I was double-counting.
Who's Gonna Be #1?
Releasing the number means we can take a stab at calculating whether Dassault will be the world's largest CAD software company, once it completes the $600-million acquisition of IBM PLM next year.
IBM PLM would contribute an estimated $530 million to Dassault. Let's assume conservatively it earns around US$1.9 billion next year without IBM PLM, or $2.4 billion with IBM PLM.
Autodesk last year earned $2.3 billion, and maybe will do the same next year (after dipping below $2 billion this year). So the acquisition could well put Dassault over the top.
Our constant-currency [meaning, ignoring the difference in exchange rates] non-GAAP [not generally accepted accounting principles] FY'09 [revenue for fiscal year 2009] [of $246.3 million] was down 9% compared to last year.
While license revenue was down 34%, maintenance and services revenue were up 3% and 1%, respectively...
We again delivered license revenue growth in all of our major geographies except Japan.
We had better license and total revenue in North America than we did in Q4'08, which was PTC's best revenue quarter ever...For the year, the company made $938.2 million.
The Obama administration has shelved a plan to raise more than $200 billion in new taxes on multinational companies following a blitz of complaints from businesses. A contingent of Silicon Valley chief executives, for example, traveled to Washington in late September to speak out against the proposal to change how the federal government taxes overseas profits.The Obama idea was for the USA to double-tax the profits while still in the banks of other countries: a US tax of 35%, plus the local taxes. The positive outcome would be that US companies would more quickly bring the profits back into the USA. (Currently, the money is taxed only when it is transferred to the USA; in addition the money can be "borrowed" by the corporation for 3-6 months tax-free.)
The European markets weakened further compared with the first half of the year... For the fourth quarter we anticipate markets will remain challenging, although we are noticing early indications of bottoming out in some US markets.Net income was negative e25million, due to restructuring costs of e32 million. Further cuts are planned for Q2.
The price of CAD software today runs from $0 to over $20,000/license. In the 1980s, the price of software + proprietary hardware + support could top $150,000/seat from the likes of Intergraph and Computervision.
What should the price be?
This was a question that came up often in my meetings with eight CAD vendors in Russia. They have a price advantage over the large American and French firms; outsourced Russian programmers cost just $25-$45 an hour. Even Autodesk CIS offers AutoCAD 2008 for the equivalent of just US$1,000 (AutoCAD's original price tag in the mid-1980s.)
The Russians were particularly interested whether Alibre's $99 offer had been effective.
Some smaller CAD vendors confuse lower prices with higher sales. But it is not that simple, for price consists of two parts: economics and psychology:
The CadKey Case Study
In the mid-1990s, CadKey performed the economics-psychology experiment for us. In a grudge match, its then-ceo was determined to beat Autodesk, and so dropped the price from $3,750 (I think it was) to $495.
The result was a disaster. Yes, the company gained some more customers. But the added customers put a strain on the company's resources. The $495-price was insufficient for CadKey to add resources. (The blogosphere did not exist back then, so they could not benefit from the publicity explosion that the Alibres of the world gain from $99 offers.)
Some months later, CadKey raised the price to $1,995 (I think) and then back to around $3,000.
CadKey forgot to ask themselves a question that only an outsider can ask, really: "Why would someone buy CadKey software just for its $500 price tag?"
The building and manufacturing markets were significantly impacted by the global recession throughout fiscal 2009, which resulted in an unprecedented reduction in spending on the types of software and services we provide.Avatech spun off its consulting and services offerings into a standalone business named MSD Consulting, which earned a $1 million for the company.
If following this reopening of the Takeover Bid, NIMD SPRL [Nikon] achieves an acceptance level of 95% or more of the shares, NIMD SPRL intends to proceed to a squeeze-out public bid pursuant to the provisions of Article 42 and Article 43 of the Belgian Royal Decree of April 27, 2007 on public takeover bids and Article 513 of the Belgian Company Code.
The caveat is that our business has been reset at a lower level, so whether this economic cycle is going to be U-shaped or L-shaped -- or any letter or number or hieroglyphic--, our financial condition is solid with over $1 billion in cash and no debt. We are going into the third quarter confident that Autodesk is well-positioned for the market’s eventual recovery.
Cambashi is predicting that sales of "technical applications software" will rebound a year from now, lead by Asia Pacific, excluding Japan.
