The technology used to conceive, design and fabricate the objects around us is complicated. It may be difficult to understand if you're not a practitioner, yet businesses routinely entrust their most important processes to these tools. Our Hot Topics blog tries to clear up some of the confusion.

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Hot Topics

Creating the “Market Basket effect”

downloadI travel a lot which means that every so often I lose track of local news and run low on groceries. Earlier this summer I found myself at a local market, stocking up, when I noticed just how crowded the store was. I don’t usually go shopping at that time and had seen a bus from the local senior citizen’s community in the parking lot, so chalked it up to coincidence. I grabbed what I needed and headed to the checkouts. Mobbed. Crammed. Lines intersecting one another. In the longish wait, I got to chatting with other people and discovered that they were boycotting a local supermarket chain because the long-running dispute within the family that owns it had come to a head. In late June, one family member ousted another as CEO; in July employees backing the former CEO started walking off the job and asked shoppers to boycott the stores.

For the rest of the summer, the 71 markets in the Demoulas family chain (operating under the Market Basket brand) were empty. Employees, sometimes joined by customers, picketed out front. Suppliers stopped shipments, so shelves emptied and weren’t restocked. Signs appeared about greed versus loyalty. The governors of Massachusetts and New Hampshire tried to intervene. Newspaper and radio pundits, academics and even former US Secretary of Labor Robert Reich weighed in on how the ousted CEO was able to create such loyalty, how the saga could end —after all, what white knight would step into such a mess— and how anyone could turn this situation around.

Last night, Market Basket’s shareholders announced that the former CEO has been reinstated and that he and his sisters are buying out the relatives that ousted him. (Many of them are named Arthur, and I’m trying to keep it simple. Bottom line: guy everyone loves, in. The one portrayed as “the rival”, out.)

What happened here is remarkable. Supermarkets are big business (the agreement reached yesterday is a deal worth more than $1.5 billion), yet the company leadership created incredible loyalty among both employees and customers. According to news reports, the former/returning CEO offered reasonable pay and benefits as well as profit-sharing and provided career paths in an industry that doesn’t typically do that. One report said that a typical supermarket employee lasts just 100 days; Market Basket employees often work there for 10 years or longer. Clearly, treating employees well creates the kind of loyalty that leads to some of them being willing to sacrifice their jobs if needed to keep the company running as it was.

But how did the company build this incredible bond with its customers? I mean, would you boycott products if the manufacturer’s CEO were ousted? Would you even know? One key, certainly, is that Market Basket employees always seemed empowered in ways that people on a job for less than 100 days could never be. They gave a face to the corporation that was personal and personable. I can’t speak for anyone else, of course, but I shopped at Market Basket because they tended to have more traditional and ethnic foods that the other, “yuppy”, supermarkets in my town didn’t have. Too, the fish monger, butcher, and grocery manager all were grown-ups who knew what they sold, where it was and what to do with it.

The deal signed last night signals the end of one phase of this debacle, but probably changes the company forever. Will customers come back? Will the family “feel” of the stores change, now that there’s a significant debt to service? We might not know for months.

Outside the supermarket, there’s much to think about. How can we create this kind of bond with employees and customers? What can we do in our business operations, with product design, in the sales process and in after-sales service to show them how much they matter?

This “Market Basket effect” has been amazing to watch. Employees rallied colleagues and customers using traditional and newer, social media to change what had been a done deal (the original ouster) and generated tremendous community support. They risked their jobs and paychecks for an uncertain outcome. This ended the way Hollywood would want, but now the hard work starts, of putting it all back together.

The Boston Globe did a great job covering the story and has a lot more detail on the 25 years leading up to this announcement.

The Internet of Things, me and you

ConnectionsThe Internet of Things (aka IoT) isn’t really new. It’s the idea that objects are connected to one another and to controlling/monitoring systems. Factories, power plants, cars — all have worked this way for years in what’s now called machine-to-machine communications (M2M). It’s by far the most efficient way to balance complicated systems.*

What’s is new is how many things are now being connected, and what they’re connected to. My air conditioner talks to my cell phone. Some high-end cars can tell the dealer what service it needs before those pesky dashboard lights come on. These objects have embedded sensors and communications technology that enables them to interact with the external environment.

The proliferation of these connected devices has profound implications for designers, who now need to figure out what to monitor and how to (re)design their products to enable monitoring and promote actions based on the sensor readings. How would your design change if you knew exactly how hard a user pushed a button, pressed on a lever or how a technician services a rotor? And if you could aggregate one user’s experience with thousands? How would you redesign your offerings to include both the product and its service needs?

