by Jay Vleeschhouwer
Dassault Systemes' SolidWorks, the company’s second-largest brand in terms of revenues, held its annual SolidWorks World conference for users, resellers, third-party developers, and other partners. The event is comparable to Autodesk’s annual Autodesk University and Parametric Technology’s annual event. SolidWorks has used the event each year to highlight new technology and products, corporate strategy, and its view of the market.
The CEO of the parent company made his second appearance at the opening general session (last year was the first such appearance), underscoring how Dassault’s management wants to have SolidWorks perceived and managed as an integral part of the entire Dassault portfolio of brands and strategy. in other words, for the Solid Works base, no more "Dassault who?" At the practical level, there is more technical collaboration occurring than was the case for most of the period of Dassault's ownership, which began in 1997. This collaboration is notably occurring with respect to on-line technology and offerings, under the overall V6 rubric, and with respect to CAD technology as well.
In terms of business conditions, as we reported over the course of 2010, the leading CAD and PLM suppliers saw their businesses recover from the steep declines of 2009, though not all segments were back to pre-recession levels. Autodesk's Inventor (the largest component of their Manufacturing Solutions Division) and Parametric's Pro/Engineer are SolidWorks' main competitors in the CAD market. SolidWorks' active maintenance-paying base is larger than that of either of those other products' bases. (Inventor is much closer to SW than is Pro/Engineer.)
How the Competition Compares
Through the first three quarters of its current FY11, Autodesk's Manufacturing division's revenues were up 21% year/year over the comparable period (though total revenues were still less than the same period two years earlier). I estimate that for 4QFY11 (ending January 2011) Autodesk's Manufacturing division will report revenues above those of the same period two years ago.
Similarly, PTC has just reported an 8% year/year increase in its desktop business (comprised mostly of CAD), and, as it turns out, the total of license, services, and maintenance revenues was slightly more than where it was in the same quarter two years ago.
My sense from the conference is that SolidWorks’ business also has indeed continued to improve. For 4Q10, to be reported on February 10th, I expect the "Mainstream 3D" segment, which includes SolidWorks' CAD and other related non-CAD products, to report about e82.5 million, up 29% year/year (Mainstream had been down 15% year/year in 4Q09). These results would bring full-year segment revenues to about e311 million, up 19%. For Dassault as a whole, I'm assuming e421.7 million, up 24%, and non-IFRS earnings of e0.67 a share, down 5%; these results would bring FY10 revenues to about e1.52 billion, up 22%, and earnings of e2.29 a share.
My 4Q10 Mainstream segment estimate assumes nearly 12,000 CAD units, up 18%, CAD-only license/maintenance revenues of over e68 million, up 23%, and non-CAD (i.e., simulation, PDM, Composer) of more than e14 million, up 66%, including new units and maintenance. Given the volumes through 3Q10, these estimates would imply total 2010 unit volume for SolidWorks in the low-40,000 range. By comparison, I am estimating 30,000+ for Inventor for the trailing twelve-months, and about 19,000 for Pro/Engineer, which, in the final quarter of calendar 2010 -- its 1QFY11 -- had its best quarter in over three years.
The SolidWorks volume for 2010 was up from the depressed levels of 2009, but only back to around the range attained in 2006; I suspect however that the goal for 2011 will be try to get back to the high-40,000 range reached, pre-recession, in 2007-2008. In the meantime, however, nearly two-thirds of total Solid Works CAD revenues is from maintenance, or an estimated e160-e165 million in 2010, up year/year as new licenses and maintenance attach/renewal rates improved, as was the case for the peers.
For the industry, therefore, if we add the combined volumes for the principal products, we can estimate there were about 125,000 new units in 2010, vs. more than 140,000 in 2008 and about 105,000 in 2009. Missing of course are the invisible Siemens PLM data, but the overall conclusions about 2009-2010 industry decline and recovery should not be much different.
While non-CAD products still account for under a fifth of mainstream 3D segment revenues, the proportion has been growing. Indeed, this proportionate non-CAD growth (all from acquired products) has been a management imperative, as it has become increasingly evident that SolidWorks can no longer rely on being only a one-product company. The technical differentiation from Inventor has become harder, necessitating more effective selling or relationship building via the channel and the focus on integrated "solutions" (tantamount to "suites," without the explicit packaging). Autodesk is taking very much of a suites approach, and PTC is likely to have pricing for its various packages of forthcoming Creo brand of products (the successor to the Pro/Engineer and CoCreate brands).
