their spending to the weakest pace in three years, the Commerce Department reported." (AP News, August 1, 2004). "The Empire State Manufacturing Index plunged to 12.6 in August from a revised 35.6 in July, the biggest monthly drop since October 2002." (CBS MarketWatch, August 16). "The Conference Board said its index of leading economic indicators fell again in July, the second straight decline. The share of workers who have exhausted their unemployment claims without locating a new job remains high, at about 42 percent. Long term unemployment has been particularly insidious during this business cycle. In July, 1.7 million, or 20 percent, of the 8.2 million workers classified as unemployed had been out of work longer than six months." (CBS MarketWatch, August 19). "Runaway oil prices, which briefly punched to an all-time high in New York (on August 20), are pounding the US economy just 10 weeks ahead of presidential elections, analysts warned. After spiking at an all-time high 49.40 dollars a barrel, the benchmark light sweet crude contract for September delivery closed at 47.86 dollars, down 84 cents on the day. Crude oil prices are up 47 percent since the start of this year. Said Lehman Brothers chief US economist Ethan Harris, "A negative dynamic has developed between the economy, the stock market and corporate confidence in the outlook." While short of a disaster, it was "troubling" that the economy had hit a soft patch just when momentum should be growing," he said. Lehman Brothers cut its forecast for economic growth in the third quarter of this year to 3.3 percent from 3.7 percent." (AFP News, August 21). Well, those tidbits give you the idea… The May 2004 Commentary may be worth your reading once again. Do you think geopolitical and macroeconomic conditions have improved in the last three months? We don't think so! ####
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: MCADCafe-Editor@ibsystems.com. About the Authors Since 1996, Dr. Russell F. Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. During his corporate career, Henke operated sequentially on "both sides" of 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. 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 Fellow of ASME International. An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this article. Jack's career included executive positions at Applicon, Aries Technology, CADAM, and MicroCadam as well as a stint at IBM. Since May 2003 the authors have now published a total of twenty (20) articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net. |
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