2001 was no golden year for suppliers of CAx applications, neither in the UK, nor worldwide. UK
industry is subject to world economic conditions; signs that all was not well were apparent well
before the tragic events of September caused a temporary halt to many investment plans.
Preliminary UK statistics released by the ONS in March this year mirror the anecdotal evidence
that business was tough in the first half of the year for software vendors in manufacturing, but
recovered slightly by the end of the year (Figure 1).

Figure 1- UK Private Sector Investment in Software 2001

Investment in construction software showed a marked decline at the year end, following some
recovery in the middle part of the year. Uncertainty over the global economic position can explain
this reluctance to commit to new construction software purchases, driven, as they are, by individual
projects and large-scale consortia. Manufacturing investment in software, on the other hand,
ended the year strongly, supporting the view that manufacturers accept the need to continue
investment in new systems to remain competitive. The hype (measured by Cambashi’s patent
“Hypometer”) generated around PLM (Product Lifecycle Management) may be partly responsible
for maintaining investment levels. However, the main reason still appears to be a drive for
increased productivity. There is also a replacement market for no longer developed “zombie”
systems still in use.

Against this backdrop of uncertain investment conditions, how did the UK market behave and how
did players react? 2001 certainly saw some significant consolidation of channels, whilst mergers
and acquisitions and reorganisations changed the nature of the competitive landscape.

And then there were Four….

Last year there were five large vendors; with the UGS-SDRC merger, these are now reduced to
four, who account for over 70% of Mechanical and AEC CAx end-user expenditure in the UK.
(Figure 2).

Figure 2 UK 2001 Major UK players

Autodesk – Onwards and Upwards?

In 2001 Autodesk embarked on a rationalisation of their channel in the UK. It now has improved
regional coverage and better-established dealerships. This is another step in a long process.
During the re-structuring, many dealers have combined with, or been acquired by, big local players
to create larger, more credible, units, which can handle longer sales cycles and bigger orders from
larger enterprises.

In 1989/90, Cambashi surveyed the AutoCAD dealer market. At that time, there was one
distributor and over 200 authorised dealers. Over 80% of business was won by less than 20% of
the channel. Today the single AutoCAD product is only a part of a wider product set addressing
many more sectors. However, in the MCAx and AEC segments comparable to 1989/90 there are
now three distributors but only 65 dealers. We estimate that 70% of business is conducted by 30%
of these dealers. Also worthy of note is Autodesk’s direct sales organisation, which in the recent
past has focused on larger account development and sales assistance for new products such as
Inventor, and the on-line store whose volumes (currently) remain small in comparison with more
traditional routes to market.

Smaller dealers, who tried to generate volume rather than value added, have no place in this new
set-up. They tended to push vanilla AutoCAD sales, whereas Autodesk is promoting specific
vertical market products, like Inventor, Architectural Desktop and Map. Accompanying this
channel rationalisation, Autodesk has opened their e-store in the UK, offering vanilla AutoCAD at a
discount on the list price, but rather more than the best price obtainable by shopping around
dealers. As many dealers also have web-sites offering discounted software, this could be deemed
competitive. But e-stores offering discounts have yet to displace the personal touch; the dealer still has a place where local representation and established relationships are valued. Perhaps this
shake-up and dust-off of the channel – once referred to as “Autodesk’s crown jewels” – will restore
some of the sparkle.

Autodesk also extended their direct business and started offering subscription services to larger
UK accounts. In the future, we expect Autodesk to build more direct relationships with its user
base, as subscription services obviate the need to re-sell each new version or upgrade to
customers. They also have the effect of smoothing revenues, as the deals are generally for 2-3
years. The message to the channel must be that product sales will continue to bring less margin;
but local delivery of the service, on behalf of Autodesk, presents new opportunities for those who
are willing and able to look beyond the next sales quota.

We estimate that UK EUE (End User Expenditure) on all Autodesk products was £125m, down
slightly from last year – but more of this was taken by Autodesk as company revenue. Of total
EUE, £78.8m is estimated to come from AEC and MCAx applications; and the remainder from GIS
and Discreet. The UK is supplied via the Netherlands, so that Companies House information can
be misleading. However, we estimate that Autodesk’s UK company revenues amounted to £34.1m
in 2001.

Dassault Systèmes and IBM – Two heads are better than one

It is unlikely that EDS will have things their own way, since IBM, with CATIA partner Dassault
Systèmes, is already well-positioned in the PLM space. IBM’s formidable sales and marketing
machine is good at defending their own territory; and there are now signs that they are building up
to being a significant force in others’ back-yards. The Rand deal quoted below is an example of
this.

IBM PLM Solutions has access to Dassault’s CATIA, ENOVIA and SmarTeam products to service
the engineering requirements of their customers. IBM Global Services also has around 1,000 staff
worldwide, with which it can deliver PLM solutions. As well as ENOVIA and SmarTeam they can
implement solutions from partners like MatrixOne and SAP. Dassault’s re-development of their
architecture is starting to pay-off, as V5 accounted for over 37% of last quarter’s CATIA sales.
However, as CATIA V5 develops, there is little to differentiate it from Dassault’s other product,
SolidWorks – not sold by IBM, but by indirect channel. It is only the two products’ relative
positioning and marketing that sustains the differentiation at present - maintaining this will become
more difficult as time goes on.

SolidWorks is the leader in its segment of the market. It avoided mistakes made by other vendors,
and resisted appointing more VARs until there was sufficient business to support them. It has also
managed its channel well. Initially sales were mainly targeted at Pro/Engineer replacement, but
the susceptible part of this market has now largely switched. The Autodesk 2D installed base was
the next happy hunting ground for SolidWorks. The advent of more competitive Autodesk products
now makes sales to this arena more difficult. The challenge is, “where next?”