Read more over at the PTC Creo blog.

*I was in Tillamook, Oregon a few weeks ago and stopped by the Tillamook Cheese Factory — yes, the people who make cheddar, ice cream, yogurt and more. The visitor center had windows looking down onto the production line where giant blocks of cheese were first trimmed into true-cornered cuboids, then sliced into supermarket-sized blocks, inspected, placed into sleeves that were then vacuum-sealed, inspected, boxed, inspected … You get the idea. If there was a bottleneck at any one station, cheese would have piled up everywhere unless there was a mechanism to shut the entire line down. I have no idea how Tillamook deals with this, but perhaps there are sensors monitoring the line that are tied to algorithms that could speed it up, slow it down or stop it altogether, as needed. That’s M2M. If the manufacturer of the truing machine, for example, receives data on how the machine is working and schedules maintenance based on actual use, that’s IoT.

The Cheese Factory was cool — give it a look if you’re ever on the Oregon coast. Even if you’re not into cheese, the coast is gorgeous and well worth a visit.

Trimble’s Q2 highlights broad diversification

EarningsI love how writers start stories about Trimble Navigation: sometimes it’s the electrical instrument company, other times it “isn’t just GPS” — both are correct as far as they go but under-represent all that Trimble is today. And at the rate the company is acquiring, that might be wrong tomorrow, too.

During the investor event held in June, CEO Steve Berglund explained it this way: Trimble wants to transform the economics of industries that haven’t historically invested heavily in technology: agriculture, construction and transportation logistics. As these industries start to see the benefits of applying technology, Trimble sees customer investment skyrocketing, leading to revenue growth for Trimble and the ability to invest in yet more innovation. Trimble’s acquisitions have been technology (and channel) focused; integrating those technologies is key to Trimble’s success. Mr. Berglund says “technology is table stakes; distribution and domain knowledge are the winning hand.”

Mr. Berglund characterizes Trimble’s growth as having no moments of epiphany, making no massive strategic shifts — just taking thousands of little steps, searching out adjacencies that offer new opportunities. It starts with finding new technologies to sell to exiting customers (so from GPS, outwards) and tightly integrating them to create greater value than is obtainable from point solutions, then finding new customers for the growing product portfolio, and finally tapping the company’s domain knowledge, go-to-market methods and brand awareness to find new markets. Rail, water utilities and electrical utilities, natural resources like mining and forestry, oil and gas, waste management — all are emerging as targets of opportunity. They lag in technology adoption and have mobile workers who need to be connected and information-aware, all areas where Trimble wants to innovate.

Trimble’s Q2 results, reported last week, blew away estimates and forecasts:

  • Total revenue for the quarter was $642 million, up 11% year/year, and far above the consensus estimate of $621 million. The company said acquisitions accounted for less than one percent of revenue growth.
  • By category, product revenue was $469 million, up 10%.
  • Service revenue was $100 million, up 18%.
  • Subscription revenue was $73 million, up 11%.
  • By division, Engineering and Construction revenue was $368 million, up 17%, with growth across all major product categories and continued strength in buildings, heavy civil and geospatial.
  • Field Solutions revenue was $115 million, down 1% as an increase in Geographic Information System (GIS) sales couldn’t offset a single digit percent decline in sales of agriculture products.
  • Mobile Solutions revenue was $123 million, up 6% on double-digit growth in sales of transportation and logistics solutions.
  • Advanced Devices revenue was $37 million, up 17%, with “strength in multiple businesses in the portfolio”.
  • By geo, revenue from North America was around $340 million, up 6% on demand for Engineering and Construction and Mobile Solutions, offset by a slight decline in Field Solutions revenue linked to agriculture. The company said the US is “trending up, but in a comparatively constrained way”. The government’s inability to pass the Highway Bill is “muting the willingness to make investments in the heavy civil and geospatial markets”.
  • Europe is “demonstrating more signs of life” with revenue of about $160 million, up 20% due, in part to a “positive revenue recognition event involving a distributor” that “was about half of that growth rate.” The company reported growth in all segments, and in most countries in Europe. Russia, as expected, was down for the second quarter in a row and Mr. Berglund said that the Russia/Ukraine conflict may dampen investment in those countries and around Europe in the rest of 2014.
  • Revenue from Asia was around $96 million, up 15%, and from the rest of the world, about $45 million, up 16%. The company said that revenue from emerging markets continues to grow, but not at historic peak levels. Australia “remains a drag on results”, China was the “strongest country” but other emerging markets, including Brazil, the Middle East, South Africa and India, continue to grow.

