MCAD Industry View - A SEPTEMBER 2008 Update
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MCAD Industry View - A SEPTEMBER 2008 Update


MCAD Industry View - A SEPTEMBER 2008 Update

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

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 MCAD Commentary was followed by twenty-one quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The entities covered were ANSYS, Autodesk, Dassault Systèmes, 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.

On May 7, 2007 UGS announced the close of its acquisition by Siemens AG effective May 4. Thereafter, the business went to market as UGS PLM Software, a global division of the Siemens Automation and Drives (A&D) Group. Over the years UGS has bounced back and forth between being a public company and a private company under different ownerships. Although not required to do so, UGS has frequently reported on its financial results even when privately held. For the first quarter of 2007 there was only this terse statement from Tony Affuso, chairman and CEO of UGS PLM Software, “We had a very strong quarter in Q1, coming in near 11 percent on total revenue growth and 16 percent on software license growth.” This translates to about $300 million. According to a company spokesperson at the time, UGS would no longer report results separately from Siemens, a very common practice with large corporations. In the first quarter of this year, the entire A&D Group generated €3.9 billion of the €20.2 billion total Siemens revenue. Regrettably, we can expect very little insight into UGS performance itself from public Siemens' reports going forward.

On June 25, 2008 Autodesk completed its acquisition of Moldflow Corporation, so now Moldflow must be eliminated here from separate coverage.

Accordingly, this twenty-second MCAD Industry article in the sequel recounts the financial performances of the remaining group-of-six (G6) MCAD/PLM entities for the nominal second quarter of 2008.

Recent MCAD & PLM News Highlights

On August 25, 2008, ANSYS announced that preliminary performance data for its software running on Microsoft Windows HPC Server 2008 would be highlighted during the 2008 International ANSYS Conference held in Pittsburgh, Pennsylvania in late August. The preliminary data showed substantial performance gains when running software from ANSYS on the new Windows operating system.

On August 20, 2008 Autodesk announced it is adopting a new Flexible Software Delivery model for AutoCAD software, the company's 2D and 3D computer-aided design (CAD) application. Autodesk says it is the first company in the CAD industry to introduce this particular software development and delivery model. Autodesk hopes to increase customer satisfaction and subscription value by providing AutoCAD customers with earlier access to new features, delivered on demand, and provide them with the flexibility to choose which features to install and use.

On June 17, 2008 Dassault Systèmes (DS) announced an agreement in which DS would acquire Engineous Software. This acquisition will presumably extend DS SIMULIA's capabilities in providing Simulation Lifecycle Management solutions on the V6 IP collaboration platform. The proposed acquisition is for an estimated price of US$40 million.

On August 20, 2008 ESI Group announced the release of VA One 2008.0. VA One is a complete solution for simulating noise and vibration across the full frequency range. It seamlessly combines Finite Elements, Boundary Elements, and Statistical Energy Analysis (SEA) in ONE model. This second major release of VA One in 2008 is said to comprise over 40 major enhancements across all modules.

On September 2, 2008, MSC.Software announced that Italian sports car manufacturer Lamborghini Automobili S.p.A. had selected MSC.Software's simulation solutions to assist Lamborghini's product development process. The new software is intended to bring enhanced reliability into the Lamborghini simulation process and allow its designers to increase the number of virtual prototypes to be performed, especially in the early phases of the development cycle. By doing this, engineers would presumably be able to simulate more reliably and reduce the need for physical prototypes.

Also on September 2, 2008, PTC announced that Nikon Precision Inc., a wholly owned subsidiary of Nikon Corporation and a provider of photolithography equipment, had selected PTC's Arbortext Product Information Delivery software to assist the editing and publishing processes of its service manuals. Using Arbortext, Nikon Precision intend to provide its field service technicians with up-to-date information to diagnose problems and perform maintenance & repair procedures.

MCAD Vendors' Financial Performances in Q2 2008

As a group, the G6 MCAD vendors generated combined revenues of $1.599 billion, an increase of nearly 20% from the $1.335 billion in the second quarter of 2007 and an increase of 5.6% from the $1.514 billion in the just prior quarter. ESI Group, Dassault Systemes, PTC and ANSYS in descending order reported year-over-year percentage revenue growth in excess of 20%. Autodesk was close behind with almost 18% revenue growth. On a sequential basis ESI Group was the only decliner at -44%. Dassault Systemes at 14% growth was the only G6 MCAD vendor with double digit sequential revenue growth for Q2. See Table 1.

Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 1.

For the quarter, Autodesk was the clear share leader at 39%, with Dassault Systemes in second place at 32%, followed by PTC at 17%. See Figure 2.

Table 2 reveals that the combined Q2 earnings of the G6 declined to $200 million, a significant reduction of 18% from the $244 million generated in the second quarter of 2007, but an slight increase of almost 2% over the just prior quarter. In Q2 2008, all G6 members reporting earnings showed net income. PTC suffered a significant drop in Q2 2008 earnings relative to last year, due primarily to a one-time tax benefit being recorded a year earlier. Autodesk and MSC.Software also saw a modest dip in earnings relative to the second quarter of last year. Autodesk and PTC slipped slightly in earnings this quarter compared to the just previous quarter. MSC.Software went from a small net loss to a small net gain.

Details on Individual Vendors' Q2 2008 Performances

On August 7, 2008 ANSYS, Inc. reported financial results for the second quarter, the period ended June 30, 2008. Total revenue for the quarter was $111 million, an increase of 20.6% from the $92.2 million in the second quarter of 2007, and an increase of 1.6% from the $109 million in the first quarter of 2008. Software license revenue was almost $74 million, accounting for 66% of total revenue. This was an increase of over 24% year-over-year and an increase of 0.4% from the prior quarter. Maintenance and services revenue was $37 million, 34% of total revenue, an increase of almost 15% from the year ago quarter, and increase of 4% sequentially.

On July 31, 2008 ANSYS announced that it had successfully completed the acquisition of Ansoft Corporation in a series of mergers for approximately 12.2 million shares of ANSYS common stock, including 1.9 million shares pursuant to assumed stock options, and approximately $387 million in cash, plus expenses. Dr. Zoltan Cendes, founder and Chief Technology Officer of Ansoft, will be a Chief Technology Officer with ANSYS, as well as a new member of the ANSYS board of directors.

Net income for the quarter was $28 million or 25% of revenue, a 54% increase from the $18.3 million in the same quarter a year earlier and an increase of almost 9% sequentially.

Jim Cashman, ANSYS President and CEO stated, "This quarter's results accentuate the momentum of recent quarters and the ANSYS multi-year trajectory. Even amid various geographic economic concerns, our diversified global reach, our resilient business model and our technical innovations continue to drive customer demand. With global competition, the growing need for energy efficiencies, and stricter environmental and regulatory mandates, customers are increasingly using simulation to realize their goals for innovative product development and value creation. These factors, coupled with the dedication and focus of the ANSYS team, continue to enable us to deliver on our commitments."

On August 14, 2008 Autodesk, Inc. reported financial results for the second quarter of its fiscal 2009, the period ended June 30, 2008. Total revenue for the quarter was $619 million, an increase of 18% from the $525 million in the first quarter of last year, and an increase of 3.5% from the $599 million in the previous quarter. License revenue was $440 million or 71% of total revenue, an increase of nearly 12% year-over-year, and an increase of almost 2% sequentially. Maintenance revenue was $179 million, or 29% of total revenue, an increase of 36% year-over-year, and a 7.6% increase sequentially.

The Platform segment, which accounted for about 43.5% of total revenue, includes AutoCAD and AutoCAD LT products that service multiple markets. Other segments are AEC (previously two segments: Building and Infrastructure) and Media/Entertainment (previously named Discreet). The Manufacturing segment (which includes the Inventor product lines) accounted for 21% of total revenue and grew 32% year-over-year and just over 10% from the prior quarter. A “guesstimate” of MCAD revenue would be about $250 million for the quarter.

Design segment revenues increased this quarter almost 19% over the second quarter of fiscal 2008 to $545 million, accounting for 88% of total revenue. Combined revenue from the Company's model-based 3D solutions, which includes Inventor, Revit, Civil 3D, NavisWorks, Robobat, and Moldflow, increased 36% over the second quarter of fiscal 2008 to $166 million and comprised 27% of total revenue for the quarter.

