Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end user purchases of the latter MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.
The comparison of earnings across the two industries is also difficult general due to a plethora of one-time charges associated with acquisitions. The earnings comparison for UGS is further complicated by purchase accounting adjustments related to its Venture Capital buyout from EDS.
Nevertheless, MCAD vendors had 9 times the earnings of the top three EDA firms. The average MCAD vendor earnings were 12.5% of revenue while EDA vendor average earnings were 2% of revenue.
EDA Vendor Stock Performance
As shown in Tables 9 and 10 and Figure 3 below, the combined stock prices for the EDA vendors were down 8.6% in absolute dollars and 6% in average percentage change from the same quarter last year. Altium, Magma and Synopsys declined approximately 40% compared to last year. Mentor and Synplicity declined around 20%. Ansoft and Verisity (due in part to its acquisition) had strong growth in stock prices, 87% and 20%, respectively. During the same time period the major stock indices were showing small growth.
On a quarterly sequential basis, the combined stock prices grew 7.2%, an average percentage change of 6%, while the major stock indices dropped an average of 4.4%. Again Ansoft and Verisity were the leaders. Among the others, only Cadence had quarterly growth at 8.3%. Mentor was the largest decliner at 10.4%. The rest of the field had single digit declines relative to the prior quarter.
Note: Nassda and Verisity have been acquired since the end of the first quarter of 2005.
EDA Vendor Forecasts for the nominal Q2 2005
Altium did not provide guidance. Overall the forecasts call for a small drop relative to the same period a year ago and essentially flat relative to the quarter just completed. Synopsys' forecast relative to last year still reflects the shift to TBL. Ansoft's revenue forecast reflecting seasonality has the largest increase relative to last year and the largest decrease relative to the previous quarter. (
Detailed EDA Vendor Financial Forecasts for nominal Q2 2005
Altium did not provide guidance for the next quarter.
Ansoft forecasts revenue in the next quarter in the range of $14.5 million to $15 million, a drop of the 32% from the quarter just reported but an increase of 16% from the period a year earlier. Top line revenue for the year is expected to grow 15% over the previous year and earnings growth is expected to be twice the rate of revenue.
For guidance Cadence expects total revenue for the second quarter of 2005 to be in the range of $300 million to $310 million, compared to $292 million in the just completed quarter and compared to $287 million in the second quarter of 2004. For the full year 2005, the company expects total revenue in the range of $1.24 billion to $1.30 billion, compared to $1.2 billion in fiscal 2004.
For Magma's first quarter of fiscal 2006, the period ending July 3, 2005, the company expects total revenue in the range of $35 million to $39 million, compared to $36 million in the quarter just completed.
For guidance Mentor Graphics expects revenues to be approximately $155 million in the second quarter, $180 million in the third quarter and $226 million in the fourth quarter. In the quarter just reported, Mentor had revenue of $164 million. For the full year Mentor expects revenue to be about $725 million, a 2% growth from 2004.
Nassda provided no future guidance and declined to reaffirm earlier guidance due to the impending merger with Synopsys.
For guidance Synopsys expects revenue in the next quarter to be in the range $243 to $253 million, compared to $244 million in the quarter just completed. For the full fiscal year, the company expects revenue in the range $960 million to $990 million, compared to $1.09 billion in fiscal 2004.
As guidance Synplicity said that revenue for the second quarter of 2005 is expected to be approximately $15 million, up 3% from the quarter just completed. Revenue for 2005 is expected to be approximately $62 million, unchanged from prior guidance. Synplicity reported revenue of $57 million in fiscal 2004.
Authors' Comments on the Economy during the First Quarter & Beyond
We saw above that the US stock markets did not fare well in Q1 2005 (e.g. the tech-laden NASDAQ was down 8.1%). Depressing as the deteriorated domestic stock markets were, there are still plenty of other factors that make it difficult for companies to compete in today's business, economic and geopolitical environment.
Unfortunately, significant inflation is back. A 0.6% increase in the Consumer Price Index in March 2005 was the largest in five months. The 0.4% jump in the core rate, which excludes food and energy, was twice the forecast from analysts and the biggest monthly increase in nearly four years.
This was followed by the Labor Department's report on May 18, that the Consumer Price Index rose 0.5% in April 2005 (see graph below). Since April 2004, consumer prices have risen 3.5%. While this 0.5% in April was down slightly from the March figure of 0.6%, a separate Labor Department report issued May 18 gave wage earners another reason for concern. The department said average weekly earnings for regular workers on private payrolls fell 0.3% in April after being adjusted for inflation. The same has been true for 10 of the last 12 months. Labor Department figures show that the average weekly wage rose at or faster than inflation only in August and September, 2004.
"As far as consumers are concerned, wages are failing to keep pace with the price index that matters to them," said analyst Jared Bernstein, with the Economic Policy Institute in Washington. "People are suffering a reduction in their purchasing power," said James Paulsen, chief investment strategist with Wells Capital Management in Minneapolis. He said that while investors may disregard the overall inflation rate, consumers can't. Or as Joel Naroff, a private economist and consultant in Pennsylvania, said in his analysis of the April consumer price report, "Households who didn't eat, drive or use any utilities in April managed to escape the pain of rising retail prices."
Average hourly earnings of ordinary workers are still 1.0% below their level just a year ago in constant dollars. The labor market still shows slack, with the employment-to-population rate at 62.6%, some two percentage points less than its peak in 2000. Moreover, salaried people (i.e. those fortunate enough to have jobs) now work harder and longer than we did just 10 years ago. "Americans have taken over the dubious title of the hardest working people in the world," says Dr. Donald Wetmore, founder of the Productivity Institute (May 29, 2005 SF Chronicle). "We are going in the wrong direction - there's no doubt about it," he said. Fewer people working, less pay, more hours - one has only to agree with Dr. Wetmore!
Steve Stanley, economist at RBS Greenwich Capital, said on May 19, 2005 that national jobless-claims data recently showed a modest slowdown in the pace of layoffs this year. He said, "Claims have been moving in a range of 310,000 to 340,000 this year, down from last year's range of 330,000 to 350,000." Wow!!! The four-week moving average of new claims rose 5,500 to 329,750. The number of former workers receiving state unemployment checks rose 5,000 to 2.6 million in the week ending May 7, 2005.
The heart of the EDA Industry (Silicon Valley and environs) has still not recovered from the deep job losses since 2001. Since then, roughly 349,000 payroll jobs have evaporated in the San Francisco Bay Area's three major metropolitan areas -- greater San Francisco, Oakland and the East Bay, and San Jose and vicinity. "Probably 4 out of 5 are permanently gone," said Christopher Thornberg, an economic forecaster at UCLA (May 29, 2005 SF Chronicle).