Mr. Berglund described Q2 as reflecting “generally improved market conditions outside of agriculture. Although we currently anticipate agriculture to remain a challenging market through the rest of the year, we expect our other markets will more than offset that effect. The construction industry, in particular, is accelerating adoption of our technology as the benefits become better understood.”

After the Q2 news, Trimble announced more partnerships and acquisitions — it shows no signs of slowing down. Yesterday, the company said it was acquiring Manhattan Software, developer of real estate and facility management software, to extend its design-build-operate portfolio for building owners and facilities managers. Financial terms were not disclosed.

Trimble also announced that it has entered into a strategic alliance with 3Gtms, Inc., a provider of transportation management systems. Under the terms of the agreement, Trimble is making an equity investment in 3Gtms and will resell 3Gtms products via TMW Systems, part of Trimble’s Transportation and Logistics division. Again, financial terms were not disclosed.

Neither of these announcements included anything that adjusted Trimble’s Q3 guidance of revenue between $590 million and $610 million, which would be a pretty steep 7% sequential decline. Trimble CFO Francois Delepine says the forecast takes into account the volatility in the agriculture end-market, when the company can recognize revenue from deals that combine hardware, software and services, that big transaction in Europe and a typically slower summer quarter. Wall Street’s consensus is $603 million — we’ll see what happens.

Reality computing + beer = entrepreneurship

Reality computing comes in all shapes and sizes. The Leakey family in Africa is digitizing fossils making the scans available to scholars, students and anyone else who wants them (at

Gorilla skull

Artists scan sculptures, architectural details and other objects, then digitally alter them to create their own artistic interpretation. Engineering contractors use laser scanning to figure out the current condition of a building, process plant or other structure, so that new additions match exactly. Others are scanning the plumbing, electrical and HVAC components on their projects before putting up drywall, to document the exact locations of these systems.

All this and more was under discussion at the Reality Computing Meetup hosted in early August at the MassChallenge space in Boston’s waterfront. The meetup was sponsored by Autodesk, DotProduct, Mebotics and Stratasys, who covered many of the angles in capturing, creating and delivering reality –the hardware and software, and materials like plastic, cardboard and metal. Over pizza and beer, 150 or so people talked laser scanning, additive is better/worse than subtractive manufacturing, the relative merits of cardboard and plastic models, apps or desktop or cloud computing, and how to use these technologies to make a difference.

Part of the success of the evening was the topic, and part was the venue. MassChallenge calls itself a startup accelerator, selecting 128 startups each year to move into its facility and take part in an intensive 4-month program. This gives the entrepreneurs access to mentors and investors, in what felt like an incredibly vibrant environment to collaborate and grow an idea. MassChallenge is funded by the Commonwealth of Massachusetts and some of the area’s top companies in high-tech, insurance, banking and medical devices/care. The startup teams I spoke with were creative, enthusiastic and interested in figuring out how to use reality computing in their ventures.

It was smart of the 3DRV team to hold its Boston event at MassChallenge. There’s a sense of possibility, of “OK, this is cool, now how can I make a business out of it?”. People tried the DotProduct scanner, played with the 3D printed objects brought by Autodesk’s Tatjana Dzambazova and looked hard at the printers shown by Mebotics and Stratasys. It was a terrific event — and, who knows, we may find out that the next reality computing startup was born that early August day!

The 3DRV roams the US through December and is planning more meetups, so go check one out!

Image courtesy of African Fossils,

Hexagon’s Q2 a mixed bag of good/bad, up/down

Many things went well for Hexagon in Q2, as the Metrology and Intergraph PP&M businesses returned to more robust growth and the new Solutions business, created to make offerings that combine products from across the portfolio, started to have an impact. On a geo and end-market basis, CEO Ola Rollén said that conditioned improved in Europe across all businesses; in  North America, especially construction market; but slowed year/year in Asia as the Chinese construction sector continues to work through corruption probes. Mr. Rollén also spoke a bit more about the Vero acquisition, though with few details.