Excluding Moldflow, which was acquired during the quarter, model-based 3D solutions grew 31% to $159 million. Autodesk shipped approximately 36,000 commercial seats of its model-based 3D design products, including approximately 10,000 commercial seats of Inventor and 26,000 seats of its Architecture Engineering and Construction products -- Revit, Civil 3D, NavisWorks, and Robobat. In addition, revenue from 2D vertical products increased 16% compared to the second quarter of fiscal 2008.

Revenue from the 'emerging economies' increased 40% over the second quarter of fiscal 2008 to $114 million and represented 18% of total revenue. EMEA revenue was $267 million, an increase of 31% 'as reported' over the second quarter of fiscal 2008, and 15% at constant currency. Revenue in Asia Pacific was $150 million, an increase of 18% 'as reported' year-over-year, and 11% at constant currency. Revenue in the Americas increased 4% over the second quarter of fiscal 2008 to $203 million, despite continued economic headwinds.

Upgrade revenue and maintenance revenue combined increased 34% over the second quarter of fiscal 2008, to $238 million. Maintenance revenue increased 36% compared to the second quarter of fiscal 2008, to $180 million, or 29% of total revenue. Deferred maintenance revenue increased $14 million sequentially, and $132 million compared to the second quarter of fiscal 2008. Total upgrade revenue increased 27% compared to the second quarter of fiscal 2008.

On June 25, 2008 Autodesk completed its acquisition of Moldflow Corporation. The acquisition price was $22 per share, or approximately $297 million, less the amount in Moldflow's cash balance and proceeds from options exercises.

Carl Bass, Autodesk president and CEO, said, "We're very pleased that Autodesk was able to achieve another quarter of record revenue results. Our ability to serve diverse business segments globally with leading software design and engineering solutions drove our strong performance. The combination of a strong market position, industry and geographic diversification, a strong balance sheet, and excellent cash flow, positions Autodesk for continued success."

On July 31, 2008 Dassault Systemes reported financial results for the second quarter, the period ended June 30, 2008. Total revenue for the quarter was $509 million, an increase of 23.3% from the $413 million in the year ago quarter, and an increase of 14.2% from the $446 million in the previous quarter. Software revenue was $434 million, accounting for 85% of total revenue, an increase of 27% year-over-year, and an increase of 11% sequentially. New license revenue was 36% of software revenue, while recurring revenue was 64%. Dassault Systemes, a French company, reports its financial results in euros but provides average conversion factors to dollars for each quarter and year. These factors were used to calculate US dollar numbers. Revenue growth in terms of constant currency non-GAAP was 13%, which was the guidance given last quarter.

Revenue from North America at $150 million accounted for 29% of total revenue. This was an increase of over 18% year-over-year, and an increase of almost 10% sequentially. Revenue from Europe was $245 million, accounting for 48% of total revenue. This was an increase of 29% year-over-year, and an increase of 22% sequentially. Revenue from Asia was $114 million, accounting for 22% of total revenue. This was an increase of 19% year-over-year, and an increase of 5.3% from the prior quarter.

The Enovia brand, which includes Enovia, MatrixOne and SmarTeam, generated $68 million in the quarter, or 13% of total revenue. This was a 24% increase year-over-year, and a 22% increase sequentially. Note that MatrixOne was acquired in May 2006 for $410 million. Dassault has now combined SolidWorks and CosmosWorks into Mainstream 3D. This category generated $104 million, accounting for 20% of total revenue. This represented an increase of 23% year-over-year ,and an increase of 6.3% sequentially. CAD generated $197 million, or 39% of total revenue. This was up almost 32% year-over-year, and over 11% sequentially.

On July 21, 2008, DS completed the previously-announced acquisition of Engineous Software, a provider of process automation, integration and optimization. The acquisition is intended to extend SIMULIA's leadership in providing Simulation Lifecycle Management solutions on the V6 IP collaboration platform.

On July 1, 2008 DS spun off Dassault Systèmes Solutions France (DSF), its PLM sales division dedicated primarily to small and medium businesses in France, Belgium and Luxembourg, to become Keonys, a Dassault Systèmes Value Added Reseller. As part of Dassault Systèmes' plan launched in 2006 to build a PLM indirect sales channel, the creation of Keonys is consistent with the continuous strengthening of this channel comprised of a network of PLM resellers in more than 60 countries.

