Earnings are a mixed bag so far, with Hexagon and AspenTech reporting, and reports from Microsoft and SAP driving news

Jan 30, 2023 | Hot Topics

Tech earnings start piling up this week, so before we drown under news from Meta, Apple, Amazon, and others — and PTC and Dassault Systemes in our little part of that universe — let’s recap what we’ve heard so far.

While not a PLMish company, what Microsoft says has a huge impact. Microsoft just reported solid results for the last quarter but offered disappointing guidance for the current/coming quarter. CEO Satya Nadella talked about a shift in customer behavior from accelerating digital spending during the pandemic to optimizing that spending in light of looming uncertainty.

SAP, also now PLM-adjacent since they partnered with Siemens to resell PLM solutions, reported decent results (total revenue in Q4 was up 6% as reported and up 1% in constant currencies, cc) without highlighting any significant macroeconomic influences — BUT, of note for us, SAP cloud growth slowed slightly for the first time, from 26% year/year in Q3 to 24% in Q4 as reported, and up 22% cc. That doesn’t sound so bad, but I’ve seen investor estimates that say this equates to a bookings decline of more than 10% on a sequential basis (in other words, if there were $100 in bookings in Q3, there were $90 in Q4, a significant slowdown that would translate to revenue when those bookings turn into revenue — but note that this isn’t from SAP data and relies on a lot of inferences on how bookings convert to revenue and for exchange rates. Use with caution). SAP itself predicts an overall slowdown in cloud revenue growth, to 22% to 25% cc in 2023, with a “gentle acceleration” as the year progresses.

Closer to our PLMish world, we heard from AspenTech, which is trying to assimilate the OSI and SSE software business it acquired in its deal with Emerson while also pushing those businesses to subscription licensing. The company said several end markets performed well, including refining — helped by the uptick in air travel, the upcoming ban on the purchase of refined products from Russia, and the reopenings in China. Chemicals, on the other hand, is weaker, especially in Europe. Summing it all up, CEO Antonio Pietri said that capex budgets continue to appear strong, meaning that energy, chemical, power, and other industries invest in new capital projects. The company reiterated its prior guidance; average contract value (not revenue) is expected to be up 11% to 14%, of which the heritage businesses are estimated to contribute around 10%. Mr. Pietri told investors on the earnings call that the bottom end of the ACV guidance is a worst-case scenario— if end-market demand does not hold up as expected if COVID shutdowns in China worsen, if the war in Ukraine further changes the demand picture in Europe, and if the integration plan of OSI and SSE stalls. He said that if those events do not occur, ACV growth at the high end of the forecast is achievable. Go here for details.

And, finally, a quick recap of Hexagon (remember that the company had to pre-announce because of a security breach). Revenue for Q4 was €1.2 billion, up 15% as reported and up 8% on an organic, constant currency (occ) basis. For the year, total revenue was €5.2 billion, up 19% as reported, up 8% occ. New CEO Paolo Guglielmini said that

Industrial Enterprise Solutions (IES) revenue was €741 million, up 18% as reported and up 12% occ. Occ revenue was up 13% in the Americas (with auto and aero driving growth in North America; power and energy in South America), up 11% in Asia, and up 10% in EMEA. In Asia, the company said, China recorded 8% organic growth, strongest in aerospace and automotive. The rest of the region reported “double-digit organic growth, driven by solid demand for solutions within power and energy and manufacturing.” EMEA was a mixed bag, with Western Europe reporting 13% occ growth on strong demand from manufacturing, power, and energy. The rest of EMEA, excluding Russia, grew at double-digit rates.

Within IES, Manufacturing Intelligence reported 13% organic growth on strong demand in automotive and aerospace and continued strength in China and “the software portfolio.” The Asset Lifecycle Intelligence division reported 8% occ growth on demand for both design and enterprise asset management software.

Mr. Guglielmini told investors more about the Divergent minority investment of $100 million announced late last year, saying that Divergent’s modular approach to car manufacturing— a “fully integrated software and hardware solution” called DAPS, for Divergent Adaptive Production System – employs three main components, including AI-optimized generative design, to create geometry that can be additively manufacturing, that can be assembled in its fully automated cells. He believes this design-agnostic approach conserves energy and raw material resources and delivers more efficient structures that achieve weight reductions of 20% to 70%. And, since the company’s research shows that how a car’s parts are manufactured and assembled has a much more significant impact on the environment than the car’s exhaust emissions, Hexagon believes this will reduce the asset burden on automotive OEMs. He said that OEMs are approaching Divergent to implement parts of DAPS, adopting as they can. Hexagon, for its part, has been including elements of DAPS in its own offerings, and plans to introduce DAPS to more clients as the stack grows.

Also of PLMish interest: Mr. Guglielmini said that 2023 is the year that Hexagon’s Nexus platform “comes alive commercially” to “cloudify” the software offering and as a mechanism to cross-sell the IES offerings. Hexagon IES has a HUGE price list, from the MSC product set to Vero to machine control and inspection … better connecting these solutions (whether with DAPS or Nexus) is an essential step for Hexagon that, IMHO, is overdue.

Go here to read all of Hexagon’s materials, especially since I didn’t cover Geospatial Enterprise Solutions or the Autonomy business in this quick post.

TLDR; What does this all mean for our PLMish software world? Great question. So many mixed signals. If you read the newspaper, executives across manufacturing industries are struggling with demand visibility — who will buy what goods, driven by economic optimism or pessimism, central bank rate hikes (or not), wars (wishfully, or not), and so on—and that leaves the software world equally uncertain. You can’t sell software to engineers and designers who no longer have jobs—but how many engineers and designers are affected by the layoffs that have been announced? And how do the current software licensing mechanisms (perpetuals with maintenance still exist, and so do subscriptions paid for on long-term contracts, subs paid by-the-period and everything in between) affect these results? And what about the COVID hangover, when many companies bought a lot of tech so their people could work anywhere? Will they retrench in 2023 or move bravely forward? Adding to the confusion, R&D functions are often less affected by cuts and layoffs since those are the humans who create the next generation of innovative products; without them, there’s no basis for competition when demand picks back up. And it will. The only question is when.

We’ll know more about the PLMish outlook after this week. Buckle in – it’s going to be bumpy.

Discover more from Schnitger Corporation

Subscribe to get the latest posts to your email.