MCAD Industry View – An August 2006 Update
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MCAD Industry View – An August 2006 Update

Dr. Russ Henke Dr. Jack Horgan Commentary

MCAD Industry View — An August 2006 Update


by Drs. Russ Henke & Jack Horgan
Henke Associates

In the first MCAD Industry Commentary published in 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 thirteen 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.

Due to the acquisition of Tecnomatix by UGS that closed April 1, 2005, Tecnomatix was no longer covered here as a separate entity. While MSC.Software will be discussed in the article below, its financials will be omitted from the vendor comparisons because of MSC.Software’s ongoing financial restatement issues.

Accordingly, the current article in the sequel recounts the financial performances of the remaining group-of-seven (G7) MCAD/PLM entities for the nominal second quarter of 2006. Following MCAD news highlights, the revenue and earnings of the G7 collectively are discussed. Then details on each vendor’s performance are covered, followed by stock data and company forecasts for the next quarter’s financials.

Finally, for Geopolitical and Economic Commentary on conditions that affect the MCAD Industry, i.e. such commentary that often appears at the end of these articles, interested readers may be motivated to click on the following URL. It will take you to the Commentary on these topics for May 2006, updated all the way through mid-August 2006:

http://www10.mcadcafe.com/nbc/articles/view_article.php?articleid=274130&page_no=9

Recent MCAD & PLM News Highlights

On May 1, 2006 ANSYS announced that it had completed its acquisition of Fluent Inc. for a combination of stock and net cash of total value of over $600 million.

In July and August 2006, MSC Software filed 10Qs for the first two quarters of 2006. This brings MSC current with regard fiscal reporting to the SEC. MSC is hopeful that its application for reinstatement on the NASDAQ will be approved.

Many publicly-traded companies, particularly in the high tech arena, have announced that they are reviewing how their stock option grants have been treated from an accounting perspective. For example, Apple delayed filing of the company’s Form 10-Q for the quarter ended July 1, 2006 while it continues an internal investigation. This delay could cause Apple to be de-listed from the NASDAQ Stock Market. As another example, CA (formerly Computer Associates International) reported that it may need to restate earnings from past years, in part because of the way it handled stock option grants to employees. The Securities and Exchange Commission recently said that at least 80 companies are the subjects of such probes. In some cases, the option grants were backdated to maximize gain for the recipients. Autodesk has announced a voluntary internal audit of its historical stock option granting practices and the related accounting. As a consequence, the firm provided no earnings data for the quarter being covered in this MCAD Commentary.

MCAD Vendors' Financial Performances in Q2 2006

Revenues:

As a group the G7 MCAD vendors generated combined revenues of $1.42 billion in the second quarter of 2006. See Table 1. This was a healthy increase of nearly 20% from the $1.19 billion in the same quarter of 2005, and a 7% rise sequentially from $1.32 billion for Q1 2006.

Company

Lastg QTR Revenue

Prev QTR Revenue

Last vs. Prev QTR

Comparable 2005 QTR

Last QTR vs. Comparable QTR

ANSYS

62

46

35.9%

38

65.3%

Autodesk

450

436

3.1%

373

20.5%

Dassault (€)

286

256

11.7%

217

31.6%

Dassault ($)

360

307

17.3%

274

31.6%

ESI Group (€)

12.8

24.7

-48.2%

13.5

-5.2%

ESI Group ($)

16.1

29.6

-45.6%

17.0

-5.2%

Moldflow

17

16

5.4%

18

-6.3%

PTC

217

200

8.2%

180

20.2%

UGS PLM

297

290

2.2%

285

4.1%

Total

1,419

1,325

7.1%

1,185

19.7%

Table 1 - Quarterly Revenues of G7 MCAD Vendors (US$ millions)

ANSYS led the pack with year-over-year growth of 65%, helped of course with its mid-year acquisition of Fluent. Dassault Systems was in second place at 32% growth with Autodesk and PTC following with around 20-percent increases. ESI-Group and Moldflow had single digit declines relative to the prior year. ANSYS was also the growth leader sequentially at 36%, having completed its acquisition of Fluent. Dassault was again in second place at 17%. ESI-Group was the only firm whose earnings fell sequentially (-48%).

