Dassault Systèmes reported results last week that showed revenue declined in all major products lines and all geographies, with the company’s large installed base providing a nice cushion of recurring revenue that forestalled an even more dramatic decline. DS has put 2009 behind it and is now looking ahead: CEO Bernard Charlès told the French daily La Tribune, that he expects DS to triple in size by 2020 by entering new markets such as energy, transport and “urbanisation”, and possibly education-related services since those will be increasingly reliant on 3D. [Ed – Apologies, but I cannot provide a link to the original article in French. My clipping service offers abstracts that have been translated into English. DS’ David Treacher says that “communities” may a better translation of M. Charlès’ remarks than “urbanisation”, referring to expanding communities of practice.]
During the Q4 earnings call with analysts M. Charlès characterized 2009 as a “very critical milestone to prepare for the future”, so it’s worth revisiting before we get to the futurecast. DS reported revenue of €1.253 million, down 6% as reported or down 9% in constant currencies. New license revenue fell 29% for the year, although the decline had slowed by Q4 (during which new license revenue fell 16% year over year and rose over 60% sequentially). PLM revenue was down 9% in 2009, led by an 18% decline in ENOVIA and an 8% decline in CATIA. (By implication, ABAQUS and the other PLM brands not named saw revenue growth of 12% for the year). SolidWorks and the other products DS classifies as “Mainstream 3D” saw a 9% decline in revenue in 2009.
Many things have to happen for DS to triple revenue by 2020 (that’s a 12% annual growth rate, each and every year from 2010 to 2020). DS believes that many of the foundation elements were put into place during 2009:
• DS grew its R&D staff by 4% to 3600 even as it slightly trimmed R&D spend. The ratio of revenue/R&D employee among engineering software suppliers is around $500k. DS is in the ballpark, with revenue per R&D employee of about $480k, but will have to significantly ramp up resources to support annual sales closer to $5 billion. 2009 was a tough year, so a 4% staff increase is commendable, but one could expect to see R&D employee numbers rise more in-line with anticipated revenue increases.
• DS reported that 20% of end-user spend in 2009 came from “non-traditional” verticals: high tech, life sciences, consumer goods and consumer packaged goods. PLM vendors have for years been trying to grow in these verticals with limited success but it can be argued that products initially tailored for the auto and aero markets are now more generalized and suitable for use in other industries. Enhancements in mechatronics and broader-based CAE (especially CFD) and vertical-specific apps such as recipe management make PLM a more attractive option for these “non-traditional” markets. It’s not clear, however, that these markets can grow at the very rapid rate needed to propel DS to $5 billion by 2020.
• Of course, the company’s largest vertical is still automotive at about 32% of 2009 end-user spend, followed by industrial equipment (20%), and aerospace (16%). These verticals may return more robust growth due to an eventual economic recovery, but DS will still have to incorporate support for new composites, new battery technologies or alternate fuels, new production techniques and other hot-button issues for these verticals in its traditional offerings.
• M. Charlès mentioned energy and transport as verticals that will help bring DS to the $5 billion mark. Energy (by which I think DS means process and power) accounted for perhaps 2% and transport (shipbuilding) was less than 2% of end-user spend in 2009. DS has been active in both for many years, all the way back to the CAD2 buy by the US Navy in the 1990s. Both markets have entrenched specialist vendors including AVEVA, Bentley Systems and Intergraph; one way for DS to gain an immediate presence (and help it towards the 2020 revenue goal) would be via an acquisition.
• Critical to reaching the $5 billion mark is sales capacity and execution. DS is taking a major step in growing capacity by working to close to its largest acquisition ever, the IBM PLM group. Once closed that would create a direct sales force of over 1,000. DS expects this to contribute roughly €165 million for the 9 months or so it will be part of DS; that implies an annual increase of €220 million (before accounting-mandated write-downs). DS will also need to expand its indirect channel capacity to hit its 2020 target, since not all companies in its traditional or new markets can be profitably served by a direct sales force; it will be interesting to watch as both PTC and DS try to grow indirect sales capacity by chasing the very limited number of VARs out there.
A large part of a CEO’s job is issuing bold challenges to rally troops and entice investors. DS’ biggest problems in the near-term are gaining wider adoption of the new V6 platform and turning the largest acquisition in the company’s history into a cohesive revenue-generating machine. For 2010, DS has issued cautious guidance, growing revenue about 14% to around €1.43 billion including the IBM PLM acquisition. On an organic basis, that translates to about 10% growth for 2010 — the company had better get cracking if it wants to hit that 2020 target!