But first, Q2:

  • Total revenue in Q2 was €636 million, flat as reported but up 6% in constant currencies (cc) and a constant group structure. In all, Mr. Rollén seemed pleased by the group’s progress — more than the raw data would imply.
  • Measurement Technologies (MT), the group’s core continuing business, is all that’s left of the “old’ Hexagon and accounted for all of the revenue in the quarter. Hexagon will continue to report revenue at the MT level for at least the rest of this year; let’s hope they offer more details on the individual operating businesses after that.
  • Geosystems revenue was up 3% on an organic basis, to €229 million, as the European construction market improved even as China stalled.
  • Metrology reported revenue of €197 million, up 10% on increased demand in Asia.
  • Technology, an umbrella division, reported revenue €210 million, up 5% on an organic basis. Hexagon does not break out specific brand revenue, but did say that Intergraph SG&I again reported only modest growth in the quarter, Intergraph PP&M reported double-digit growth, likely twice the recent growth rate. NovAtel agin reported a weak quarter because of delays in Unmanned Aerial Vehicle acquisition programs. Mr. Rollén didn’t give details, but it doesn’t sound as though the quarter was as bad as Q1, when y/y revenue declined 25%.
  • For the first time, Hexagon spoke about its Smart Solutions group, which had a “strong quarter in terms of revenue and profitability”, though it likely serves fewer than 20 customers at this point. But they seem to be mega-customers like Vale, which bought Hexagon’s Smart Asset Control to manage equipment (trucks, wheel loaders, flatbeds, etc) at its private port in Tubarão, Brazil. Vale has been a PP&M customer for years, so this is a natural extension of its relationship with Hexagon. It’s not immediately clear how many new accounts are coming to Hexagon via the Smart offerings.
  • Hexagon reports that revenue was up 7% in cc in Europe with revenue from Western Europe at €197 million and from the rest of Europe, the Middle East and Africa, €64 million. It was a tale-by-country: Germany up, France and UK down over a tough comparable a year ago; Spain and Italy reported double-digit growth y/y on easy comparables. In all, demand in Western Europe was driven by infrastrucx`ture, automotive and aerospace. Like other companies in our universe, there is concern over how the Russia/Ukraine turmoil, sanctions an other actions might impact revenue; Russia accounts for 3% of Hexagon’s overall revenue. Mr. Rollén declined to be more specific.
  • The Americas reported revenue of €205 million and 5% y/y organic growth. Revenue from North American was €173 million, down 3% y/y on demand from construction and residential housing, automotive, aerospace, power and energy sectors. The defense sects also picked up, with the exception of UAV-related business. South America (revenue of €32 million, up 26% y/y) continues to be a small but important part of Hexagon’s overall plan, reporting double-digit growth in Q2 as  all sectors except mining continued to be strong.
  • Overall, revenue from Asia was up 5% on an organic basis to €171 million, with revenue from China at €95 million, down 6% as reported but up 5% in cc, as the automotive, electronics, power and energy segments were up but surveying was down. The rest of Asia reported revenue of €76 million, roughly flat as reported, as India, Japan and Malaysia had strong quarters while Australia’s mining industry’s weak demand lowered revenue there.

Hexagon offers some color by end-industry, mostly in the form of this chart:

As you can see, it’s a roller coaster ride of regions and industries. Hexagon’s diversity makes it hard to track specifics but is encouraging to investors because there’s always a pocket or two of growth somewhere, even if the overall picture is gloomy.

PP&M continues to be a bright star in Hexagon’s constellation, though not too many details are given. As you can see from the end-industry chart, PP&M’s main verticals of power and energy are doing very well in most of the world and decently in the rest —no red arrows across the geos— though its sales into mining are likely as negative as the rest of Hexagon’s.

Probably the biggest PP&M-related news that came out of the earrings release was that a joint venture of Fluor, Daweoo and Hyundai has chosen Intergraph’s SmartPlant Cloud for a project for the Kuwait National Petroleum Company that will upgrade and expand refineries at Mina Abdulla and Mina Al-Ahmadi. Hexagon says Fluor and its partners will execute the project globally, in multiple offices, and will take advantage of the cloud apps’ 7X24 access.

Vero came up surprisingly little during the investor call — but then, it’s a small acquisition for this €2.5 billion company. No further details on purchase price (Mr. Rollén said he paid a “typical software multiple” for a company with revenue of €80 million in 2013 and an “ordinary EBITDA”), but Hexagon clearly sees this a sa strategic move. A quick recap: Vero sells a variety of computer-aided manufacturing solutions, all for programming and controlling machine tools. Mr. Rollén  sees the addition of Vero as helping Hexagon “extending the reach of or MMS (metrology planning software) to include CAM” — in essence, closing the loop to plug measurement into CAM to improve yield and cut losses during production.

Hexagon doesn’t give specific guidance per quarter,  but analyst consensus for Q3 is revenue of €619 million, an increase of 7% as reported. For the year, consensus is €2.56 billion.

Image courtesy of Hexagon AB, from its Q2 2014 investor briefing slide deck, which you can download from

Autodesk in the big leagues with Nastran

Remember a couple of months ago, when Autodesk acquired NEi Software and didn’t announce much of anything at all about it? They were trying out a new strategy, where they do the deal and work on the product and strategy and later go public with plans and announcements. Today was that day: the launch of Autodesk Nastran, a standalone version of what was NEi Nastran, and Autodesk Nastran In-CAD, the CAD-embedded version, along with a reveal of a bigger, broader strategy for simulation.

