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