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New Markets For Autodesk, Informatica

Posted on Thursday, Jun 3rd 2010

Jon Peddie Research estimates the CAD software market to have decreased 23% over the year in 2009 to $5 billion. While growth is expected to return in 2010, analysts don’t expect the market to reach its peak 2008 levels of $6.7 billion. The 2010 CAD market is expected to grow 5% to $5.4 billion with higher growth projected in 2013–2014. Autodesk’s (NASDAQ:ASDK) recent performance also seems to be reflecting the current year’s upbeat trend.

Q1 revenues grew 11.5% over the year to $474.6 million with earnings growing 58.8% to $0.29. The market was expecting revenues of $437 million and EPS of $0.22. Autodesk benefited from strong year-on-year growth in maintenance billings and commercial new licenses in the quarter. Its earlier cost control measures helped to drive up margins. Licenses and other revenues grew 14.8% over the year to $280.0 million with revenues from new commercial licenses growing 24.0% over the year. Maintenance revenues increased 7.1% over the year to $195.0 million.

By geography, international businesses posted strong revenue growth with EMEA revenues growing 19% over the year and 10% on a constant currency basis to $199 million. The strengthening dollar against the European currency could impact revenues from Europe. Asia Pacific revenues grew 21% over the year and 15% on a constant currency basis to $115 million. Revenues from the Americas, however, decreased 1% over year to $161 million.

3D revenues grew 3% over the quarter and 13% over the year to $138 million while 2D revenues grew 12% over the quarter and 17% over the year to $240 million. It is true that Autodesk is continuing its migration to higher margin 3D products and that these products have considerable advantages over 2D ones. But as users point out, using 2D is cheaper and, says one user of Autodesk 2D drafting tools, “2D drawings will continue to be used as a point of reference and for inspections because they are more widely recognized and understood.” 3D combined revenues from AutoCAD and AutoCAD LT products grew 19% sequentially and 20% over the year.

To address the growing 3D demand, during the quarter, Autodesk launched high-end products with new features for 3D design, visualization, and simulation for engineers, architects, and other professionals. The new user interface simplifies customer navigation among multiple Autodesk products.

Autodesk is also expanding its addressable market base and recently launched a Sketch Book Pro application for the iPad; AutoCAD Freestyle, a simple application for drawing and sketching; and Autodesk Homestyler, a free online home design software program. These new applications are directed toward “specialty contractors and do-it-yourselfers” to help attract a new group of potential customers.

Going forward, Autodesk expects revenues between $435 million and $460 million with EPS of $0.23–$0.28. Analysts expect revenues of $443 million with EPS of $0.26.

The stock is trading at $29.24 with a market capitalization of $6.7 billion. It touched 52-week high of $35.18 in April of this year.

Informatica (NASDAQ:INFA) too reported a stellar performance for the quarter with revenues that grew 24% over the year to $135.1 million with new license revenues growing 25% to $55 million. With EPS of $0.21, Informatica recorded its most profitable quarter ever.

Its three-pronged strategy of expanding product and geographic portfolio and growing beyond the traditional data warehousing market is standing the company in good stead. It recorded more than 58% of deals signed to be worth over $100,000, with customers planning to use Informatica’s tools for solutions beyond data warehousing. The product portfolio now spans eight software segments: enterprise data integration, data quality, B2B data exchange, application information life cycle management, complex event processing, master data management, Ultra Messaging, and cloud computing data integration.

The company is expanding through inorganic acquisitions as well. It recently acquired 29West to help expand its addressable market with 29West’s suite of “Ultra Messaging” products. Analysts project the overall messaging infrastructure market to be worth nearly $2 billion. 29West’s products offer messaging components for the financial services sector with the lowest latency, highest throughput, and enterprise-wide scalability. Informatica will be able to strengthen its presence in the financial services segment and advance its technology leadership by delivering “the industry’s first platform to zero latency data delivery and data integration” through the acquisition.

Earlier last quarter, Informatica acquired Siperian, a leader in master data management (MDM) platform technology, for $130 million. Informatica is looking to expand its addressable market with MDM infrastructure through this acquisition. As others in the industry rightly note, with this acquisition, Informatica will be able to offer products to directly compete with Oracle and IBM.

Informatica continued its movement into the cloud by launching Data Archive for the Cloud, an infrastructure-as-a-service offering, which will help archive database and enterprise application data to the cloud cost effectively and securely.

The stock is trading at $26.30 with a market capitalization of $2.42 billion. Last quarter, it touched a 52-week high of $27.89. With Oracle having integrated Sun, Informatica may well be on its radar now.

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