In a related move, on July 29, 2008 IBM announced it will significantly increase PLM resources by offering clients access to nearly 3,000 PLM practitioners across its software, services, research and development divisions, including:
  • Ten Global PLM Centers of Excellence.
  • A Dassault Systèmes and IBM focused International Competency Center.
  • A team of more than 2,000 PLM service consultants and technology experts.
  • A group of 60 PLM industry experts as part of IBM's research and development organization.
Net DS income for the quarter was $66 million, an increase of almost 30% from the $51 million in the same quarter a year earlier, and an increase of almost 13% sequentially.

Dassault's Board of Directors recently approved the voluntary delisting from Nasdaq. The delisting procedure will start in October 2008. From a reporting perspective, Dassault will continue reporting and publishing in US GAAP for the third and fourth quarters of this year. Commencing with 2009, however, DS will solely report and communicate in IFRS.

Bernard Charlès, Dassault Systèmes President and Chief Executive Officer, commented, “Dassault Systèmes had an excellent second quarter and first half reflecting the contribution of our PLM solutions to product competitiveness and innovation. In particular, we had an excellent dynamic in software across our leading brands with new wins and additional business in many of our verticals, including automotive, aerospace, high tech, energy, apparel and life sciences among others.

“We benefited from strong growth across our sales channels as we continue to focus on working closely together with our partners, improving our sales coverage and providing high value to our customers. In particular, our PLM Business Transformation channel delivered a strong performance this quarter thanks to IBM PLM as well as our direct sales force.”

On June 10, 2008 ESI Group reported financial results for its first quarter, the period ended April 30, 2008. Total revenue was 14.7 million euros giving organic growth of +12.0% on a constant exchange rate basis. The negative exchange rate effect impacted growth to the tune of -3.5%. Total revenue was up almost 9% year-over-over-year but down 48% from the previous month (the seasonally strong fourth quarter of fiscal year). License revenue was 10.8 million euros accounting for 73% of total revenue. This was a year-over-year increase of 3.8%. Services and other revenue were 3.9 million euros accounting for 27% of total revenue. This was almost a 26% increase from the previous year.

Each geographical zone on which ESI Group is positioned contributed to grow in a balanced way, leading to stability in the geographical breakdown of activity: 47% in Europe, 40% in Asia and 13% in the Americas.

In US Dollars total revenue was $22.9 million with license revenue contributing $16.8 million and services $6.1 million.

Alain de Rouvray, ESI Group's Chairman and CEO, concluded, “Recorded within an economic climate that remains agitated, the performances reported for our first quarter prove the solidity of our activity's organic growth. The ongoing dynamism of Services confirms the structural needs in terms of virtual prototyping and the increasing adoption by industry of our digital simulation technologies as well as methodologies, despite a visibility that remains low for the financial year as a whole.”

On August 5, 2008 MSC.Software Corporation reported the financial results for the second quarter, the period ended June 30, 2008. Total revenue for the quarter was $64.4 million, an increase of 6.1% from the $60.7 million in the second quarter of 2007 and an increase of 5.3% from the $61.2 million in the first quarter of 2008. Software revenue was $21 million, accounting for only 33% of total revenue, a drop of 8.3% year-over-year, and a drop of 4.1% sequentially. Maintenance revenue was $35.9 million, or a major 56% of total revenue. This was an increase of almost 13% year-over-year, and an increase of 8.8% from the prior quarter. Services revenue was $7.4 million, 11.5% of total revenue, an increase of 26% from the year ago quarter and an increase of 19.4% from the previous quarter.

The Americas accounted for 31% of total revenue, Europe for 38.5%, and Asia Pacific for 30%. Foreign exchange favorably impacted total revenue by $5.9 million in the quarter. Changes in the Euro increased EMEA revenue by $3.4 million, and changes in the Japanese Yen increased Asian revenue by $2.5 million.

On June 24, 2008 MSC.Software announced that it had acquired the MacNeal Group (tMG). The MacNeal Group was founded by Dr. Richard MacNeal, a pioneer in the CAE market, a leading authority on finite element technology, and of course one of the founders of the original MacNeal Schwendler Corporation (MSC) in 1963. The MacNeal Group brings to MSC.Software its unique computational Part and Assembly Analysis (PAA) methodology. PAA is said to be an advanced computational assembly framework for managing high-fidelity simulation assemblies in much the same way that CAD assemblies are controlled across an enterprise, but in a simulation context for improved accuracy and security for the behavior of the physical product components as computational “smart parts' within an overall assembly.