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

Figure 1 - Quarterly Revenues of the G7 MCAD Vendors

(US $ Millions)

Figure 2 - Relative Sizes by “Q1” Reported Revenue

(Excludes MSC.Software)

For the quarter Autodesk was the share leader at 33%, with Dassault and UGS fighting it out for second place at 25% and 21%, respectively (Figure 2).

(As always, it needs to be pointed out that unlike the other vendors in this report, Autodesk earns a significant percentage 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).

Earnings:

Company

Lastg QTR Earnings

Prev QTR Earnings

Delta Lastg vs. Prev

Comparable 2005g QTR

Delta Last vs. 2005

ANSYS

(19.4)

12.9

(32.3)

9.8

(29.2)

Autodesk

NA

48.5

75

Dassault (€)

29.4

31.3

(1.9)

37.8

(8.4)

Dassault ($)

37.0

37.6

(0.5)

47.6

(10.6)

ESI Group (€)

N/A

N/A

N/A

ESI Group ($)

N/A

N/A

N/A

Moldflow

(0.4)

1.52

(1.96)

1.36

(1.80)

PTC

17

11

6

27

-10

UGS PLM

(6.4)

(4.8)

(1.7)

(22.0)

15.6

Table 2 - Quarterly earnings of G7 MCAD Vendors (US$ Millions)

As Table 2 reveals, earnings were far less impressive than revenues. As a result of an internal review of historical stock option granting practices and the related accounting, Autodesk did not release earnings data for the quarter. ANSYS had a significant loss for the quarter due mostly to a one-time charge of $28.1 million related to in-process research & development associated with the acquisition of Fluent that was completed on May 1, 2006. Dassault earnings declined due to about €12 million in acquisition-related expenses.

Details on Individual Vendors’ Q2 2006 Performances

On August 3, 2006 ANSYS, Inc. reported the financial results for the second quarter, the period ended June 30, 2006. Total revenue for the quarter was $62 million an increase of 65% from the $38 million in the second quarter a year ago, and a 36% increase from the $46 million in the previous quarter. License revenue was $35 million, accounting for 56% of total revenue. This was an increase of 76% year-over-year and 31% sequentially. Maintenance and service revenue was $27.5 million, accounting for 44% of total revenue. This was a 54% increase year-over-year and a 36% increase sequentially. The quarter included an 18% growth in core revenue and 2 months of Fluent revenue. Core revenue in North America grew 22% year-over-year, Europe 17% and General International 15% (>30% outside of Japan). Deferred revenue was over $90 million.

As mentioned, on May 1, 2006 ANSYS announced that it had completed its acquisition of Fluent Inc., a global provider of CAE simulation software, for approximately 6,000,000 shares of ANSYS common stock and approximately $299 million in net cash, for a total value of over $600 million. Fluent posted total sales of nearly $122 million in 2005.

Net loss for the second quarter of 2006 for ANSYS overall was $19.4 million, compared to net gains of $9.8 million and $12.9 million in the same quarter a year ago and in the prior quarter, respectively. These results are heavily impacted by a one-time charge of $28.1 million related to in-process research & development associated with the acquisition of Fluent that was completed on May 1. The comparison also reflects stock-based compensation charges related to the January 1, 2006 adoption of SFAS No. 123R.

Jim Cashman, ANSYS President and CEO, said, “This quarter was a historic one for ANSYS and for all of our stockholders, employees, customers and partners, as we completed the transforming acquisition of Fluent. We are optimistic that this initial quarterly report today, which includes two months of operations as a combined company, is only the beginning as we continue to focus and execute on our integration plan and long-term strategy for the Company. Compared to a year ago, this quarter's non-GAAP revenues increased in excess of 80% while non-GAAP diluted earnings per share increased 29%”.

