Autodesk Proceeding with Acquisitions

Autodesk’s (ADSK) stock has been tumbling since last year. The recently announced, better-than-expected Q4 results did not bring it any luck either. A pity because I am a huge fan of this company

Q4 revenues of $490 million were higher than the Street’s estimated $484 million but recorded a reduction of 18% over the year. EPS of $0.31 was also significantly higher than the expected $0.21 and recorded a fall of 40% over the year. For the fiscal year, they recorded revenues $2.3 billion and EPS of $1.95, growing by 5% and 4% respectively.

They saw revenue from new seats fall by 33% and Upgrade revenues decline by 32% in the quarter. Maintenance revenue of $180 million recorded growth of 17% over the previous year. By segment, Platform Solutions revenue decreased 24% to $201 million and revenue from Manufacturing Solutions decreased 6% to $115 million. AEC revenues fell by 14% over the year to $118 million and Media and Entertainment segment revenues declined by 26% to $53 million.

Earlier last year, Autodesk was focusing on emerging markets. During the recent quarter, with the economic headwinds hurting these countries as well, they saw emerging market revenue share decline by 31% to represent only 16% of overall revenue. Revenues from all the other geographies also declined in the quarter, with Americas revenues falling by 17%, Asia Pacific by 25% and EMEA by 16% over the year.

As predicted, the 2D share continued to fall as their model-based 3D design solutions fared better comparatively. 3D design solutions revenues decreased 1% to $144 million, and contributed 29% of their quarterly revenue. 2D horizontal products, AutoCAD and AutoCAD LT declined 29% and revenue from 2D vertical products decreased 21% for the quarter.

Given the current valuations in the industry, Autodesk has been making quite a few acquisitions. During the quarter, they completed the acquisition of Softimage, a developer of 3D technology for the film, television and games markets, for an estimated $35 million. They expect to accelerate their work in building real-time, interactive 3D authoring tools for the entertainment markets.

Additionally, they acquired iLogic Technology from Logimetrix, a software and related technology firm based in Canada that specializes in desktop rules-based design automation technology. This acquisition is expected to help Autodesk provide a comprehensive Digital Prototyping solution.

To enhance their presence in the design innovation space, they acquired BIMWorld, which was a privately owned organization specializing in the production and distribution of branded content for building product manufacturers. Recently, they also completed the acquisition of Algor Inc for nearly $34 million. Algor’s computer aided engineering software is used for product design and development in the automotive, aerospace, medical, consumer products, defense, energy and utilities industries, and Autodesk is hoping to strengthen their solution for digital prototyping with new advanced simulation functionality, including multiphysics, mechanical event simulation and fluid flow.

I like the acquisition strategy. It is the right strategy for these times, since so much is available at such low prices. Hopefully, as times get better, these moves will pay off.

In the new fiscal year, they are looking at Q1 revenues in the range of $400-$440 million with EPS of $0.00-$0.12.

To arrive at a leaner cost structure, they have already initiated a restructuring plan that is expected to save about $130 million a year. They are expecting to derive cost-saving benefits through measures such as headcount reduction of 10%, facilities consolidations, a hiring freeze and travel restrictions.

They foresee money coming into the US through infrastructure spending as part of the stimulus package and are looking at countries like China which are able to direct money towards infrastructure build. With companies looking to save money, consolidate, and select a lower cost of ownership provider, Autodesk does stand a chance in gaining market share. Given their technological leadership, brand recognition, breadth of product line, installed base and their commitment to the products and their partners; I continue to remain bullish on the company. But the macro conditions are scary to say the least, so I am not recommending any stock purchase right now. Nonetheless, I am holding on to my Autodesk stock.

The stock is meanwhile trading at 5 year low levels of $12.05 with a market capitalization of $2.73 billion.

Comments

[Adrian D:]

Autodesks acquisitions dont sound any different than past acquisitions in the same industry segments in previous years.

The biggest threat to AutoDesks flagship AutoCad product are products such as Googles SketchUp. A free 2D and 3D design product with a professional paid version that can open AutoCad files and do more for thousands less than a seat of AutoCad. Sketchup has been warmly embraced by the Architectural and Civil Engineering community.

In response to this Autodesk tries to implement draconian "True Drawing" technology that attempts to intimidate non AutoCad users into thinking their file formats are incompatible.

Autodesk has to realize that people have more options now. Theres not so much of a compelling reason to shell out $4000 USD for a single seat of a 2D drawing program when you can buy any number of competing products that do the same thing for thousands less.

Going after new customers in 3D modeling and prototyping is extremely expensive and competitive these days. Autodesk needs to leverage its huge installed architectural and civil engineering user base. Its so much easier to sell existing users than create new ones.

Just how they will explain to their users how their $4000 solution is better than what Google Sketchup can do for a few hundred dollars remains to be seen.

Mar 08 11:17 AM

[STLPlace:]

Some discussion on Moldflow acquisition.

messages.finance.yahoo...

It appears ADSK overpaid for MFLO, to say the least.

Mar 08 03:39 PM

[ShipBuilder:]

Google Sketch Up is an ideation toy, it is not engineering software. It cannot produce production drawings, or output to CNC machinery....it is a toy. There have been nearly identical ideation toys out there for many, many years, and all of them fade away as you have to reverse engineer their output in a real engineering program, or just look at the results, when you are done.

“True Drawing” (TrustedDWG) was introduced to let customers know if a particular drawing was last saved in AutoCAD, or converted from another program. Converted files, most notably those from Microstation, can be very inaccurate. This was not implemented due to Sketchup, it was in answer to some alleged copyright infringements by SolidWorks.
And finally, Autodesk’s does not need to explain why their solution (Inventor, not AutoCAD), is better than Sketchup any more than Mercedes Benz needs to explain why it is better than a Yugo. Sketchup is free, and worth every penny……

Mar 09 07:15 PM