Green shoots won't appear in the United States until 2011, according to the British firm's analysis of sales trends in 50 countries.
Best results I've seen for any company this year...
BlueCielo Eo ECM Solutions had 2008 net revenue grow 37% to $18.3 million:
PTC Q3 revenues down 17%? No problem.
PTC profit drops 74%? No worries.
Annual revenues falling even lower? Be happy.
That was the message share owners gave Parametric Technology, as the price recovered in a single day from the shedload of bad news issued after the markets closed on Jul 28:
But can you think of which trad marketing message went missing in this call?
Ans: The Grand Unified Theory. You know, the one where only PTC has a single CAD program to meet everyone's need (well, except for the home hobbyist).
It is normal for a public company to hammer repeatedly a single marketing message to financial analysts. It's a kind of a "What this company stands for" statement.
It fascinates me when the marketing message changes. What was once so-o-o important, no longer is.
Also invisible during the call: CoCreate.
Dassault Systems reported falling revenues for Q2 of e310.9 million, down 11% (using the same currency exchange rates as a year ago).
Examining the numbers more closely, we see that the biggest drag was from services and other revenue -- down 24%. Mainstream 3D software revenue (that's code for "SolidWorks") was down 10%.
For Q3, the company expects a further decline in revenue. For the entire year, the midpoint of the estimated revenues is being maintained: e1,250 to e1,280 million.
(The press release appears to contain a typo, making it look like Dassault expects to earn over a trillion dollars this year: "e1,250 to e1,280 billion". But no: Europeans use commas in place of decimal points, so the amount reads as "e1.250 to e1.280 billion" to our North American eyes.)
A word came up repeatedly (30 times, no less) during PTC's quarterly conference call this week: domino. Seeking Alpha's word analysis determined domino was the 7th Most Frequent Word In This Transcript, coming right after business and Dick.
Here, for example, is PTC ceo, Richard (Dick) Harrison, saying it three times in one sentence:
In addition to the domino account -- and I think that this is something that we want to spend more time on -- I don't want to water down the importance of the domino account that each of the three major geographies, North America, Europe and Asia Pacific, has-- a list of very recognizable named accounts that are owned by our competitors, that have active displacement campaigns today, in addition to the domino account.
From the context, and from the meaning of the word itself (one thing toppling over many others), a domino account appears to be a customer-win so significant that it can knock over competitors.
Here is an example given by PTC coo [chief operating officer] Jim Heppelmann:
Airbus is our #1 customer by a factor of 2x-3x, and that just gives you the idea of the power behind the domino strategy, and the potential that they are to unlock a huge opportunity for PTC.
What Mr Heppelmann is hinting to the listening financial analysts is that getting WindChill into Airbus has the potential to knock out Dassault Systemes's CAD software. Or do he dreams.
Here's what I think is a "domino account": PTC convinces a major customer to take on WindChill, its PLM software that works with major CAD packages. With a foot in the door, PTC then dominoes the competition in two ways: (1) by slowly displacing competitor CAD packages with Pro/E; and (2) by attempting to get the major customer's clients to switch to PTC-branded software.
Messrs Harrison and Heppelmann explain:
(1) We have a significant number of developers who work on integrating our competitors' authoring tools or CAD tools into the Windchill database. So it is becoming easier and easier for us to go in and tell the customer, "Keep your Catia seats or your NX seats, and we will manage them directly with the Windchill product." ...the heterogeneous designing context.
(2) ...the commitment to the customer to become married to PTC.
PTC expects domino accounts to generate $5-$10 million a year "once they become mature, in the third year." The company wants to win 10 domino accounts in this fiscal year, and has won 6 so far. Names include:
During yesterday's conference call with financial analysts, PTC executives took this question from Richard Davis of Needham & Co:
This is a little bit of a tactical question, but Harley Davidson has layoffs, John Deere has layoffs, and you have one-year renewals. How do you keep [maintenance subscription revenue] when these come up for renewal, and your customers have fewer employees?
That's easy, says PTC ceo Richard Harrison. Just charge them more:
Let us say a company has a 1,000 users. That justifies a 30% discount. If they come back at renewal time and say, "We want to only renew 700," we're going to look at our sheet and say, "Okay, at 700 users you only get a 20% discount." And so we end up netting about the same amount.
