Autodesk Q4 2004 Conference Call

reprinted by permission of Ralph Grabowski, editor

March 2, 2004

"We had an outstanding quarter," declares Autodesk's CEO Carol Bartz. Hyperbole is the norm for any company making its quarterly conference call with financial analysts, but in this case it is warranted. By (almost) every measure, things are looking up, w-a-a-y up for Autodesk - double-digits up. In one case, it's up 120%.

In the coming year, Autodesk hopes to finally break through the elusive $1 billion-in-annual-revenues threshold. The company expects 5% growth next year, which puzzled an analyst: "Where is the weakness?" He wondered why Autodesk was very bullish on individual products, yet predicting future growth of just five percent. "We're being cautious," is the reply.

As much as 40% of upgrade revenue came from cross-grades: "...our strategy of moving customers to model-based platforms that are key to lifecycle management." "Model-based" is code for Inventor and Revit. The positive spin is customers are switching to more expensive products, and Autodesk can anticipate higher future revenues from higher upgrade and subscription fees.

The downer? More layoffs for Autodesk employees. The company spent "just" $3 million on restructuring last quarter, and plans to spend another $34 million by the end of October. "Our restructuring efforts are just getting underway" (another 500 or so layoffs to go).

Also bad news for customers: January 2005 marks the end for AutoCAD 2000i. (We still remember the simply fabulous launch party at New York's Four Seasons Hotel.) Try figuring out this wording: "Consistent with typical retirement patterns, we saw significant growth in upgrade revenue as resellers concentrated their efforts and customers concentrated their budgets around the retirement of the AutoCAD 2000-based products." Out with the old...

...in with the new. In addition to AutoCAD 2005 (March 22), vertical add-ons (March and April), Inventor 9 and MDT (June), and Civil 3D (now in beta), Autodesk plans to release three new civil engineering products this fall.

For the first time, we heard the word "Linux" being used: the Discreet division will release Linux-based products. About time, because Linux is used heavily in the movie and games business. Don't, for heaven's sake, get all excited about AutoCAD for Linux. It ain't coming, what with AutoCAD 2005 tied even closer to Microsoft through .Net programming.

To emphasize that Autodesk is "strengthening our position as the industry leader," the company noted that this is the third straight year it outsold its closest competitor (SolidWorks): 8,200 seats last quarter, and 27,000 seats of Inventor and Pro in the last year. We suppose SolidWorks will counter with, "Yeah, but we've got more total users."

Interesting statistic: Autodesk admits that only 10-20% of its manufacturing customers are on 3D. The positive spin is that there are MANY potential customers for its Inventor software. "Most of our customers are still using 2D - even in manufacturing. The move to 3D presents enormous revenue growth opportunity with significant higher ASPs (average selling price)." Low penetration means high opportunity.

An analyst asked about the reluctance of users to switch from 2D to 3D. (Gosh, and here we thought we had been in the Age of 3D for years now.) Ms. Bartz admitted that 3D has been hard to learn, expensive, and has hard-to-see benefits-down-the-road issues. These days, however, the competition between manufacturing companies is sufficient for them to make the switch, she thinks.

The MechSoft purchase is typical of what Autodesk intends to acquire in the coming year, using its $530 million cash (and no debt). Large purchases were ruled out. The technology from the MechSoft acquisition will be integrated into Inventor.

Revit sales were up 120%, but Autodesk still does not provide numbers. An analyst asked how Revit is doing: "Revit is on-plan," came the answer. That, plus the high percentage, means the numbers are still small.

Ms. Bartz went on to explain two types of migration from AutoCAD: big bang into Revit, or developing through ADT (called "training wheels for BIM") to Revit. (A hint: AutoCAD users find it hard to switch to Revit.)

Still no hard numbers on subscriptions, but there are inferences to be gained from "over 400,000 customers on subscriptions," manufacturing has the largest percentage, and AutoCAD the lowest. Some clients are now on multi-year subscriptions.

Q: "When do you plan to dispense with upgrades?"
A: With AutoCAD, probably never. Most new products are subscription only.

Q: "Are people tired of upgrading?"
A: No, because we have the same number of uptakes on each new release. "Annual product releases means annual product retirements."

Q: "One a year is too often for most other software packages. How can your customers make annual upgrades?"
A: We are currently in sprint mode. Seamless upgrades make it easier to upgrade, as do thematic releases -- as opposed to 200 random new features. Ask us five or size years from now if we still plan annual releases. In the meantime, we have the next four releases mapped out.

About the Author

Ralph Grabowski is an editor at upFront.eZine Publishing, Ltd. (previously known as XYZ Publishing, Ltd.). Ralph is the author of 60 books and several hundred articles for dozens magazines and newsletters about CAD, graphics, and the Internet.

More Autodesk Select Articles