Autodesk Nastran IN-CAD

First, for (former) NEi customers: Autodesk Nastran is the version you’re used to, available for desktop and cloud solving. Autodesk Nastran In-CAD is what you may have known as NEi Works, the SolidWorks-embedded version — but now expanded to also include Inventor. (Apparently, the In-CAD project was already underway when the acquisition happened; NEi knew it needed to diversify beyond SolidWorks but couldn’t really call an Inventor version “Works”. Hence, In-CAD.) Much of the NEi team joined Autodesk and continues to work on expanding the product.

Both products are available for purchase as of today, and are priced at “around $10,000″ on a perpetual basis (no term subscriptions).

Then, for the bigger Autodesk community: If you’re a Simulation Mechanical customer, you may have noticed that you can choose a solver during your setup (and you’ve had that option since shortly after the NEi acquisition took place). If you’re comfortable with the traditional solver, by all means keep using it. Autodesk has no plans to make it go away. If you’re familiar with Nastran, try that. Your choice.

I still need to process a long day of briefings, but here are my main take-aways right now:

  • We can agree or disagree with how NEi’s customers were notified of the acquisition, but taking time to figure out how Nastran fits into Autodesk’s overall offering was smart. It’s better to come out later with a well-defined strategy than gleefully announce something half-baked.
  • Paraphrasing here, but Autodesk’s vision is to create simulation tools that are productive and personal, targeted to roles (designer, engineer, analyst specialist) without dumbing down or losing capability.
  • The simulation platform is intended to be open (multi-CAD and multi-CAE), flexible, desktop and cloud, mobile devices where appropriate — in other words, taking advantage of new technologies that competitors may have a harder time adopting because of legacy code design decisions.
  • Autodesk has been working on this strategy since the early 2000s, with the acquisition of PlassoTech, and has learned something with each integration. The people, channel and technology implications are managed more carefully.
  • Adding Nastran isn’t a competitor-killer. It’s a way to get Autodesk and its message of removing bottlenecks, simplifying workflows and creating targeted solutions to people who’ve heard of Nastran (or NEi) and want to add its proven capabilities to what they do, whether they’re currently using simulation or not.
  • The Nastran products are meant to augment current solutions, let people who don’t have access to the hardware or competitor software licenses do simulations (perhaps in the cloud), for a reasonable price.

Finally, Autodesk sees that the world is, fundamentally, multiphysics. And that has a lot of implications, such as needing the physics to model FEA, CFD, plastics, composites, linear and non-linear, dynamic and static, and so on. It also means creating licensing mechanisms that work under many different conditions, making exploration, optimization and design of experiments affordable in terms of software licensing and hardware utilization.

As part of the Nastran announcements, Autodesk also gave more details on Simulation Flex (fka Autodesk Sim 360 Pro with Local Solve — a truly awful name), which includes Simulation Mechanical (static stress, linear dynamic analysis and mechanical event simulations), CFD (fluid flow and thermal simulations) and Robot Structural Analysis (structural and AEC code checks). All of this, plus Moldflow, is in Simulation Moldflow Flex. 

The point here isn’t the laundry list of capabilities in each package. It’s the flexing between desktop and cloud. For an annual subscription, buyers get unlimited use of the products on their desktops as well as a set number of cloud credits that are drawn on for simulations in the cloud. Some things make more sense on the desktop, others make more sense to run remotely so that the desktop is available for current tasks. You decide.

One last thing. Nastran plays across many different verticals;, so don’t let the mechanical gizmos in the marketing materials distract you. The Nastran offering continues to be relevant for auto, aero, shipbuilding, architectural, civil and many other users.

Image of Autodesk Nastran In-CAD courtesy of Autodesk.

Note: Autodesk graciously covered some of the expenses associated with my participation in the briefings but did not in any way influence the content of this post.

Closing that all-important last loop

We talk a good game about collaboration, are committed to it in principle and have all the necessary technology at our fingertips. But effective collaboration requires planning and structure, so we often don’t do as good a job at it as we should. It’s good to be reminded every so often why it’s so crucial to test form, fit and function before pushing the “go” button on any project. Closing that last loop makes all the difference.

