PTC has spread itself out to sell all kinds of software that isn't strictly CAD. Financial analysts wonder why sales of CAD have declined for 1.5 years now. These analysts asked some hard questions of PTC's executives:
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Yun Kim (Janney Montgomery Scott): You talked a little bit about the CAD business, but can you just go into a little more detail about the continued weakness you're seeing in that business? It's been down year-over-year for the past six quarters in a row. It seems to have decelerated again in this past quarter.
Obviously, CAD business does have some negative streaks before, but I don't think it has ever shown six quarters of decline, for at least, not at least last tehn years. Is there something fundamentally different about this downward trend this time around versus previous down cycles in the CAD business?
One of the key growth drivers behind the Creo introduction was the ease of usability, which should have expanded your target market beyond engineers, how is that progressing?
James Heppelmann (CEO, PTC): Let me try to get to the second part of the question, because that provides a good context for the first part. In our Creo product, as compared to the Pro/ENGINEER predecessor products, we have a lot of new capabilities, new modules, better usability through a better user interface, through this simpler direct modeling capability, and so forth. We've said that in order to get to that capability, we need to take the base forward to this Creo version.
It's hard to sell the new stuff in Creo to a customer who is still using Pro/ENGINEER. We've been tracking our progress of upgrading the base to Creo. We've been projecting that by calendar year end [December, 2013], we expect to have 50% of the base on Creo. We are on target for that.
There are some big customers, Caterpillar and John Deere-type customers, who are going to upgrade between now and the end of the year. They'll drag with them their whole supply chains and so forth. And we've actually seen some promising data that says, once the customer upgrades to Creo, a majority of them loop back in a quarter or two and buy some of the new stuff. So we actually think that this product cycle is out there. And that's interesting, because with the product cycle, we can sell more software to customers even if they're not hiring.
But short of that product cycle, a lot of CAD growth is driven by seat count growth. In an environment where nobody's hiring, there is no seat count growth. I think if you look at Autodesk's performance, if you look a Dassault's performance, nobody's not going to cover up the ball [sic] with CAD growth right now. It really is because hiring has been a problem for the last six quarters you referred to.
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Jay Vleeschhouwer (Griffin Securities): At the conference in Anaheim last month, we heard you speak about your, more or less, having settled into an 18- to 24-month product release schedule for Creo and for Windchill -- which is somewhat different from what your competitors do. But the question for you is, if at some point ... you need to have a more rapid release schedule, roughly every year or so?
PTC: [Did not answer the question directly about going to annual releases.]
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Richard Davis (Canaccord Genuity): Have you seen any pricing pressure at all on your support pricing at all? Some companies have, some companies haven't. I was just wondering.
James Heppelmann: No, we're not really seeing any pricing pressure. In fact, we'll probably see a pricing opportunity [i.e., increases].
Our renewal metrics are high. Our attach metrics are high. We feel like there's opportunities probably around pricing, there's opportunities around discounting, et cetera. So our maintenance or support business, as we call it, is full speed ahead.
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