As expected, DS reported that the economic conditions seen in the fourth quarter continued
in the first, leading to a constriction in spending on new licenses as companies scaled back
implementations. Total revenue for the quarter was EU309.7 million, up 1% as reported but
down 6% in constant currencies, led by a 40% decline in software new license revenue
(CATIA/ENOVIA down 50% or so). Recurring software revenue was up 15%. [The following
are all based on sums reported per IFRS guidelines in constant currencies, unless
DS provided many different takes on its business; following are ones I found most revealing:
– DS is diversifying in numerous ways: into new markets (gaming), into new verticals
(apparel), into new customer types within its core verticals (SMBs), and into new areas
within its existing customers’ businesses (sourcing, compliance) all to spread risk and grow
its brands. This is both good and bad: DS finds new customers and markets leading to
long-term growth. But new customers are hard to find, need more convincing and buy
smaller installations, leading to lower immediate revenue and higher costs.
– PLM products led the software revenue decline, with an overall decrease of 7% to EU201,
as CATIA software revenue decreased 11% and ENOVIA software revenue, 18%, offset in
part by double-digit software revenue growth from SIMULIA (because of its rental model but
mitigated by slowdowns in new business). Mainstream 3D software revenue decreased 2%
to EU71 million.
– Profitability remains solid, a result of cost cutting measures that delivered EU15 million
more than anticipated. Savings are focused on internal, non-customer-facing functions.
Much concern by European analysts on the employee count; DS sees it remaining stable
for the rest of 2009.
– DS always discusses customer wins on analyst calls and elected this time to discuss
wins at both BMW and Ford (perhaps related to yesterday’s comments by PTC?), among
others. DS historically gets perhaps 1/3 of revenue from the automotive industry (less in the
US) and given the problems there, it seems that focus on other verticals would be more
comforting to investors, especially when DS later says that the automotive vertical showed
the steepest decline in license revenue of all verticals.
– Management made only one overt reference to PTC’s competitive comments yesterday,
saying that it does not believe that any postponed transactions went to a comptitor. When a
caller asked about the Nokia business PTC said it had won from DS, CEO Bernard Charles
said only that he was smiling (the caller couldn’t see him) and that DS intended to grow the
relationship with Nokia to that of a strategic partnership.
– DS lowered its forecasts for the rest of the year, based on the results seen in Q1. The
company now sees total new license revenue declining 25% to 30% (vs earlier 10% decline)
and recurring revenue growth of 4% to 5% (vs earlier 8% growth). This leads to new Q2
non-IFRS total revenue of about EU295 million to EU310 million and full-year 2009 non-IFRS
revenue growth of about -9% to -5% in constant currencies, or total revenue of EU1.260
billion to EU1.310 billion for 2009.
The total decline in new license is most worrying (although DS is not alone among PLM
vendors with this scenario) because it affects all of the follow-on business: future recurring
revenue streams, training and consulting, perhaps growing an installation into new areas,
etc. DS’ cost management is to be admired and there is no doubt that DS’ diversification
strategy will help it come through this downturn.