Watch this, at least the first 30 seconds or so:

Do you remember it? Probably not, because this cute little guy,


the Mars Climate Orbiter, made it all the way to the red planet but burned up in its atmosphere before it could do any real work. All because of a simple math mistake. One engineer programmed in metric units and another in English units. An epic fail, embarrassing to NASA and all involved, simply because someone didn’t check whether the output from one subroutine matched the input expectations of the next.

Read more over at the PTC Creo blog.

Image courtesy NASA/JPL-Caltech

ANSYS Q2 hits usual high notes, but is strangely boring

EarningsANSYS’ Q2 hit the usual superlatives: record revenue, forecasts and consensus beaten — but, even so, it felt as though the company and CEO Jim Cashman were largely treading water, in a “same old same old” pattern of previous quarters. It’s hard to argue with even moderate success, though, and investors sent the share price up almost 2% on a day the Nasdaq fell about 0.5% — clearly, they were OK with what they heard.

More commentary after the details:

The details (using GAAP data from the 10-Q SEC filing as much as possible, though all cc data is non-GAAP):

  • Total revenue for Q2 was $232 million, up 8% as reported and up 7% in constant currencies (cc). Spaceclaim contributed $2 million while Reaction Design contributed $1 million or so to the quarter, which means that ANSYS’ organic growth was around 7%.
  • Revenue from software licenses was $141 million, up 5% as reported.
  • Revenue from the lease business was up 7% to $79 million, primarily due to sales of electronics simulation products.
  • Revenue from the perpetual business was up 3% to $62 million.
  • Maintenance revenue was up 13% to $86 million.
  • Services revenue was $6 million,essentially flat as reported and down 2% in cc.
  • By region, revenue from North America was $82 million, up 4% even though one large deal from 2013 skewed the comparison a bit. ANSYS said it again experienced cautious customer sentiment and deals being pushed to the end of the quarter (perhaps in expectation of a good deal? — Ed.) The company says it saw relative strength in aerospace and defense and in automotive.
  • Revenue from Europe was up 10% as reported (up 8% in cc) to $79 million. Revenue from Germany was revenue up 9% as reported to $24 million. During the call with investors, Mr. Cashman reiterated what he said during the Q1 call: ANSYS expects the annual impact of the Russia/Ukraine conflict to be about $10 million in lost revenue. If anything, he said, the situation in Russia is “even more strident” than it was in Q1 and again affected channel performance, though clearly not as much as in Q1. The company reports growth in industrial equipment, automotive, and the process industries.
  • ANSYS’ “General International Area” reported revenue of $72 million, up 11% as reported and up 12% in cc. GAAP Revenue from Japan was $28 million, up 3% as reported (up 11% in cc)Japan, Korea and Taiwan continued to be relatively strong, while China “recovered in Q2, despite a continuation of lower spending from state-owned enterprises”. India and Brazil showed relative weakness in Q2.
  • ANSYS reported 20 big deals (orders over $1 million) in the quarter, down sharply from 32 orders last quarter. Those 20 orders, though, were equal in number to Q2 2013 but had a 27% greater total revenue — in other words, big is getting bigger.
  • The company no longer really gives color on specific brands or even the low and high-end commentary that it used to give. Mr. Cashman did say that all major brands grew y/y in Q2.
  • Q2 saw the direct/indirect mix return to the normal 75%25%, reversing the slight deviation in Q1 (77%/23%).

Mr. Cashman gave a tiny bit more information about the company’s plans for Spaceclaim. No, ANSYS capabilities won’t be added to Spaceclaim; rather, its user interaction styles, ease of learning and ease of use will start to appear in ANSYS products, beginning with ANSYS 16 later this year.

ANSYS also adjusted its guidance for 2014. The company now forecasts Q3 revenue in the range of $231 million to $239 million and F2014 revenue of $937 million to $954 million.

So, what does it all mean? Mr. Cashman tried to pump up the investors by talking about how important systems engineering is to the automotive industry and the impact of a Spaceclaim-like user experience in bringing new types of users to simulation — all true, but all workmanlike attributes that will keep ANSYS growing nicely but not spectacularly. He spoke about the potential for cloud-enabling technology acquisitions (by definition, small). ANSYS doesn’t disclose it, but it would appear that its mechanical and CFD products are growing only in the single digits. Right now, all of the sizzle in CAE is coming from SIMULIA (although MSC, the current dark horse, is rumored to be announcing something this Fall and the integration of LMS into the Siemens PLM family could also lead to interesting cross-offerings). ANSYS is by far the biggie, and its crown isn’t in jeopardy, but it is in danger of losing that cool kid momentum it held for so long.