On August 17, 2006 Autodesk, Inc reported partial financial results for the second quarter of 2006. Total revenue for the quarter was $450 million, an increase of over 20% from the $373 million in the same quarter of 2005 and a just over 3% increase from the $436 million in the prior quarter. License revenue was $346 million, accounting for 77% of total revenue. This was a 12% rise year-over-year and a 1% decline sequentially. Maintenance revenue was $104 million, accounting for 23% of total revenue. This was a 64% increase year-over-year and a 20% increase sequentially.

Revenue from new seats increased 24%. Revenue from 3D solutions (Inventor, Revit and Civil 3D), constituting 20% of total revenue, was up 37%. More than 32,000 commercial seats of 3D were shipped in the quarter. Revenue from new seats of 3D model-based design products increased 41% over last year, on particularly strong sales of the Revit family of products.

Revenue from new seats of AutoCAD and AutoCAD LT increased by 23% compared to the second quarter of last year. Subscription revenue increased 65% compared to the second quarter of last year, to $104 million or 23% of revenue. Revenue from new seats and emerging businesses continues to represent approximately two-thirds of total revenues.

Segment

2Q06

1Q06

Delta

2Q05

Delta

Manufacturing

76

75

0.9%

60

25.7%

Platform

201

207

-3.1%

180

11.5%

Table 3 Autodesk Revenue in Key Segments

The Platform segment, which accounts for nearly 45% 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) grew 26% year-over-year but declined 3% from the prior quarter. A “guesstimate” of MCAD revenue would be about $145 million for the quarter.

Geography

2Q06

1Q06

Delta

2Q05

Delta

Americas

167.7

170

-1.5%

141.3

18.7%

Europe

174.2

164

6.0%

140.6

23.9%

AP

107.7

102

6.1%

91.1

18.2%

Total

449.6

436

3.1%

373

20.5%

Table 4 Autodesk Revenue by Geography

The Americas accounted for 37% of total revenue, Europe 39% and Asia Pacific 24%. All three regions grew about 20% year-over-year. Europe and AP grew about 6% sequentially, while the Americas declined 1.5%.

Autodesk began a voluntary review of the company's historical stock option granting practices and the related accounting. The company said, “Because this review is ongoing, at this time, the company has not yet determined if it needs to record any non-cash adjustments to compensation expense related to prior stock option grants. The company is following evolving best practice in the industry, and will provide only select financial information while it completes the review.” Hence no data were provided on earnings in the quarter.

Carl Bass, Autodesk president and CEO, said, “We are very pleased with the progress we made in the business this quarter. Customer demand was robust and our operational execution, including expense management, was strong. Our products provide innovation and productivity that translate into real competitive advantage which our customers need in every economic environment."

On July 27, 2006 Dassault Systemes reported its financial results for the second quarter the period ended June 30, 2006. Total revenue for the quarter was 286 million euros, an increase of nearly 32% from the same quarter a year earlier and a increase of about 12% from prior quarter. This was at the high end of the guidance given a quarter ago. Software revenue was €238m, a 32% increase year-over-year and nearly a 12% increase sequentially. Service revenue was €42m, an increase of 15% year-over-year and an increase of almost 8% sequentially. New license revenue accounted for 41% of total revenue, recurring software revenue for 44%, and services for 15%.

Dassault has renamed its product categories by brand name rather than generic label, i.e. Enovia rather than PDM and SolidWorks rather than Design Centric. Enovia now encompasses Enovia, SmarTeam and MatrixOne offerings and services. In the quarter SolidWorks accounted for 20% of total revenue, Enovia 17% and PLM ex-Enovia 63%.

