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O N T E N T S Think3
IPO Ahead PTC
4Q04 Conference Call Q&A: Below
the Radar Write - - - Donate
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CAD vendors are emphasizing outsourcing to their customers. That's to sell more software, and especially to create a market for collaboration software. Last Friday, we listened as PTC executives boasted to financial analysts that they are advising companies to replace $100K/yr American engineers with $20K/yr Indian engineers. It occurred to us that maybe nearly all of its employees -- and those of any other software company -- could get outsourced enmasse to India, Russia, China, wherever -- software programming, marketing and public relations, IT and tech support, accounting, whatever. All an American software company needs in the United States is a ceo and local resellers. - - - As if to confirm the thought, we received a "brown envelope" email over the weekend, as we sometimes do. An anonymous employee alerted us to think3 closing several of its offices in the USA. We asked think3's Anne Willey about it. It is true, she said, that think3 closed its outlaying offices, including Boston and Salt Lake City. The new head office is Cincinnati, and the functions of the Chicago office were moved there. Engineering is now in Italy (from whence think3 originally came) and India. There are 60-70 engineers working in India for think3 and its customers. The privately-held company reports annual revenues of roughly US$40 million, but not does report net income (profits). The idea, Ms Willey told me from her home-office, is to make savings to manage costs and be profitable for the upcoming IPO [initial public offering]. Ceo Joe Costello is still passionate about the company. The Web site at www.think3.com has been reworked, and is no longer orange. PTC 4Q04 Conference Call Parametric Technology had another decent quarter, with revenues of US$170.1 million, up 4% from a year earlier. Net profit was $42.0 million, compared with a net loss of $38.0 million a year ago. Revenue was down for the fiscal year 2004, however, at $660.0 million compared to $671.9 million a year earlier. But net income was $34.8 million, up from a net loss of $98.3 million in fiscal 2003. For 1Q05, the company thinks that revenue will drop further to $160-$167 million. The plan is to target the SMB market [small to medium size businesses] with "the industry's most powerful 3D CAD software at an affordable price and with the ease-of-use they demand." PTC continues to get most of its revenue from mechanical CAD software, which it designates "design solutions." (Windchill is its PLM software.) Most of those revenues are from maintenance (aka subscriptions), and not licenses (sales of product). Below are the numbers: 2004 2003 Revenue
Source $86.7m $84.3m Design
solutions maintenance PTC has figured out how to stop losing money; now it needs to figure out how to make more money, as financial analysts peppered executives with questions...
Paraphrased Q&A Q: What kind of acquisitions are you looking at? A: They are not size-limited; there are companies across the spectrum that we are looking at.
Q: You are trying to sell to engineering outsourcing firms. How big is that business? A: Engineering outsourcing to India is about $400 million today. That is projected to grow to $10 billion in ten years, a business opportunity that's growing at 30%. This drives the PLM infrastructure, because it encourages digital sharing while requiring the preservation of process control. This is the wind in our sails.
Q: What is the demand for PLM? New Windchill license seats were down. The average new deal size remains quite small, although maintenance revenue has increased. What makes you think you will see growth here? A: There is an increasing demand for PLM; there are committees and benchmarks happening in companies. Call centers are off-shore, software development is off-shore, and engineering is going off-shore. We are showing engineering companies that it makes financial sense to replace a $100K-a-year designer-drafter in Chicago with "the same basic capability in India" earning $15-$20K. The only way to account for the small Windchill deal size, despite the acceleration in off-shoring, is that it is still a new market, and customers are still figuring out how they want to do it -- characterized by smaller pilots. To fight lower-end competitors, we are working to bring Windchill downmarket with standardized setup, tighter integration with Pro/E, and providing a hosted service: take delivery of a URL, instead of CDs. "We're doing pretty well moving downmarket, and we're starting to see smaller customers."
Q: Reseller business was up, but new seat sales were flat. A: You're losing sight that our revenue is up, which is the most important metric.
Q: Have slower sales of Windchill caused you to change your outlook? A: We see a sawtooth effect on revenue each quarter, which is frustrating.
Q: Do you think that Pro/E Wildfire has growth potential? A: We have growth in maintenance revenue. Long-term we see potential in license sales of Pro/E, but a single-digit growth opportunity instead of a double-digit.
Q: What are your projections for revenue from resellers? A: Reseller sales grew from 16% last year to 22% this year of total revenue. For next year, it will be south of 25%.
Q: What releases do you have planned for 2005? A: Windchill 8.0 in April, and Wildfire 3.0 in summer.
Q: Give us an update of your OHIO acquisition and your E-CAD/M-CAD integration [electronics/mechanical]. A: OHIO had their best quarter ever for the stand-alone product. Integration is going well: this quarter we will ship a new stand-alone product and the first OHIO/Windchill integrated product.
Q: Your MCAD pricing has been consistent for the last three quarters. Is this what we can expect for the future? A: MCAD pricing has stabilized: stable to slightly declining ASPs [average selling price] in the MCAD world, with new seat growth that outstrips the decline in ASPs -- particularly at the low end. It's an issue of mix of revenue. We reported a blended ASP; we have three Pro/Es: 5K [$5,000], 13K, and 25K. Depending on the mix of seats we sell in a quarter, that's a big driver of the ASP number.