Net MSC.Software income for the second quarter of 2008 was $1.0 million, a decline of 56% from the $2.3 million in the year ago quarter, but a reversal of the $2.2 million net loss in the just prior quarter.

Bill Weyand, CEO and Chairman of MSC.Software, said, "Although software revenue continues to be impacted by our product transition, the enterprise simulation product suite represented 33% of total license revenue in the quarter. Additionally, we've focused and managed our professional consulting services for profitable revenue growth and this business was up 26% in the quarter. The continued strength in our maintenance revenue stream is indicative of the quality of our products and represents a tremendous asset for our business."

On July 22, 2008 PTC reported financial results for its third quarter of fiscal 2008, the period ended June 28, 2008. Total revenue for the quarter was $272 million, a healthy increase of 21% from the $225 million in the same quarter a year ago, and increase of 5.4% from the $258 million in the just previous quarter. License revenue was $77.6 million, accounting for only 29% of total revenue. But this was an increase of 25% year-over-year, and an increase of 6.4% from the $72.9 million in the prior quarter. Maintenance revenue was $130 million, a big 48% of total revenue, an increase of 26% year-over-year, and an increase of 7.6% sequentially. Services revenue was $63.8 million, itself 23% of total revenue. This was an increase of almost 7% year-over-year and flat relative to the previous quarter. PTC had solid services revenue growth in all geographic regions except for North America, which saw a 10% year-over-year decline in services revenue. On a geographic basis North America accounted for 33% of total revenue, Europe 41%, Japan 13%, and Pacific Rim almost 13%. See Table 7.

In the quarter PTC recognized more than $1 million each of license and services revenue from 13 customers, totaling $36 million. Three of these customers were in North America, five in Europe and five in Asia. This compares to 16 customers last quarter totaling $38 million, and 17 customers totaling $35 million in Q3 of last year.

Reseller revenue for the quarter was $70.4, accounting for 26% of total revenue. This was an increase of 48% year-over-year, and an increase of 4.3% sequentially. Channel revenue grew in all geographic regions: 125% in Japan, 70% in Europe, 11% in the Pacific Rim, and 1% in North America. Direct sales were $201 million, or 74% of total revenue. This was an increase of 13% year-over-year and an increase of 2.6% sequentially.

Net income for the quarter was $14.4 million, a drop of 82% from the $80.4 million in the year ago quarter, and a drop of 23% from the $18.8 million in the previous quarter. PTC took a $3.8 million restructuring charge in the quarter related primarily to their globalization strategy, as PTC continues to transition certain back-office functions to lower cost regions. PTC also reported a one-time non-cash loss recorded to other income (expense) of $6.2 million during the quarter, as it liquidated certain legal entities related to previous acquisitions. Note also for the quarter ended June 30, 2007, there was a one-time tax benefit due to the reversal of the valuation allowance recorded in the United States and a foreign jurisdiction of $58.9 million, and a favorable resolution of a tax claim of $3.9 million.

Richard Harrison, president and chief executive officer, commented, "We achieved 21% year-over-year non-GAAP revenue growth in the third quarter reflecting contribution from the CoCreate Software business acquired on November 30, 2007, organic revenue growth and favorable currency impact. Importantly, we achieved double digit license revenue growth in every region except the Pacific Rim." GAAP year-over-year revenue growth for the third fiscal quarter was 21%. Our third quarter non-GAAP revenue excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $1 million”

MCAD Vendor Stock Performances

The combined stock prices of five MCAD vendors declined 1% in absolute terms from the second quarter in 2007, but rose 10.7% versus the prior quarter. On average, the MCAD stock prices rose 6% year-over-year, and rose almost 7% sequentially.

This MCAD stock performance compares to a year-over-year decline of 14% for the average of the major stock indexes, and to a 3.4% decline from the previous quarter.

ANSYS was the only MCAD vendor to see rising stock prices compared to the same quarter last year. ANSYS rose a whopping 78%. Autodesk endured the steepest decline at -28%, followed by PTC at -23% and MSC.Software at -19%. On a sequential basis ANSYS was also the percentage growth leader at 36%. MSC.Software was the only decliner from the prior quarter at -15%. The rest had modest stock price growth.