But it also helps to have empathy:
We also had some creative stealth campaigns where we are empathetic to customer situations. We don't want to feel like we won't listen and we're not in partnership. I know we have had a couple of situations on the Pro/E side where people wanted to reduce the licenses and we ended up keeping our price pretty much the same.
According to PTC ceo Richard Harrison, the future of CAD is not CAD, but data:
The CAD market is nice and we have the best CAD products. But we have really become a data management PLM company with the best authoring too,l Pro/ENGINEER.
If you really want to be in a growth market going forward-- The CAD market is going to be low single digits [less than 9% annual growth] for everybody. The action in the next five years is going to be in the data management space, in:
Even the community aspect (or the social product development aspect) of building products more easily with those supply chains, that is where the action and the growth is going to be.
Parametric Technologies this afternoon reports that Q3 revenues were $226.2 million, down 11% from a year ago (based on constant currency and non-GAAP).
The company hopes end contraction and to return to growth in 2010 with a 20% increase in EPS (earnings per share).
PTC is guessing that Q4 revenues will be $235-$245 million, and for all of 2009 approximately $931 million.
PTC wants to goose its numbers before its fiscal year end (30 Sept), and is enticing business to buy its software, never mind the recession:
Available in Canada and USA only.
Since 2000, Siemens spent $1.7 billion on some 4,000 bribes in a dozen countries. Last year, they got fined $1.4 billion by the US and German governments. This week, they got more punishment, this time for bribery involving a World Bank project in Russia.
For the next two years, Siemens is banned from doing business with the World Bank, and must pay $100 million to anti-corruption agencies -- albeit, over 15 years.
The factory lines at Adobe are quiet this week, as employees are forced ["forced"? In the summer time? -Ed.] to take three weeks of unpaid vacation to help the company's leaders cut expenses.
The latest monster release of Creative Suite has been a sales dud, coming as it did last fall. Customers were faced with the dual dilemma of (a) buying upgrades at the start of what looked to be a very scary recession; and (b) upgrading to questionably-useful features.
AVEVA Group reports revenues of £164.0 million (roughly US$262 million), up 29% from last year's £127.6 million. It's pre-tax profit was up 32% to £59.2 million.
The company has £126.2 million cash in the bank. But not is all rosy, says chairman Nick Prest:
As the current global economic slowdown continues and the oil price and shipping rates sit at lower levels than in recent years, some projects are now being postponed or canceled, awaiting project funding or visibility of more certain times.
Monday Autodesk began a new way to sell AutoCAD, through a 12-month license. I'll leave it for for you to figure out the financials -- to figure out if this is a better deal than buying a $3995 perpetual license + $450 subscription or license + occasional $1998 upgrade + or just a perpetual license. Or buy a varient of IntelliCAD for $450.
Some of the rules:
In all other aspects, this is regular AutoCAD, but with a 12-month timebomb. Once the 12 months are over, you might be able to re-license for another 12 months, "pending availability."
Will this offer work? Other CAD vendors over the years have announced "software rentals," as this is sometimes called, but I have a feeling that none of them worked out, and I think that the offers were subsequently pulled.
Autodesk sees this as a way to solve the problem where short-term seats are needed for specific projects. Perhaps this offer was tailored to economic stimulus projects planned in the United States. Ironically, this software rental is not permitted for government accounts, perhaps because sales are up in that area, as an Autodesk PR person yesterday tweeted.
Autodesk reports that its revenues have fallen in all regions of the world, and in all sectors:
Cuts are expected to total $250 million this fiscal year.
Autodesk reports a net loss for Q1 of $32.1 million due to:
Autodesk plans to lay off another 430 employees, but then hire 100 for other positions. The company expects the losses to continue in the next quarter (Q2) on forecast revenues of $395-$420 million.
Avatech Solutions reports Q3 revenues of $8.0 million, down 37.5% from $12.8 million a year ago. The net loss was $0.15 million, down from a profit of $1.0 million last year.
The building and manufacturing markets continue to be adversely affected by the recession, forcing our customers to reduce costs and postpone investments in new software and services.
...said ceo George Davis.
The city of Vancouver wants to change to an Open City, declares the mayor.
Vancouver, BC is Canada's third-largest city and next February's host of the 2010 Winter Olympics. And is headlined by Autodesk as the third pilot city of its Digital Cities initiative.
