Feature Article: Cambashi EMEA Market Observatory - Provisional Results for 2004

At risk of blowing our own trumpet, we take some satisfaction in noting that Cambashi's 2004 prediction of 3.9% growth in Engineering Applications revenues in EMEA, proved close to the provisional result of 3.6%, as measured in Euros. (In fact, we revised our predictions quarterly, to 3.7% and then to 3.6% in September 2004 -see graph).

Three major factors came into play in 2004;

• Slow GDP growth in the Eurozone, where Germany refused to climb out of stagnation.
  
  
• Exchange rates; in the form of the continued slide of the $US.
  
  
• The rise of China as a manufacturer, sucking in raw materials and shipping finished goods worldwide

Looking at EMEA manufacturing business confidence indices, we see a decline towards the end of 2004, following a pick-up in the middle of the year. This is mirrored by a sharp fall in the growth of Engineering Applications revenue in Q4 2004 over the previous year. Not surprising perhaps, given the rapid re-adjustment between the $US and Euro at the end of 2004. Since the Chinese Yuan is pegged to the $US, European exporters (and Germany in particular) found themselves between a rock and a hard place, having just come to terms with previous exchange rate adjustments. As the exchange rate climbs, profit margins are squeezed and prices in $US are pegged-back to remain competitive. Manufacturers in EMEA hold-back on investment - and IT is one area where budgets are hit.

For 2005, all the indications are that manufacturers in EMEA are in for another tough year. Vendors of engineering applications software and systems will have to work hard to unlock their budgets. Increasingly, budgeting is done on a quarterly basis - though whether manufacturing organisations are yet capable of responding within these timescales is open to debate - so vendors need to be attentive if they are to catch the moment. With users looking for the best returns on investment, those vendors who can develop innovative delivery and use schemes may get better traction with prospects.

We already see the "big boys" offering on-demand services to large corporations, rather than sell tin and software. This trend, with a shift to operational costs, rather than capital investment, is likely to dribble-down into small-and-medium sized businesses. Leasing has already made an impact in these companies. We expect that many will start to look for pay-for-use schemes for their software and subscription services, rather than maintenance and support contracts. Similarly, hosted solutions like PLM and collaboration tools may prove more attractive than internal installations across the enterprise.
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We forecast demand in Euros as the $US/ Euro fluctuations can distort comparisons. Our econometric model shows growth in GDP as highly sensitive to the exchange rate. If it remains constant, we anticipate that revenues for the vendors of engineering applications will be about 1% higher in 2005 than in 2004. We will be revising these estimates in our EMEA Market Observatory prior to the end of each quarter, so look out for updates.

Nick Ballard

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