Forecast Guidance from Individual MCAD Providers

For the four MCAD firms offering guidance for the next quarter, they forecast a combined revenue growth of 17.2% over the same period a year ago and an average growth rate of 18.2%. ANSYS is the most bullish with projected revenue growth rate of 25%, followed by Dassault Systemes at 20% (US$), and Autodesk at 17%. On a sequential basis Dassault Systemes sees a drop of 2.5% when measured in US dollars (1.6 currency conversion factor). PTC forecasts the largest sequential growth at a little over 8%.

Individual Company Guidance

As guidance ANSYS CEO Jim Cashman said, "Compared to a year ago, this quarter's revenues increased over 20% while non-GAAP diluted earnings per share increased 40%. Our continuing focus on our customers and our technology has produced record cash flows from operations of $55.1 million for the second quarter and $92.3 million for the first six months of 2008, which has allowed us to pay off the balance of the Fluent debt on June 30, 2008, well ahead of the 2011 contractual payment date. Based on our first half performance, as well as the closing of the Ansoft acquisition on July 31, 2008, we are updating our third quarter and 2008 full year guidance to include the impact of the combined operations beginning August 1, 2008.”

ANSYS expects revenue for the next quarter to be in the range of $115 - $121 million, compared to $111 million in the quarter just reported, and compared to $94.0 in the same quarter a year ago. For the fiscal year ending December 31, 2008 ANSYS expects revenue in the range of $476 to $486 million, compared to $385 million in 2007.

Autodesk updated its financial guidance to reflect the anticipated effects of the acquisition of Moldflow. As guidance Autodesk forecasts that net revenue for the third quarter of fiscal 2009 will be in the range of $625 million to $635 million. This compares to $619 million in the quarter just reported, and compares to $538 million in the same quarter a year earlier. Net revenue for the fourth quarter of fiscal 2009 is expected to be in the range of $660 million to $680 million. compared to $599 million in the fourth quarter of the last fiscal year. For fiscal year 2009, net revenue is expected to be in the range of $2.50 billion to $2.53 billion, compared to $2.172 billion in fiscal 2008.

Thibault de Tersant, Dassault Systemes Senior Executive Vice President and CFO, commented, “We are reconfirming our 2008 financial objectives for software revenue growth, operating margin expansion and EPS, based upon the business opportunities we see as well as the visibility provided by our financial model, and despite the economic environment.

“In July we completed the spin-off of one of our internal reseller businesses, DSF, and also completed the acquisition of Engineous Software. Therefore, we are updating our full year revenue range to take into account the net € 6-7 million estimated effect of these transactions, with the new mid-point of our range now at about € 1.325 billion, from € 1.332 billion previously.”

Dassault Systemes' third quarter 2008 non-GAAP total revenue objective is in the range of €305 to €315 million. This compares to €326 million in the quarter just completed, and compares to €299 million in the third quarter of 2007.

As guidance PTC expectS revenue in the next quarter to be in the range of $289 million to $299 million, compared to $271 million in the quarter just reported, and compared to $267 million in the same quarter a year earlier. For the fiscal year 2008 PTC expects revenue of $1,065 million. CEO Harrison said, "While we continue to remain mindful of the potential impact of a slowing economy in 2008, we are confident in our ability to achieve our Q4 and fiscal 2008 revenue and earnings targets. We are expecting modest sequential increases in our maintenance and services lines of business. We are expecting a modest year-over-year increase of license revenue in Q4 as we continue to expand and increase the effectiveness of our reseller channel, which accounts for more the 30% of our license revenue, and as we see strength in our pipeline for new license opportunities worldwide."

MCADCafè.com 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 MCADCafé.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. As a result of the acquisition of UGS by Siemens, UGS will no longer provide any financial data and therefore has also been dropped from the list. Moldflow was acquired in June 2008 by Autodesk and has been dropped from the list

The combined worldwide total annual revenue of these companies is over $5 billion, not an insignificant sum. But it is, in fact, less than a few percent of the hundreds of billions 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 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, AEC, 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 many of 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 has been taken over increasing responsibility for managing IBM Business Partners. 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.


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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 MCAE/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 Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES).

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this September 2008 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 EDAcafé Weekly.

Since May 2003 the authors have now published a total of sixty-eight (68) 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 March 31, 2008 marked the 12th Anniversary of the founding of HENKE ASSOCIATES.