Next week, that may start to come to an end. On Tuesday, mayor Gregor Robertson will be supporting counselor Andrea Reimer's motion on Open Data, Open Standards and Open Source.
The motion calls for the city of Vancouver to share its data with citizens through open file standards -- for data, documents, maps, and other media -- and open source software. The motion recognizes that there is a cost to distributing data, but that these should be minimal; the motion recognizes that it not easy to to switch over:
...when replacing existing software or considering new applications, will place open source software on an equal footing with commercial systems during procurement cycles.
Not that open source = free. While open source is often free to acquire, there is (usually) optional maintenance (subscription) cost attached that allows software developers to make their living. And so the motion figures that promoting open source might also promote related economic activity locally.
Cadastral Information Society
Heh: can you imagine trying to replace AutoCAD with something that's open source? CAD, not; GIS and DOC, maybe.
So what brought this on? I've spent some time attempting to track down the background to this motion, but ended up with just one clue (plus a rumor I won't reprint now). The motion states that Vancouver does not belong to the Cadastral Information Society. This is the only organization that the motion mentions by name, and is a non-profit that promotes the sharing mapping data between governments (runs on Geocortex). I wonder: does this desired change in mapping supplier indicate some kind of backlash against Digital City?
It would appear the cost of closed-source software is a concern/opportunity for some. I could see city hall looking to save some money, especially after the shock $750 million subsidy its surprised taxpayers are suddenly shouldering to complete the Olympic Athletes Village on time.
Adena Schutzberg presents a different interpretation on the effect this motion would have, should it be adopted: Does a Vancouver proposal related do open source mean a new GIS?
Large CAD vendors are experiencing declining revenues during this economic lull; for some of them, the bulk of revenues comes from annual subscription payments -- and so the software vendors are touchy about losing subs. Customers aren't really keen on paying hundreds of dollars for questionable benefits, especially for CAD seats formerly filled by now-fired employees.
For Autodesk, the hammer is the solution: 'stop making payments on our software, and we'll charge you a 50% penalty when you come whimpering back to us.'
For SolidWorks, the solution is the carrot: 'we'll extend your subscription by 12 months.'
Maybe after this recession, CAD vendors will mimic Microsoft (again) and begin to impose multi-year subscriptions. As with Microsoft, this would get them off the hook of delivering upgrades every year, as well as create a bridge effect over short-lived recessions.
Ansys is reporting today that its Q1 revenues were $121.4 million -- up 10.8% from a year ago. Net income was $34.5 million, up 6%.
Ceo Jim Cashman reflects on the last three months:
As expected, we were highly impacted by the combination of the uncertain macroeconomic environment and stiff currency headwinds. Despite these obstacles, we remain encouraged by the continued interest in our product strategy and vision.
For Q2, the company expects revenues of $118-$124 million.
For the fiscal year, revenues of $502-$552 million; fifty million is quite a spread.
Some employees at Ansys can expect to lose their jobs by June 30 -- or, as Ansys calls it, a "headcount right-sizing initiative." The company sits on $230 million in cash.
American CAD software companies will be at a disadvantage if current US president Obama gets his wish. To raise more income, he would like to tax the cash stored by multinational corporations in offices outside the USA to encourage/force them to "bring home" the profits/jobs.
(Currently, foreign income is taxed in the USA only when the cash is brought back to head office; this has encouraged multi-national corporations to keep their cash out of the USA.)
The new tax may benefit foreign competitors. Take, for example, Dassault Systemes and Autodesk. Both have roughly $900 million in cash. I don't know where Dassault stores theirs, but Autodesk has stated that they keep 80% of their cash overseas -- because the USA has the second-highest corporate tax rate in the world.
Details are to come out next Monday; it'll be interesting to see how the issue of double taxation will be handled: (1) taxes to the country in which US multinationals operate + (2) taxes to the US government. Even if US corporations get a credit for tax paid overseas, they will still pay more tax -- a big switcheroo from their earlier hope to pay $0 US tax on overseas income brought home.
Overseas offices of US CAD companies may soon have to pay taxes that are higher than that of local competitors. Local competitors will be thrilled at gaining the profit advantage!
Or maybe American CAD companies will incorporate in another country.
