Forrester Research yesterday gave a rosy forecast for tech spending in 2010, saying in a press release that “global IT spending, which dropped 8.9 percent last year, will rise 8.1 percent in 2010 to more than $1.6 trillion.” Forrester sees spending on computer hardware and software driving much of that growth, as companies upgrade outdated systems and apps.
How does that stack up to forecasts in our little patch of the universe?
Perhaps we’re far enough into January that it’s now safe to say: No engineering software pre-announcements mean that Q4 held up. Public companies set modest targets for the quarter, and it would appear that they have been met. Private companies have started to signal that the momentum seen in the September quarter continued to build, albeit modestly, leading to a strong finish to 2009. But the losses of the first half were too big to be erased, and we’ll likely see an overall decline for 2009. New license revenue was hard hit, across the board, as buyers made do with fewer licenses (and smaller workforces). Training and other new implementation-related revenue pretty much vanished for many vendors but the repeatable maintenance revenue stream allowed them to make it through the year.
Schnitger Corp’s preliminary estimates for the CAE market show that 2009 retail spend (what buyers spend, including resellers’ mark-ups) on software and software-related services such as maintenance and training was down 4% to about $2.6 billion. We believe MSC saw the sharpest revenue decline in 2009 as uncertainty about its future and management distraction exacerbated the effects of the economic slowdown, but ANSYS and others had their own troubles in 2009. Spending declined most rapidly in the aerospace and automotive sectors, and in North America and Europe.
We believe that 2010 is looking brighter for CAE vendors, as we expect revenue to be up a bit over 8% to about $2.8 billion. MSC should recover to show accelerating growth under its new management and ownership. ANSYS and other vendors should also see increasing demand as their end-markets pick up. Autodesk will drive strong growth in Algor as it is rolled out to more resellers. How long it will take each vendor to return to 2008 levels remains to be seen: slow license sales in 2009 means lower maintenance revenue in the years to come. Permanent staff cuts at many manufacturers may mean that they will never again buy the same number of licenses of any one product. But that’s balanced against the fact that all CAE vendors are themselves innovation machines, constantly coming up with new, adjacent, extending products to sell to the same customers — so while there may be fewer engineers at a buyer, they’ll be buying more products.
It’s a coincidence that we’re predicting the same growth rate as Forrester (we came up with that number while you were skiing in Aspen). But it is a bit troubling: the growth rate for CAE should be higher than overall tech spend, since it’s a strategic asset that leads to new products, new markets and fosters innovation on so many levels. Perhaps we’re our 2010 forecasts are a bit modest but we’ll stick with them and hope to be pleasantly surprised as the year rolls on.