Where that non-CAD proportion can go (including new on-line services, i.e., n!Fuze) and, separately, how well its highly dedicated channel will sell other Dassault brands (also a management objective) remains to be seen. Two open, though not necessarily critical, questions with respect to the diversification, or multi-product, strategy, are: (a) To what extent, if at all, will SolidWorks be segmenting the newer offerings, as it has the Standard, Premium, and Pro CAD versions? And, (b) in light of focus on several key vertical markets, e.g., AEC, consumer products high-tech, among others, to what extent, if at all, will it offer specific vertical packaging of its products?
The available market for its non-CAD products is, in theory, substantial, in light of Solid Works' large active maintenance-paying base. I infer around a quarter-million units as of the end of 2010. Given SolidWorks' assessment that the large majority of its customers don't have a PDM system (though they haven’t said much about why this is the case), I'll surmise that in part it's because "PLM" has been such an expensive and cumbersome undertaking for much of its history.
This has been changing, however, as PTC, for instance, has been seeing some good momentum for its Microsoft SharePoint-based ProductPoint, which is specifically intended for the smaller accounts market, for their product data sharing and collaboration requirements. This evolution makes it all the more curious that Microsoft was absent from the SolidWorks conference this year, after being closely involved for many years -- and as well when we consider how emphatic Dassault was about its Microsoft relationship just two or three years ago. Some of this apparent separation, however, may be due to Microsoft's internal changes to its vertical market groups, including for the manufacturing sector in particular.
Local vs Cloud
In any event, there would seem to be, therefore, substantial potential for its existing PDM packages in the base; however, the explicitly stated strategy is that Enovia V6 will be the "PDM backbone" for Solid Works, so it seems the relative positioning of the local/on-line offerings (once available) will need to be worked out. (The locally installed PDM will need to be supported for some time, just as SolidWorks will continue to offer -- as it stated very clearly -- a locally installed version of SolidWorks, with something like n!Fuze being used to establish and develop prospects for full on-line PDM in the future.)
For some time at least, it will likely have a hybrid model, of locally installed and on-line offerings. (I suspect this will be the case for a number of traditionally packaged-software companies.) With the largest part of SolidWorks' customer base having three seats or less each, it might be more economical for them long-term to adopt an on-line solution for "PLMing." We have begun to see the first batch of on-line offerings, including the oddly named “n!Fuze”, the product data sharing offering to which the company had alluded at the 2010 conference.
Similarly, following through on the Web3D concept talked about at its European customer conference back in November 2007, Dassault/Solid Works demonstrated Post3D, a kind of immersive, interactive virtual environment for viewing products, meeting, collaborating, and the like.
The public beta for n!Fuze will start in February, with general availability expected in 2Q11, and the Post3D beta will start this quarter, with availability by mid-year. The overarching question for Dassault as a whole is the degree to which its surfeit of new technologies, combined with its new sales structure, will lead to an acceleration of growth.
SolidWorks has something over 300 resellers worldwide, with an effective sales capacity around 1,800 reps, or perhaps a bit less. SolidWorks, in order to make its growth plans for this year, will very likely need to add channel capacity. That path is more likely to follow internal expansion from existing VARs, rather than additions of new entities. By the same token, Autodesk and PTC too want and need to increase their channel capacity and capabilities for the so-called SMB [small and medium business] market, even as each -- and SolidWorks -- is pursuing the large account business.
To the extent that there are natural limitations to sales rep productivity (a generic condition acknowledged by each of the vendors), and, as well, the relatively small average transaction size for SolidWorks, then it stands to reason that growth will come from any or all of the following:
- General market expansion/economic recovery.
- Capacity additions, and/or...
- New products and services. (In Autodesk's case we'll see more suites.)
At the same time, in pursuit of larger transactions, SolidWorks has undertaken more of a segmentation of its selling structure. It has an overlay of "global account management" and "strategic account management," similar to the direct sales nomenclature at PTC, except it will be strictly via the channel. The aim is to increase the average level of business per customer.
Questions and comments are welcome.