Dassault

Lastg QTR Revenue

Prev QTR Revenue

Last vs. Prev QTR

Comparable 2005 QTR

Last QTR vs. Comparable QTR

PLM ex Enovia

182

177.4

2.6%

145.2

25.3%

Enovia

47.9

26.3

82.1%

25.5

87.8%

PLM

229.9

203.7

12.9%

170.7

34.7%

SolidWorks

56.1

52.3

7.3%

46.6

20.4%

Total

286

256

11.7%

217.3

31.6%

Table 5 Dassault Revenue by Product Segment (millions of euros)

 

The Americas accounted for 29% of total revenue, Europe 48% and Asia 23%. Revenue in the America was up 20% year-over-year, up 35% in Europe and up 42% in Asia.

In the second quarter 9,100 seats of CATIA were sold at an ASP of €13,100 and 11,385 seats of SolidWorks at an ASP of €5,183.

At the Annual Shareholders’ Meeting held on June 14, 2006, DS’ shareholders approved the payment of an annual cash dividend equivalent to €0.42 per share, representing €48 million in the aggregate, for the fiscal year ended December 31, 2005.

Net income in the quarter was €29.4 million, a 22% drop from the €37.8 million in the second quarter of 2005 and a 6% decline from the €31.3 million in the prior quarter. The quarter included €12 million in acquisition costs (MatixOne €5 million, and Abacus €3.7 million).

Bernard Charlès, Dassault Systèmes President and Chief Executive Officer, commented, “DS had a great second quarter, with revenue, earnings and operating margin coming in above our objectives. Software revenue increased 36% in constant currencies on broad-based strength, with CATIA results providing a solid foundation. The strong performance of our sales organization and partners, including IBM, business partners and the SolidWorks channel, contributed to this excellent quarter.”

Thibault de Tersant, Executive Vice President and CFO of Dassault Systèmes, commented, “MatrixOne is delivering on all of our acquisition objectives. MatrixOne’s performance exceeded our targets and it is already at break-even in its first period of operation as a part of Dassault Systèmes. And our plans to achieve cost savings are solidly on track.”

On June 7, 2006 ESI-Group reported financial results for its first quarter, the period ended April 30, 2006. Total revenue was €12.8 million, a decrease of 5.2% from the €13.5 million in the same quarter a year earlier, and a 48% decrease from the €24.7 million in the prior quarter. License revenue in the quarter was €9.8 million, accounting for 77% of total revenue. This was a nearly 7% decrease year-over-year and a 53% decrease sequentially. Service revenue was €3 million, essentially flat year-over-year, but a 27% decrease sequentially.

In terms of US dollars, total revenue was $16.1 million, consisting of $12.3 million in license revenue and $3.8 million in service revenue.

Alain de Rouvray, Chairman and CEO of ESI Group, said, "Q1 results are traditionally unrepresentative of our annual performance due to business seasonality which tends to become more pronounced."

On August 10, 2006 Moldflow Corporation reported financial results for its fourth quarter and for full 2006 fiscal year, the period ended June 30, 2006. Total revenue for the quarter was $17 million. This was a 6% decline from the $18.3 million in the same quarter a year earlier, and a 5% rise from the $16.2 million in the just prior quarter. Product revenue was $9.9 million, accounting for 58% of total revenue. This was a 12% decline year-over-year and a 4% increase sequentially. Services revenue was $7.2 million, accounting for 42% of total revenue. This was a nearly 3% gain year-over-year and a 7% gain sequentially.

Design Analysis Solutions revenue was $12.8 million, of which $6.2 million was product revenue. DA revenue was down 5% year-over-year. Manufacturing Solutions revenue was $4.3 million, of which $3.7 million was product revenue. Manufacturing revenue was down 22% year-over-year and 5% sequentially. Regionally, revenue in Asia/Pacific and Americas regions each represented 34% of total revenue, while revenue in the European region represented 32% of total revenue.

Net loss for the quarter was $440K. This compares to net income of $1.4 million and $1.5 million in the year ago and prior quarter, respectively. There was a $1.3 million restructuring charge in the quarter.

