4 on a Monday: SAP and Sandvik report results, GT acquires, more on Synopsys+Ansys

PLMish and PLM-adjacent earnings ramp up this week, with PTC, Hexagon, Dassault Systèmes, and others announcing, but we’ve already some news. SAP, the enterprise software biggie, announced that Q4 revenue was €8.5 billion, up 5%, and that total revenue for fiscal 2023 was €31 billion, up 6% as reported and up 9% in constant currencies. Of that total, cloud and software revenue was €27 billion, up 6% (up 9% cc) — and, of that, cloud revenue was €14 billion, up 20% (up 23% cc). The company said its current cloud backlog grew 25% (and 27% cc) to €14 billion. CEO Christian Klein also announced restructuring: “We are confident about the company’s prospects in 2024. From this position of strength, SAP is opening the next chapter. With the planned transformation program, we are intensifying the shift of investments to strategic growth areas, above all, Business AI. Going forward, this will empower us to keep leading with innovation while increasing the scalability of the operating model.” What does that mean? The restructuring program will affect 8,000 employees — who will either retire as planned, re-skill for AI-focused roles, or … well, be laid off. SAP says it plans to end 2024 with about the same number of employees, so it will hire to fill gaps.

SAP’s outlook for 2024 assumes accelerating cloud revenue growth, with total cloud revenue of €17.0 billion to €17.3 billion (up 25% at the midpoint), feeding into €29 billion to €29.5 billion in cloud and software revenue (up 9% at the midpoint).

On a much smaller scale but more PLMish, Sandvik reported Q4 revenue of SEK 31,816 million, up 2% as reported and in constant currencies — and up only 1% on an organic basis. The company said it saw “strong growth in aerospace, positive development in auto, and [stability] in general engineering. Mining demand [was high], while infrastructure [was] challenging.” Sandvik also implemented a cost-cutting program, affecting some 1,100 employees. The company said these “new measures include consolidation of production units and optimizing the structure of the organization. The measures are group-wide and global.”

In Q4, Sandvik’s Manufacturing and Machining Solutions (SMM) business saw “strong demand in aerospace and positive development in automotive, while general engineering was stable, [with] … high-single digits [order intake] growth in the software business.” Total SMM revenue was SEK 12,114 million, up 1% in Q4. For all of 2023, revenue was SEK 49,340 million, up 7%. Sandvik CEO Stefan Widing said, “While Sandvik Manufacturing and Machining Solutions reported a 1% [overall] organic decline in order intake [for the quarter], the development within software was positive … [In November], we announced a new software revenue target for Sandvik Manufacturing Solutions, of SEK 4 billion [about US$380 million], to reflect an increased focus on our software sales ahead. The trajectory in the quarter was very positive, with software orders and revenue growth of 8% and 10%, respectively.”

Acquisition news often comes from and about the biggest companies, but there’s also movement among the smaller ones. Last week, Gamma Technologies announced that it has acquired Powertech Engineering, a CAE services provider. The Powertech team will form the core of a new GT business, GammaTech Engineering, which will develop and deploy advanced methods to help customers hone their CAE strategies. Financial details of the acquisition were not announced, but it sounds like a done deal.

Finally, I continue to get questions on Synopsys’ proposed acquisition of Ansys. They generally boil down to 2 things: do I think it will happen? And how, if it does, how will it affect the rest of the CAE market and its customers?

To answer the first, Synopsys was only one of several companies that bid for Ansys; it’s always possible someone will come back with a higher offer. However, this seems like a pretty sweet deal to me, so I’m unsure how likely a bidding war might be.

It’s also possible that regulators won’t approve the deal —and since the two companies operate globally, in nominally the same “engineering software” vertical, there are a lot of jurisdictions to consider— but that probably comes down to how they view the competitive landscape. Ansys has something like a 40% share of its CAE world; Synopsys may be the same in its sphere … those are very big numbers, and if a regulator doesn’t struggle for the nuances, it looks like the combo would create a near-dominant player. But regulators are savvy and will do the hard work to understand the pricing power the combination would have.

If the fundamental motivation for the acquisition is to create a strong offering for modular chip/integrated circuit design, then being able to model and analyze them is crucial. The merged entity would cover the workflow, from design to analysis and simulation — that’s big. But it wouldn’t be the only commercial offering out there, with Cadence, Siemens, and others offering similar (though perhaps not as complete) toolsets. But the merger isn’t expected to close, if it does, until 2025, giving competitors time to step up their own acquisition or R&D efforts.

So, while my crystal ball is often cloudy, I think this combo could happen — eventually. But I have been wrong before, so don’t go buying and selling shares in an arbitrage move based on my opinion!

Second —and more important to many— what does this mean for the rest of CAE-land and the various user communities? Yes, a combined Synopsys+Ansys would have a great reach — but each already does on its own. There is a cross-sell opportunity, for sure, that could include volume deals from a combined price book (though that’s something regulators will undoubtedly look at, hard) — but this space has seen endless consolidation over the years. I haven’t noticed any decline in vendor innovation; if anything, consolidation seems to spur other vendors on. We also haven’t seen massive shifts from already-installed solutions to new ones; I don’t see many people switching willy-nilly to S+A simply because that combo now exists. In time, if S+A manages to integrate products to make them much better/faster than the competition, then there may be some shift — but I can bet that the other CAE players won’t be standing still to let that happen.

It’s also important to note that S+A have been working together since 2017, on technology and some go-to-market efforts. I am told that Synopsys’ Fusion chip design platform already incorporates Ansys’ RedHawk — and that this combo has already been adopted by much of Synopsys customer base. So from a competitive standpoint (for compiler chip design), it’s unlikely that S+A would be all that much different from the separate entities of today. But the deal’s intent is to take S+A into robotics, automotive and other non-EDA industrial markets; that’s where we’re likely to, in time, see competitive shifts.

There. My $0.02. Again, don’t make investment decisions based on my opinions.

More as we get into earnings — it’s going to be a busy week!