The engineering software sector is a story of two extremes. Its level of importance is reflected in the fact that it provides a fifth of the world’s top 25 software corporations, but the fortunes of computer-aided design (CAD) companies are decidedly mixed. The revenue growth rates at companies such as Parametric Technology Inc, Cadence Design Systems Inc and Dassault Systemes SA run at 25% to 50% and net profit margins can hit 20% to 25%. In contract, companies such as Computervision and Mentor Graphics Inc have struggled to make profitable numbers or show growth. That has produced a climate of consolidation that has seen Cadence swallow several smaller CAD companies, EDS’s Unigraphics unit combine with Intergraph’s mechanical CAD outfit, and Parametric’s $260m acquisition of Computervision in November (CI No 3,284). Bedford, Massachusetts-based Computervision, one of the veterans of the CAD software world with 1996 revenues of $447.2m, has been working its way through a traumatic change in business model. Over half a decade, it went from being a workstation company that bundled CAD software to a pure software player. But even after it ditched the hardware element, it never managed to kindle growth in software revenues. And burdened with debt, restructuring costs and a string of loss-making quarters, it was looking weak and unhealthy. As a new subsidiary of Parametric, Computervision will be a slimmer entity – Parametric is laying off 500 of Computervision’s 1,200 workforce. None of the Computervision senior management team is expected to stay. But Parametric also expects to get Computervision back to break even after spending $300m cash clearing 75% of Computervision’s debt liabilities. The prize for Parametric, whose revenues grew 35% to $808.8m this year, is clear. Apart from giving the Waltham, Massachusetts-based company a broader hold on the market, the acquisition gives Parametric an open door into customers in the automotive and aerospace industries.
