AspenTech Searching for Definition in FY2000

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AspenTech Searching for Definition in FY2000
S. McVey - September 1st, 1999

Vendor Summary

Founded in 1981 as a developer of computer-aided chemical engineering software, Aspen's growth has resulted in a wide variety of applications for management and execution-level process manufacturing. Aspen's product suites are targeted broadly at design, operational control, and, with the acquisition of Chesapeake Decision Science's MIMI, supply chain management. Aspen has a strong presence in the chemical, petroleum and pharmaceutical industries with some penetration into semiconductors. Demand for Aspen's non-SCM offerings has declined in recent months, increasing the company's dependence on supply chain. Their MIMI customer base is over 200, representing at least one-third of the total customer base. Aspen Technology is third in terms of total revenue among vendors offering SCM (see Fig. 1). The company reported total revenues of $219.6 million in fiscal 1999, compared with $252.6 million in the previous fiscal year. For the quarter ended June 30, 1999, software license revenues were $24.8 million, while services revenues totaled $32.3 million. Net loss for the fourth quarter totaled $14 million or $0.56 per diluted share, compared with net income of $4.7 million or $0.18 per diluted share, including one-time charges, for the same period in fiscal 1998. Aspen is implementing a restructuring program intended to reduce its operating costs and improve productivity. In connection with this restructuring, Aspen is reducing its staff by approximately 200 employees, about 12 percent of the global workforce, as well as closing offices, streamlining operations and rationalizing certain non-core products and recent acquisitions. As a result of these measures, Aspen expects to report a $17-19 million restructuring charge in 4Q99.

Fig. 1

Vendor Strengths

  • Aspen's supply chain management suite offers a high degree of functional flexibility: Aspen's MIMI application provides a feature-rich modeling language that enables users to address a large variety of industrial problems.

  • Established customer base in CPI: Aspen's customers include 44 of the 50 largest chemical companies, 17 of the 20 largest petroleum refiners, and 16 of the 20 largest pharmaceutical companies.

  • Experienced implementation and customer support personnel: Chesapeake has received high praise from consultants and clients for their staff of bright, experienced process engineers and modelers.

Fig. 2

Vendor Challenges

  • Poor financial showing in FY1999: Aspen's FY1999 revenues of $219.6 million represent an 13% drop over the same period on year ago ($252.6 million). Net losses for the same period in 1999 are expected to total over $25 million. Part of the turmoil can be attributed to the reduced IT spending by the petroleum and petrochemicals companies - key markets for Aspen - due to economic factors.

  • Shortage of trained implementation resources: Although some templates exist, MIMI is essentially a toolkit that typically involves extensive training of resources when experienced modelers cannot be found. (This is increasingly the case).

  • Dealing effectively with multiple competitors due to Aspen's broad product offering: The Plantelligence suite is almost ungainly in its variety of applications, including everything from operator training programs to process simulators to supply chain planning. Judicious pruning of non-core applications (such as 'Aspen Genealogy') during its restructuring is needed to better focus corporate resources.

Fig. 3

Vendor Predictions

  • Little to no revenue growth during FY2000, as Aspen's focus will be to complete internal restructuring, given current IT marketplace slowdown and economic difficulties in petroleum sector (70% probability).

  • Moderate earnings growth in FY2001 resulting from cost containment via restructuring efforts (80% probability).

  • Unlikely candidate for acquisition by a larger vendor within the next year due toawkwardly broad functional focus and recent restructuring activities. (70% probability).

Vendor Recommendations

  • Focus marketing and R&D efforts around core applications, especially template solutions for SCM. The recently announced Semiconductor Global Planner represents a positive step in this direction.

  • Increase investment in sales and marketing to boost revenues and integrate acquired organizations: Aspen's sales and marketing investment has fallen 8% over the last five years, in spite of making 16 acquisitions over the same time period.

  • Leverage their position in the process industry to increase their SCM business: Aspen needs to market its recently acquired SCM package to petroleum, chemical, and other process manufacturers who have purchased its simulation and control modules.

  • Improve indirect SCM channel by forming partnerships with complementary ERP vendors, similar to that with ERP giant SAP, for which Aspen has completed a certified interface to R/3.

User Recommendations

  • Aspen MIMI should be a strong contender only for companies in chemicals, petroleum, pharmaceuticals, or semiconductor seeking to augment an existing DCS or SCADA system with SCM, but who have not yet implemented ERP.

  • Companies in complex manufacturing industries (high tech, automotive) or those seeking a transportation planning solution should pass over MIMI unless complex business processes require custom modeling.


CPI - Chemical Process Industries

SCM - Supply Chain Management

DCS - Distributed Control System

SCADA - Supervisory Control And Data Acquisition

ERP - Enterprise Resource Planning


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