Friday, July 27, 2007

Is Something Wrong with the CAD Industry? (01mar97)

March 1, 1997

The overall computer industry is booming around the world and the overall CAD industry grew between 15% and 20% in 1996 depending upon what you include. Technology Automation Services, the parent organization to A-E-C Automation Newsletter, tracks the financial results of public-traded companies in the overall CAD industry. For the quarter ending December 31, 1996, the 32 companies in its database reported that revenues increased an average of 24.4%. The average would have been substantially higher except for three companies that are primarily AEC-oriented: Softdesk, Eagle Point and Intergraph.

Softdesk reported quarterly revenues of $8.0 million, down 30% from the same quarter a year ago and a loss of $1.7 million. Eagle Point had revenues of $4.1 million, down 18%, and a loss of $0.2 million. Intergraph had revenues of $294.1 million, down 2%, and a loss of $33.6 million. Just as we were going to press, Autodesk reported its results for the quarter ending January 31, 1997. Revenue was down 9% to $115.0 million and while the company earned $6.0 million, that was a little more than a third of what it earned in the same quarter last year.

If the rest of the industry is doing so well, what’s wrong with the AEC sector? According to Cambridge, MA-based Daratech, overall AEC revenue was basically flat in 1996. Not everyone is hurting, however. The problem we have reporting data on the industry is that the healthier companies tend to be privately held. As an example, Bentley Systems claims that software revenue grew 37% in 1996 and is now running at a better than $120 million annual rate. GEOPAK, a fast growing vendor of civil engineering software stated that it grew more than 40% last year and Cambashi Limited, based in Cambridge, England recently prepared a report that shows the plant design software market grew 12% in 1996 with nice increases at CADCentre, EA Systems and Rebis.

We believe that there are several reasons for the overall slow growth in this market:

  • Residual problems associated with AutoCAD Release 13 and the long cycle between release 13 and Release 14. Since Autodesk obtains most of its revenues from new licenses and upgrades, without a new release in over two years, revenue from this source has dropped off. This has a related impact on Softdesk and Eagle Point since their update revenue is closely tied to that of Autodesk. In addition, low-cost alternatives such as diagramming software from Visio are eating into the traditional CAD business Autodesk and its third-party developers have historically enjoyed.
  • The lack of exciting new AEC technology. About eight years ago, the mechanical CAD industry began a major technology shift to feature-based solids modeling. It took awhile for the technology to catch on, but now it is the accepted way to design everything from bicycles to jet aircraft and companies such as Parametric Technology, Dassault, SolidWorks and Structural Dynamics are booming. The comparable impact on the AEC market will come from a new generation of object-oriented design tools. Bentley’s Objective MicroStation and Autodesk’s ARX will eventually lead to an entire new class of applications and should result in substantial growth in the 1998-2000 time period.
  • The difficulty of justifying advanced CAD technology. This newsletter has been making the point for years that users cannot just look at CAD technology as a way of reducing design costs. That can be done with some fairly inexpensive tools. Instead, both design firms and operators need to understand where intense use of the latest technology can result in facilities that can be constructed at lower cost, operated more profitably and updated more easily. The benefits of squeezing 5% more production out of a petrochemical plant significantly outweighs the savings associated with reducing design costs by 20%to 30%.

The bottom line is that some companies are struggling, others are doing well but that the overall AEC industry has some hurdles to overcome before growth can get back on track and approaches its inherent potential.