Dassault Systemes reported its Q1 revenues last week, and revenues either grew or fell compared to a year ago, depending on how currency exchange is treated:
In any case, total revenue was e309.7 million (about US$400 million) for the quarter.
I prefer actual rates, while Dassault prefers constant (same) rates. The details show:
Both PLM and Mainstream 3D software results reflected the impact of the current global economic downturn with lower new licenses revenue offsetting growth in recurring software revenue.
Saved by maintenance (subscriptions). Even though PTC's revenues were down 10%, things could've been much bleaker, since revenue from software licenses were down 44%. It was revenues from maintenance that made the drop a mere 10% -- understandable when maintenance amounts to 80% of the company's income + it actually increased.
'Course, that puts PTC at extreme risk should customers decide that paying several hundred dollars per seat per year just isn't all that important right now.
Revenue estimates for 2009 are now $940 million -- down another $20 million.
Gotta love this line from the press release: "Currency was a $3 million headwind relative to Q2 revenue guidance." Translation: exchange rates cost the company $3 million in lower revenue than previously forecast.
Dassault Systemes reports Q1 revenues of e310 million (roughly US$410 million), up 1% from a year ago, but 6% below revenue expectations stated earlier by the company (of between e325 and e335 million).
Oce reports Q1 revenues were down 6% (from a year ago) to US$868 million (approx.). The company provides these reasons for slumping sales:
The company is relying on recurring revenue streams and adding various markets and geographies. Its products seem competitive in graphic arts and display graphics. And it is speeding up its cost reduction plan.
Autodesk's share price jumped $3 since Monday, after an analyst figured that the company's sales were perhaps stronger than first thought. The 52-week low price was $11.70; the current price is 18.12 as I write this -- up 55%!
Carl Bass is no longer acting cfo of Autodesk; the new hire is Mark J. Hawkins, the former cfo of Logitech. Mr Hawkins also spent time at Dell and HP.
He starts later this month, and we'll see how a hardware guy does in our software world.
Already the wealthiest CAD company in the universe, Autodesk looks to increase its revenues even more by charging 3x higher upgrade fees a year from now. In the PDF file provided at its Simplified Upgrade Pricing Web page, Autodesk states:
After March 16, 2010, upgrade and cross-grade prices and retroactive Subscription fees from the three previous software releases will be priced at 50 percent of a full license, no matter which release you are using today.
The reason is to make it painful for you to stay off subscription, or ever dream of getting off subscription in these recessionary times. However, once most customers are on subscription, Autodek will start increasing subscription fees as well. It is inevitable as Red River flooding.
Autodesk calls the new pricing plan "simple;" I'd call it "penalizing customers while they are down."
High pricing, however, creates opportunity. For instance, airlines are now charging over $200 to bring along pets in the cargo hold. This has allowed Pet Air to offer flights for pets at $150. Competitors of Autodesk are probably popping champagne corks at this early hour, gleefully planning their new marketing themes.
Softcover International of England has written a lengthy editorial on Obama's "Buy American" policy may limit US wide format scanner choice.
The writer notes that wide format scanners will probably come into demand by the various stimulus packages planned for the USA, but the only one manufactured in the USA is from Xerox. All others are made in Denmark by Contex for Calcomp, HP, IDEAL, Oce, and Vidar; by Colortrac in UK and China; by Graphtec in Japan and China; and by Image Access (Kodak) in Germany.
If you are forced to "Buy American", you may end up with a product which is less capable and more expensive than those used in rival economies.
And that is the conundrum, isn't it? Buy Local (and pay more, perhaps, and/or get lower quality, maybe), or Import for Less.
Share prices of publicly-owned CAD companies have fallen lower than their prices from 5 years ago. Shares are straining to drop below even the dismal records set in 2003. (The time following the bursting of the Internet bubble posted the lowest share prices for CAD vendors since their founding days.)
From 12 months ago, share prices have fallen 2x or more:
Adobe figures its Q1 will be in the range of $783-$786 million, down from its previously lowered estimates for the quarter.
The new range is down about 12% from the $890.4 million it earned in Q1 a year ago.
Analysts figure higher prices for last fall's CS4 release are to blame, in addition to the economy affecting ad production, something Adobe hints at in its press release:
The Company cited weakness in its creative and knowledge worker businesses as the primary reason for the revenue shortfall.