FARO’s Q2 highlights growing interest in reality computing

EarningsFARO Technologies, the metrology company, last week announced Q2 results that gave Wall Street something to cheer about. The company beat expectations and forecasts for both revenue and earnings per share, with revenue up 20% year/year (y/y) to $82 million and net income rising 74% to $6.3 million or $0.36 per share. Looking forward, new order bookings in Q2 increased 26% y/y, to $83.9 million. Why such strong results? And will these drivers also play out for Hexagon, which announces its Q2 results later this week?

First, market interest in measurement technologies is clearly growing. FARO reports that product sales in Q2 were $67 million, up 22% y/y, with growth reported across all product lines but especially the new laser scanners introduced earlier this year. In the Americas, laser scanner revenue was up 127% on a “more than doubling” of  the number of units sold combined with a higher average sales price due to shifting product mix.

Next, diversification in channel and customers. In Q2, FARO saw 10% of total revenue come through distributors, and over 50% of laser scanner revenue. FARO has distribution agreements with Trimble Navigation and Topcon for its laser scanners (and others, but those are the two distribution biggies for construction surveying) which are starting to pay off. Too, FARO sees an unusually high proportion of sales each quarter going to new customers, around 35% to 40%. As a result, the top 5 customers and top 10 customers typically represent a tiny fraction of total sales volume, usually 3% and 4%, respectively.

But it’s not all rosy. CEO Jay Freeland said that globally, market conditions continued to be stronger than they were a year ago. But pockets of weakness continue in Europe as well as Southeast Asia, which leads to increased focus on those areas and the local distribution teams.

Finally, diversification in end market. One of the fascinating things about reality capture and computing is how many different use cases there are. Also last week, FARO announced that it was acquiring The CAD Zone, developer of a cloud-based drawing app, called CZ Point Cloud, for diagramming crashes and crime scenes. Why would a laser scanner company need diagramming? Because reconstructing an accident or crime scene requires both measurement and observation, and FARO wants to create what it calls an “integrated 3D documentation product” for forensic applications. Combining its laser scanners with The CAD Zone’s CZ Point Cloud, Crime Zone and Crash Zone, FARO says it will offer a “turnkey, easy-to-use, hardware and software solution for laser scanning in the forensics market”. Combining law enforcement, insurance and other accident re-constructionists, FARO believes it can now address “at least a $300 million annual opportunity”.

FARO didn’t offer Q3 guidance, but analysts are forecasting Q3 revenue of just under $80 million and fiscal 2014 revenue of $334 million, which would be an increase of 14% or so.

Lessons? Thinking outside the box pays off. Broadening outside of its traditional manufacturing metrology market into laser scanning, FARO can go after a multitude of new markets — many of which don’t even know they can benefit from a laser scanner. Working to change its go-to-market strategy, adding distribution partners and internal sales resources, it can keep finding and selling to those new customers every quarter. You can’t do any of this if the core products aren’t solid, of course, so FARO’s accelerating its investment in research and development.

You can read FARO’s entire earnings release here.

Reality computing is hot, and Autodesk is hosting a meetup on Wednesday evening. I plan to attend and hope to see you there!

PTC moves away from the pack, stays firmly in it

EarningsLast week PTC announced solid fiscal third quarter performance, another IoT acquisition and, perhaps most heartening for its core constituency, surprising growth in the CAD business. I covered this all when it happened, but it deserves more attention.

Without a doubt, the headline is the Axeda acquisition that will bring to PTC technology that lets customers connect their devices to the IoT using common communication channels like cell phone networks, WiFi, old-fashioned wires and satellites. Assuming the deal goes through, PTC can add Axeda to ThingWorx to create the connections, grab the data, monitor and analyze it. That fleet of buses, office building HVAC system, home entertainment center and manufacturing line just got a lot smarter.

FQ3 was about more than the IoT, though. That reported 27% y/y growth in CAD license revenue is topic #1 to a lot of customers and watchers alike. The details:

  • FQ3 revenue was $337 million, up 7% year/year (y/y) as reported and up 5% y/y on a constant currency (cc) basis.
  • By business line, total CAD revenue was up 10% to $149.0 million (up 9% in cc). CAD license revenue was $45.4 million, up a whopping 27%; services revenue was down 8% t0 $6.0 million and support revenue grew 5% to $97.7 million. The company saw double-digit license growth in the Americas, Europe and Japan. CAD channel revenue was up 8% y/y. 
  • The PLM business (which includes PLM, ALM and SCM – mainly the Windchill and Integrity brands) reported revenue up 4% y/y to $145.9 million. PLM license revenue was $39.5 million, up 9% y/y; services revenue was down 3% to $47.9 million and support revenue was $58.5 million, up 8%. PTC said that double-digit license growth in Europe was offset by declines the Americas (BTW, the exact opposite of FQ2).
  • The SLM business (Servigistics, Arbortext, Enigma and ThingWorx) reported revenue of $41.8 million, up 3%; license revenue of $7.8 million was flat y/y; services revenue was $16.4 million, down 1% and support revenue was $17.6 million, up 10%.
  • By revenue type, total license revenue in FQ1 was $92.7 million, up 16% y/y. and up 15% in cc. Overall, demand for licenses was characterized as strong in Europe and Japan, where license revenue was up 50% and 49%, respectively, growing in the Pacific Rim but was offset by a 17% decline in the Americas. The CAD business was described as up 26% in cc, Extended PLM was up in 7% cc while SLM “declined modestly” as reported and was flat cc.
  • Services revenue was down 3% y/y to $70.2 million as reported, about $5 million below guidance. On an organic basis (excluding NetIDEAS, Enigma and ThingWorx), services revenue was down 5%. Consulting was down 3%, training was down 8%. PTC continues to offload services to partners, but I think was taken a bit aback by the FQ3 results.
  • Support revenue (aka maintenance) of $173.7 million was up 7% y/y, ahead of expectations. PTC reports 245.2K CAD, 1,646.5K PLM and 96.5K SLM seats under contract.
  • By geo, revenue from the Americas was $130.4 million, up 1% y/y; from Europe, $130.7 million, up 13% y/y and up 7% cc; from Japan, $39.2 million, up 16% y/y and up 20% cc and from the Pacific Rim, $36.4 million, flat y/y and in  cc.
  • PTC reported that it closed 33 large deals (over $1 million in a quarter) in FQ1, comparable to the 35 closed in FQ2 and 34 in FQ1. Megadeals (over $5 million in a quarter) continue to be tough to close, with only 1 closed in FQ3 in the Americas. Large deals contributed $77.6 million in FQ3, an average deal size of $2.4 million — the highest in over a year.

For FQ3, CFO Jeff Glidden sees total revenue of $340 million to $355 million, including license revenue of $95 million to $110 million (including $5 million from Atego), $70 million in services revenue and $175 million in support revenue. That means that fiscal 2014 should see revenue of $1,330 million to $1,345 million, including license revenue of $352 million to $367 million.

PTC didn’t offer fiscal 2015 guidance, but Mr. Glidden said that he sees total revenue growth in the “low to mid single digit range” in fiscal 2015, including Atego and Axeda (once that closes). That includes “low double digit license growth, flat services revenue, and low to mid single digit growth in support”. Sounds a lot like fiscal 2014. Wall Street analysts are modeling revenue of around $1.5 billion.

What’s interesting about all of this is the resurgence in CAD. Yes, some of it is due to a weak quarter last year, and the catch-up of people moving from Pro/E to Creo and perhaps buying new/more modules to recreate their Pro/E setup in Creo. The growth in CAD support (=maintenance and similar services) speaks to users’ intention in continuing to be the PTC/Creo universe for the foreseeable future.

So now let’s talk Axeda. Axeda Corporation is an expert in yet another acronym, M2M (or machine to machine communication). Axeda’s 150 or so customers process hundreds of millions of machine messages a day using the Axeda Machine Cloud Service. The Cloud Service includes connectivity services, software agents and toolkits that enable companies to connect their products to the cloud. The Axeda Connected Machine Management application set lets companies to remotely monitor and service products, including the ability to deliver over-the-air software updates. I’m not clear on how this overlaps with ThingWorx’s app creation platform – in a perfect world, a user could develop monitoring apps with ThingWorx and then execute those apps on Axeda’s Machine Cloud Service — but we’ll all learn about that together.

PTC will pay approximately $170 million in cash for Axeda; the deal is expected to close this quarter. Axeda is expected to add $25 million to $30 million of revenue in FY’15. (PTC didn’t say what Axeda’s revenue was; but if it’s $30m/year, this price is a 5.6x. Yikes.)

So. FQ3. CAD (finally? for more than one quarter?) humming along. An IoT offering that combines app development with a deployment scheme. Check. The ability to do something with all of this data, whether it’s sending out a service truck or redesigning version 2 of the product so it doesn’t need service. Working on it.

The main PLM vendors are taking such different strategic tacks. PTC is moving further and further from the pack by focusing on the life of the end-product after it leaves the manufacturing floor. They are helping their clients improve the end-customer’s experience of the product while optimizing and monetizing that relationship. But the FQ3 results show that there’s still a strong focus on CAD, moving Creo forward and fostering those connections. It’s a good combo.