We estimate that IBM’s EUE in the UK in 2001 was £68.3m. Within this, Dassault’s share of IBM
software and maintenance revenue from the UK is probably around £16m. Overall, the
SolidWorks UK channel, in our estimation, generates £17m EUE.

EDS PLM Solutions – No acquisition indigestion, yet!

The acquisition of SDRC by EDS, and its combination with Unigraphics Solutions as EDS PLM
Solutions has created another $1bn “gorilla” worldwide. This has immediate implications for IBM
as EDS’ closest and most effective competitor. Whilst UGS is seen as the “senior” partner
worldwide, SDRC was the larger player in the UK. Business with Ford and its supply chain is a
major factor in this. Company revenues for SDRC were estimated at £24m in 2001, whilst UGS’
revenues were around £16.3m.

We expect that 2002 will be a “quiet” year for the combined company, as rationalisation of both
organisations and product sets could take some time. The combined company owns four
CADCAM systems (IDEAS, Applicon’s Bravo!, Unigraphics and SolidEdge), three PDM/PLM
systems (Metaphase now TeamCentre, Sherpa and iMAN), plus surfacing (Imageware), kernel
technologies (Parasolid), e-factory manufacturing planning, and FE. All this is a potent technology
mix.

Keeping these balls in the air, whilst juggling the demands of a combined customer base with
investments across the technology base, will present an interesting challenge for 2002 and
beyond. The management appears to us to have a clear “roadmap” – all they need to do now is
execute.

The chosen name, PLM Solutions, indicates that EDS is ready to extend their service-driven model
(used in other segments) to high-end Cax. With their broad technology base, they are seeking to
win outsourcing or managed services deals in top manufacturing accounts,.
EUE on EDS PLM Solutions’ combined operations in the UK is estimated at £55.2m for 2001. The
SolidEdge channel generates some £7.6m of these revenues.

PTC – MCAD is not enough!

PTC has maintained its position in the UK well. A few years ago, PTC was a new business, with a
sales-driven organisation. New sales were required to maintain a high share-price. It offered highend
mechanical CAD with fantastic execution of a strong product proposition, dominating the
market. This early sales-led approach has given way to a more mature strategy, as PTC seeks to
nurture their user base and protect it from competitors.

Their acquisition of troubled Computervision brought a large increase in installed base, but also a
tired mechanical and data management product set and an interesting, but under-developed, new
PDM suite in Windchill. They also purchased Division and Rasna to complete their range of
visualisation and analysis tools.

Since that time, worldwide mechanical CAD sales have fallen and have yet to be replaced by an
accompanying rise in new Windchill revenues. These would have to increase three-fold to makeup
the revenue gap, unlikely in the shorter term. PTC also unloaded their Medusa product line to
their German reseller. The UK has been buffered, to some extent, by old CV implementations in
automotive and aerospace accounts.

In 2001, PTC UK was a multi-channel organisation with direct sales to companies with more than
$50m turnover; a master distributor in Rand to handle sales to smaller companies, plus a few
dealers; and a telesales organisation to leverage sales into their user-base, complemented by their
web-store. By 2002, whatever “channel” existed previously (other than Rand) has largely disappeared as PTC has replaced dealers with a combination of telesales and web-store. A number of CEP’s (Certified Engineering Providers) continue to provide support at local level.

However, on April 16th at COE, Rand announced that the existing minor relationship between IBM
and Rand to sell CATIA in Germany would be extended dramatically. Rand will now promote and
sell Dassault’s product set worldwide as an IBM premier Business Partner. Although the PTC
relationship continues and does not expire until 2005, the prospect of Rand cooperating with IBM
to chase Pro/Engineer accounts cannot be comfortable for PTC. Rand expects that 75% of its 220
strong field sales force will transition to sell CATIA by 2004. Obviously this will take cash and
Dassault plans to lend Rand $25m in the form of a 10 year convertible loan.

We estimate that UK company revenues for PTC were around £43.8m in 2001, with EUE of
£57.8m, similar to last year.

Methodology

Each year, Cambashi consolidates information from a wide variety of sources, including the SEC
and Companies House, Annual reports, financial press releases, discussions with the players
involved and other public information. We resolve inconsistencies by recording this information in
a series of market models. As the number of product sets increases, and multi-year subscriptions
and support contracts replace product sales, so the task of modelling these changes increases in
complexity. In addition, delivery of services across international boundaries is also increasing – for
example, design and analysis services may be ordered as part of a UK project, but may be
delivered using staff in Europe, America or the Far East. We modify our models to take account of
these changes. Our UK results include only those revenues which were fulfilled in the UK – these
may differ from the revenues reported by UK registered companies.

Using our models, we calculate EUE (End User Expenditure), which includes hardware, software
and services bought by end users from CAx vendors and their intermediaries. This figure includes
the Product Data and Document Management (PDDM) and CAE revenues of the major CAx
players, but excludes the revenues of the PDM, document management and workflow vendors
who are not directly involved with CAx product development. We are aware that this overlap can
lead to double-counting, resulting in some very large numbers. We try to avoid the hype that
accompanies such large numbers by removing elements of double-counting from vendor
revenues, to give a more accurate representation of the various markets in the UK.

Nick Ballard
nick.ballard@cambashi.com

NEW: Engineering applications market review, April 2003
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The CAx review for 2000 is also available online