 

Total revenue for the fiscal year 2006 was $65.6 million, just under a 2% increase from the $64.4 million in fiscal 2005. Product revenue was $38.2 million in both fiscal years. This accounted for 58% of total revenue in fiscal 2006. Services revenue was $27.3 million, up 4.4% from the prior year. Design Analysis Solutions revenue of $48.5 million represented 74% of total revenue, and increased 3% over fiscal 2005. Product revenue in this segment was $24 million. Manufacturing Solutions revenue of $17.1 million represented 26% of total revenue and was flat when compared to last year. Product revenue in this segment was $14.3 million.

Net income for the year was $1 million compared to $6.8 million in the prior year. There were $2.7 million in restructuring charges during fiscal 2006. The geographical distribution for the year was the same as in the quarter.

Roland Thomas, Moldflow Corporation's president and CEO, said, "Fiscal 2006 was a challenging year for Moldflow. We made critical business judgments that led us to restructure our Manufacturing Solutions unit as well as other aspects of our business. Our fourth quarter results show the initial benefits resulting from the right-sizing of our Manufacturing Solutions business and our focused market approach."

On July 10, 2006 MSC Software Corporation filed its 10Q for the first quarter of 2006. On August 10, 2006 the company filed its 10Q for the second quarter 2006, the period ended June 30, 2006. These filings bring MSC current with regard fiscal reporting to the SEC. The firm is hopeful that its application for reinstatement on the NASDAQ will be approved.

Total revenue for the quarter was $67.9 million, an increase of 1.6% over the $66.9 million a year earlier and almost 1% increase sequentially from $67.4 million. The company sold its PLM business in March 2006. That unit had $2.2 million in revenue in 2Q 2005. Excluding PLM and effects of foreign currency exchange rate, revenue was up 7% year-over-year. Software revenue was $31.4 million, accounting for 46% of total revenue. This was an increase of 9.4% year-over-tear and an increase of 7.3% sequentially. Maintenance and services revenue was $36.5 million, accounting for 54% of total revenue. This was a decrease of 4.3% year-over-year and a decrease of 4.1% sequentially.

Geographically the Americas accounted for 27% of total revenue, EMEA 41% and AP 32%. 

2Q06

1Q06

Delta

2Q05

Delta

Americas

18,361

22,593

-18.7%

21,392

-14.2%

EMEA

28,044

23,244

20.7%

25,348

10.6%

AP

21,530

21,541

-0.1%

20,142

6.9%

Total

67,935

67,378

0.8%

66,882

1.6%

Table 6 MSC Software Revenue by Geographic Segment

Indirect sales accounted for 11% of total revenue. The company has hired a vice president to head this sales channel. The goal is for indirect sales to reach 20% of total revenue.

On June 20, 2006 MSC introduced SimEnterprise, an enterprise simulation development platform that enables CAE designers, analysts, managers and the supply chain to interact throughout the design process

On July 7 MSC Software announced a worldwide strategic alliance with IBM. MSC will embed and optimize IBM technology as part of their SimManager Enterprise offering, integrating services oriented architecture (SOA) with DB2, Websphere and Tivoli to meet the growing demand for enterprise based computer-aided engineering and analysis in the PLM space. Under this arrangement, IBM Global Services will develop Centers of Competence that help deliver CAE enterprise solutions to clients in association with SimManager Enterprise implementations. IBM Global Services will also resell and implement SimManager Enterprise, and both companies will undertake joint sales and marketing activities to promote the offering. IBM Global Services will develop Centers of Competence that help deliver CAE enterprise solutions to clients in association with SimManager Enterprise implementations. IBM Global Services will also resell and implement SimManager Enterprise, and both companies will undertake joint sales and marketing activities to promote the offering. During the conference call CEO Bill Weyland pointed out that Dassault Systemes, long time IBM PLM partner, is moving more towards a direct sales model.