Q: What's ratio of low-end to high-end seats? A: The same as it has been for the last few quarters: between 2/3 and 3/4 low-end seats. Q&A: Gary Heath is president and ceo of Informative
Graphics Corp. - - - upFront.eZine: "With your line of file viewers and data publishers, your products are not unique in the marketplace. How do you differentiate yourselves?" Gary Heath: "We actually are to some degree, but it isn't well understood (part of what we were confirming). We provide integrated content visualization and publishing with visual rights security for document, image, drawing, and 3D model data, regardless of format. Not sure anyone else actually does that? Now the $ question: does it matter?"
upFront.eZine: "Why would anyone buy software from you, rather than from any one of several competitors?" Gary Heath: "Besides hopefully needing the unique value we deliver, we listen well and we are organizationally aligned to be highly responsive to our customers. We do need to understand how to market our message and value better."
upFront.eZine: "Your product positioning seems confusing to me. What can you do to clear up the unusual product names [Net-it, Brava, Myriad, ModelPress, ProjectDox] and overlapping capabilities?" Gary Heath: "Right again, we have too many brands, and it can be confusing. We are actually in the process of addressing this. You also nailed correctly the issue of being both a horizontal component supplier and a vertical solution company in a targeted vertical (surprised me that you picked up on this)."
upFront.eZine: "Your company is somewhat low-profile. How will you make yourself noticeable to the CAD media?" Gary Heath: "Step 1. Advertise more. "Step 2. Visit CAD media people, ask questions/learn, build relationships and trust. Listen to what they have to say. You guys know a whole lot more than we do about this market, based on your unique position with vendors and users. The risk, of course, is that we may come across as looking clueless, but nevertheless it seemed like the right logical starting point. "If we got the wrong assumptions or are missing the mark completely about what has value, then anything we have to say or 'demo' just doesn't matter. Realize it is a different approach to the 'sell em' on how smart we are(n't). You guys are in a much better position to understand the industry than any vendor looking at it through their limited portal hole." "Last thing: We aren't as low profile as you may think. We have thousands of downloads a day for our software. Our customer list reads like a Who's Who of big companies across many industries. It is true that we have a low profile to the trade and that we need to market our product success more." - - - [Some weeks later, Mr Heath was in Japan. "I'm in Tokyo watching a typhoon hitting the city from a 32-floor vantage point at the moment." He added these thoughts:] What is interesting about the service business in Japan is how often everyone gives an apology. We had an amazing dinner. I asked my host what people were saying as we were leaving, and it was something like this:
Now the point is this: I think many software companies take their customers for granted. The people at this restaurant were saying (in a hidden meaning), "We value you as our customer and we can't do enough for you for your business." What a great concept! I look at something like that, and ask, "Wow! How can we do that?"
Below the Radar A summary of CAD industry news you may not have read elsewhere, or that we found interesting: - - - Excitech adapts Autodesk's Inventor to use solid modeling techniques for designing bridges, roofs, structural components, facades, and fittings. www.excitech.co.uk SAMTECH launches TEA Pipe piping and tubing simulation for CATIA V5. Also available TEA Mecano (transparent non-linear mechanical analysis) and TEA Thermal (transparent non-linear thermal analysis).www.samcef.com MITCalc releases new modules for their Mechanical Calculations Package: Tolerance analysis and Technical formulae. They include solutions for gears, belt and chain drives, springs, beams, shafts, bolt connections, shaft connections, tolerances, and more. www.mitcalc.com Elysium and Nexroot join to create CADportal for automatically checking, healing, and translating 3D CAD data. www.cadportal.com eQuorum supports SolidWorks in ImageSite (for Web-based document management) and Plot Station (for print management). www.equorum.com Cimmetry's AutoVue now supports Autodesk Inventor 9 and SolidWorks 2005. www.cimmetry.com SACIT Steel Advisory Centre releases EQUIST Silver software plug-in, an integrated database of steel engineering standards for Solid Edge. www.sacit.hu Archway Systems is shipping VersaCAD 2004 for Windows. www.versacad.com And Softcover International offers Scan2CAD's raster editing and drawing tools free from www.softcover.com Hardware News LaunchPad is an input system for CAD drafting with its dockable pad-based controller: customize aliases, build/manage blocks, and more. http://www.launchpadoffice.com BOXX Technologies delivers Discreet's new 3ds max 7 software as an optional upgrade with its workstations. sales @ boxxtech.com Oce's new TDS300 is a large-format black- white digital copier and plotter for lower-volume architectural, engineering and construction organizations. http://www.oceusa.com Seminars & Conferences The 2004 Construction Computing Event is Nov 3-4 at The Barbican in the City of London, England. www.constructioncomputing.co.uk 9th SAMTECH Users Conference is Feb 2-3 Feb in Paris-Bercy, France. www.samcef.com Magazine/eZine/Weblog Updates MCAD Central has resources for engineers, designers, and system administrators working MCAD software. www.mcadcentral.com myCADsite updates its tutorials to AutoCAD 2005, making them available in English and Spanish. English: www.myCADsite.com and Spanish: www.myCADsite.com/tutorials_sp/index.htm People/Companies on the Move MSC.Software appoints John Laskey as senior vp and chief financial officer. Mr Laskey is the former vp and cfo of webplan. ICS Triplex ISaGRAF France relocates to 6bis Chemin des Prés, 38240 Meylan, France. Brand New CAD Books "Solidworks
for Designers Release 2005" "Tailoring
AutoCAD 2005" WorthWhile Web mapmaker.rutgers.edu/MONMOUTH_COUNTY/OldMonmouthCounty.html
www.microsoft-watch.com/article2/0,1995,1681934,00.asp
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