Wednesday, August 02, 2006

Market Consolidation Contributes to Robust Quarterly PLM Performance (AMR)

PLM is seeing some strong quarterly earnings from its vendors. It also shows that the leaders are performing above the overall market growth, partially due to the consolidation taking place as this space matures. Vendors deriving from a legacy in CAD are the front-runners as manufacturers refocus on connecting design innovation to the broader cross-functional new product introduction (NPI) team.

PLM quarterly performance to date

Total revenue for Dassault Systemes was Euro 280M in 2Q06 versus Euro 217.3M the previous year, resulting in 29% GAAP revenue growth. Excluding recent acquisitions, total growth was approximately 10%, with MatrixOne contributing Euro 17.8M and Abaqus Euro 23.2M. The midmarket continues to show strength, with SolidWorks 3D CAD revenue reaching 20% growth.

PTC reported 3Q06 revenue of $216.7M versus $180.3M the prior year for a 20% increase in total revenue. Based on historical revenue, AMR Research estimates the Arbortext and MathSoft acquisitions contributed roughly $15M, resulting in an estimated 12% organic growth. PTC said acquisitions will continue to be an important part of its growth strategy of reaching $1B in revenue by 2008. Channel partners targeting the midmarket continue to be an important component, contributing roughly 21% of total revenue.

PTC and Dassault total revenue are well ahead of AMR Research estimates of total PLM market growth of 10% through 2006. However, they also reflect the dynamics of a consolidating PLM market, where organic growth is more in line with estimated total market growth. And they reflect a current trend toward PLM dominance by vendors with a legacy in CAD, as ERP vendors like SAP experience flat growth in their PLM applications.

Up next this quarter
UGS and Autodesk are still due to report numbers this quarter. Autodesk is in an excellent position to continue growth within manufacturing as midmarket manufacturer’s upgrade to 3D CAD; though expect them to see competitive pressure given the aggressive targeting of this market by Dassault, PTC, and UGS. Autodesk still depends heavily on the CAD and computer-aided-engineering (CAE) revenue given its limited presence in broader non-CAD PLM applications.

UGS’s momentum should continue given the endorsements from major customers, including Boeing and Ford for enterprise data management and embedded software. UGS has also made progress in new industries like apparel, but still depends heavily on its core industries of aerospace and defense and automotive for major revenue.

Agile Software will report numbers later this quarter, and remains the sole major independent PLM provider. It has experienced single-digit growth in recent quarters, struggling to meet its goals. The recent Prodika acquisition, while not adding huge revenue at roughly $5M per year, positions Agile well in the expanding food and beverage process industry against the CAD-centric providers. Agile must build momentum in these industries to distinguish itself from the bigger players, as well as expand its footprint within the typical stronghold of high tech.

Manufacturers continue to invest in speeding innovation to market for their own growth. To support this, they want to use existing investments in applications like CAD or ERP. For now, this is especially good news for design-oriented application providers as the pendulum swings from operational efficiency to innovation. However, effective innovation that returns a business benefit is the end goal, so expect manufacturers to continue to identify those NPI processes that result in the most success and the applications that best support their primary business pain.

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