On July 26, 2006 PTC reported results of its third quarter of fiscal 2006, the period ended July 1, 2006. Total revenue for the quarter was $217 million, an increase of 20% from the $180 million in the same quarter a year ago, and a 8% increase from the $200 million in the just prior quarter. This was at the high end of the guidance given a quarter ago. License revenue for the quarter was $65.7 million, accounting for 30% of total revenue. This was an increase of 33% year-over-year and an increase of 20% sequentially. Maintenance revenue was $96.6 million, accounting for 44% of total revenue. This was an increase of nearly 9.4% year-over-year and 6% sequentially. Service revenue was $56 million, accounting for 26% of total revenue. This was an increase of 26% year-over-year and essentially flat sequentially.

Desktop Solutions generated revenue of $143 million, accounting for 66% of total revenue, while Enterprise Solutions generated revenue of $72.8 million, accounting for 34% of total revenue. Desktop Solutions revenue growth was led by strong license revenue, which grew 30% to $43.5 million from the same period last year. Enterprise Solutions license revenue was $22.2 million, up 41% over the same period last year. Revenue grew from acquisitions of Arbortext and Mathsoft.

2Q06

1Q06

Delta

2Q05

Delta

Desktop

143,876

131,811

9.2%

125,994

14.2%

Enterprise

72,828

68,383

6.5%

54,340

34.0%

Total

216,704

200,194

8.2%

180,334

20.2%

Table 7 PTC Revenue by Segment

North American revenue was $66 million, accounting for 42% of total revenue; European revenue was $72 million, accounting for 33% of total revenue; and Asia Pacific revenue was $54 million, accounting for 25% of total revenue. NA revenue was up 37% year-over-year, European revenue 8.4% year-over-year, and AP revenue 13% year-over-year. On a sequential basis, North America was up 16%, Europe up 8%, and AP down almost 3%.

Net income for the quarter was $16.9 million, down 37% from the $26.7 million in the same quarter a year ago but up 57% from the $10.8 million in the just prior quarter. PTC adopted SFAS 123R in the fourth quarter of fiscal year 2005 and, therefore, the GAAP results from the year-ago period do not include the cost of stock-based compensation. In the quarter, PTC recorded stock-based compensation expense of $10.1 million, amortization of acquisition-related intangible assets of $2.8 million, a net restructuring charge of $5.9 million related to a previously announced cost-reduction program, a $2.1 million write-off of in-process research and development associated with the acquisition of Mathsoft, and a one-time tax benefit of $6.1 million due to the favorable resolution of IRS tax audits in the United States. PTC recorded an unrelated tax benefit of $4.4 million in the third quarter of 2005 due to the favorable resolution of a foreign jurisdiction tax audit.

C. Richard Harrison, president and chief executive officer of PTC, said, “By almost every measure, our third quarter results were outstanding. We executed well across product lines, major geographies, and in both large accounts and our reseller channel. Additionally, our recent acquisitions are becoming important to our customers. We are clearly seeing positive results from our strategic efforts."

On August 14, 2006 UGS Corporation reported its financial results for the second quarter of 2006, the period ended June 30, 2006. Total revenue for the quarter was $296 million, an increase of just over 4% from the $285 million in the second quarter of 2005, and just over 2% increase from the $290 million in the prior quarter. Software license revenue was $86 million, accounting for 29% of total revenue. This was a 5.2% increase year-over-year and a 4.3% decline sequentially. Maintenance revenue was $135 million, accounting for 46% of total revenue. This was a 5.3% increase year-over-year and a 4.2% increase sequentially. Service revenue was $75 million, accounting for 25% of total revenue. This was a just under 1% increase year-over-year and a nearly a 7% increase sequentially.

Software revenue from the CAX segment was $140 million, up 3% year-over-year but a 1% decline sequentially. Software revenue from cPDm was $63 million, up nearly 19% year-over-year and essentially flat sequentially.

North American revenue accounted for 43% of total revenue, European revenue was 38% and Asia Pacific 19%. This was pretty much same percentage breakdown in the prior and year ago quarter. In absolute terms, AP was the major year-over-year gainer at +10%, with NA a +1.7% and Europe a +4.1%. On a sequential basis, all geographic regions increased 2.2%.

For the quarter, the net loss was $6.4 million, compared to a net loss of $22 million in the second quarter of 2005 and a net loss of $4.8 million in the prior quarter. EBITDA for the quarter was $69 million, an 80% increase over the $38 million a year earlier and an 8.5% increase over the $63.8 million in the prior quarter.

Tony Affuso, chairman, CEO and president of UGS, said, “We continue our drive to sustain solid growth and improve operating income while we focus on executing our strategic plan to position the company for enhanced growth. As we complete the reorganization of our sales force to focus on verticals and mid-market channels, we are currently adding needed sales capacity. We have seen early progress in our mid-market channel strategy marked by strong double digit software growth in the quarter.”

MCAD Vendor Stock Performances

In Q2 2006, the combined stock prices of the MCAD vendors rose 11% in absolute dollars and 7.7% in average price over the second quarter of 2005. This compares to an average decline of 3.8% for the major stock indexes over the same period. ANSYS and MSC Software had over a 30% increase in stock price year-over-year. PTC declined by 20% and Moldflow by nearly 10%.

On a sequential basis, the combined stock prices rose over 17% in absolute dollars and nearly 16% in terms of average price. This compares to an average increase of nearly 7.4% in the major stock indexes. MSC Software and ANSYS were again the growth leaders with 61% and 40%, respectively. MSC Software has finally become current in terms of SEC reporting and expects to be reinstatement on the NASDAQ soon. ANSYS has completed its acquisition of Fluent during the quarter. Moldflow was the largest decliner at 27%. PTC dropped 9%.

Stock Sym

2Q05

1Q06

2Q06

QoQ

YoY

ANSS

35.64

34.21

47.82

39.8%

34.2%

ADSK

34.34

29.76

34.46

15.8%

0.3%

DASTY

47.83

46.56

53.46

14.8%

11.8%

MNSC

13.75

11.13

17.9

60.8%

30.2%

MFLO

12.97

15.99

11.71

-26.8%

-9.7%

PMTC

15.95

13.98

12.71

-9.1%

-20.3%

Total

160.48

151.63

178.06

17.4%

11.0%

Ave Delta

15.9%

7.7%

Table 8 Stock Prices of MCAD Vendors ($)

(Note: UGS is no longer publicly traded)

Index

2Q05

1Q06

2Q06

QoQ

YoY

DJI

10,275

10,504

11,150

6.2%

8.5%

Nasdaq

2,957

1,999

2,172

8.7%

-26.5%

S&P

1,191

1,181

1,270

7.5%

6.6%

Ave Delta

7.4%

-3.8%

Table 9 Stock Market Indices

Figure 3 - Stock Prices of MCAD Vendors

Forecast Guidance from Individual MCAD Providers

Company

Forecast 3Q 2006

Actual 2Q 2006

Forecast vs Last

Actual 3Q 2005

Forecast vs Prior Year

ANSYS

68.5

62

10.0%

39

75.5%

Autodesk

455

450

1.1%

378

20.3%

Dassault (€)

283

286

-1.2%

214

32.1%

Dassault ($)

353

360

-2.0%

261

35.4%

ESI Group (€)

NA

12.8

NA

12.1

NA

ESI Group ($)

NA

16.1

NA

14.8

NA

Moldflow

16

17

-6.0%

15.3

5.4%

PTC

221

217

2.0%

195

13.3%

UGS PLM

NA

297

NA

290

NA

Table 10 Forecast for Next Quarter

For guidance ANSYS expects revenue in the next quarter to be between $68 million and $69 million, compared with $62 million in the quarter just completed. For the year ANSYS expects revenue in the range of $252 to $257 million, compared to $158 million in 2005. These projections include the impact of the Fluent acquisition.

For guidance Autodesk expects that net revenues for the third quarter of fiscal 2007 to be between $450 million and $460 million. This compares to $450 million in the quarter just completed and to $439 million in the third quarter of 2005. For fiscal year 2007 net revenues are expected to be between $1.82 billion and $1.85 billion.

As a result of the ongoing review of stock option grant practices, Autodesk is not providing EPS guidance at this time. The company did indicate that spending levels for the year have not changed. However, the company believes that spending in the third quarter will increase by approximately $10 million sequentially, in part as a result of the $5 million of spend for growth initiatives which was planned for the second quarter of fiscal 2007 but did not occur.

Thibault de Tersant, Dassault Systemes Executive Vice President and CFO, stated, “Business activity was strong in the second quarter and we continue to see stronger activity for the second half despite some potential signs of softening of the economic environment globally. Therefore, on a constant currency basis, we are raising our 2006 revenue growth objective to about 27-28%, compared to our previous assumption of 25-26%, reflecting higher expected activity of about €15 million for the full year, including the second quarter overachievement. At the same time, we are reconfirming our operating margin objective and increasing our EPS objective slightly.”

For the 2006 third quarter, Dassault has set a revenue objective of about 280 to 285 million euros, representing a year-over-year growth rate of 36% to 38% in constant currencies.

ESI-Group did not provide any guidance.

Moldflow CEO Roland Thomas said, “As we head into fiscal 2007, we are encouraged that the actions we have taken over the course of fiscal 2006 have put us in the position to again move towards our target operating model. We believe our historically strong Design Analysis Solutions business will return to a more normalized growth rate as we work with our customers to produce new technologies as well as increase our local presence throughout South America, Asia and Eastern Europe, three important growth markets.”

During the quarterly conference call Moldflow said it would be providing guidance only on a yearly basis. Moldflow expects revenue for full fiscal 2007 year to grow in the range of 5% to 7% when compared to fiscal 2006.

MSC Software did not provide any guidance.

PTC’s revenue forecast for the fourth quarter of fiscal 2006 is between $217 million and $225 million. This compares to $217 million in the quarter just reported. For the fiscal year ending September 30, 2006, PTC expects revenue to be between $826 million and $834 million.

UGS did not provide a forecast.

MCADCafé.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 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 partner with the initial four to provide end-customers with broader solution suites. Tecnomatix has been acquired by UGS and hence has been removed from this report

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.

The combined worldwide total annual revenue of these companies is over $4 billion, not an insignificant sum. But it is, in fact, less than 3 percent of the ~$190 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 MCADCafé.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 its Discreet Segment, which provides systems and software for creating and animating imagery. Even in the remaining 85% of Autodesk's total revenue, derived from its Design Solutions Segment, is divided among solutions for Manufacturing, GIS, the building industry, and the platform technology group. Only the solutions of the Manufacturing Group (Inventor, AutoCAD Mechanical, Mechanical Desktop, Streamline, Point A, etc.) might be thought of as "pure" MCAD revenue.



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.

Geopolitical and Economic Commentary:

Readers interested in the authors’ views on geopolitical and economic conditions that affect the MCAD Industry, i.e. commentary that often appears here, may be motivated to click on the following URL. It will take you to the Commentary on these topics for May 2006, updated all the way through mid-August 2006:

http://www10.mcadcafe.com/nbc/articles/view_article.php?articleid=274130&page_no=9

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.

Interested readers who missed the August 18, 2006 article, "JUDGMENT DAY COMING -- FOR THE NEOCONS," by Patrick J Buchanan, from Creators Syndicate, Inc., can try to click on it here:

http://www.creators.com/opinion_show.cfm?columnsName=pbu

If there is already a later Buchanan article there, you might search their archive. Last resort, send an email to russ@henkeassociates.net and we'll send you a copy of Buchanan's JUDGMENT DAY in MS WORD.

About the Authors

About the Authors of this MCAD Industry Commentary:

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 forty. 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 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.

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this August 2006 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 forty-four (44) independent 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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