Summarizing PTC’s Decades of Fervent In-House Innovation (and Acquisitions) - Part 3

Part 1 of this blog series introduced Needham, Massachusetts (US)-based Parametric Technology Corporation (PTC, NASDAQ: PMTC), which is an over US$1-billion large software company that develops, markets, and supports product development software solutions and related services. My post analyzed the company’s genesis from its inception in 1985 through the mid 2000s.

Part 2 then analyzed the most recent acquisitions of the products that have meanwhile been turned into integrated modules for the idea, concept, and product design phases of the product lifecycle within PTC Windchill 10.0, which started shipping in April 2011. My post established that the product lifecycle management (PLM) arena, also referred to as “Enterprise Solutions,” and the realm of computer-aided technologies (CAx), referred to as “Desktop Solutions,” the two distinct markets that PTC serves, represent different growth opportunities for the vendor.

Part 2 concluded with an analysis of the PTC Windchill PLM suite [evaluate this product], which is one of PTC’s main product lines and growth engines. Part 3 of this blog series will analyze the current state of affairs of PTC’s desktop solutions (including the novel PTC Creo suite of applications) and the company’s competitive positioning.

Creo to Re-energize PTC’s Desktop Solutions?

The CAx market is characterized by intense competition for customers and higher profit margins. However, the nature of this once lucrative market (which is relatively mature and whose growth has lately slowed) and the number and nature of the competitive products (all of which have increasingly similar functionality) make it difficult to gain new customers. Moreover, decreasing product differentiation among the traditional “usual suspects” (PTC Pro/Engineer, Autodesk Inventor, Siemens’ NX and Solid Edge, and Dassault Systemes’ CATIA and SolidWorks), and the training, data conversion, and other startup costs associated with system replacement make it more difficult to dislodge incumbent design systems.

While the market for “desktop solutions” (referring to a typical individual user license on a standalone PC) among large businesses is a mature market, PTC believes that its brand new Creo suite (first release expected in the summer of 2011), will create a growth opportunity for the company in this market. While Pro/Engineer has mainly been used by the most sophisticated design and engineering users within any company, Creo will target many more casual and less sophisticated users as well as users that require simpler use scenarios (e.g., electricians that need electrical schematics [2D drawings with additional annotations] rather than complex 3D models).

In addition to the Arbortext document authoring tools and Mathcad engineering calculations software (mentioned in Part 1), PTC’s “desktop solutions” include its integrated CAx software tools within the integral Creo product initiative (formerly code-named Project Lightning) that was unveiled in October 2010. Creo is being developed to remedy the following problems that are not currently addressed by mechanical computer-aided design (CAD) tools: usability, interoperability, assembly (including product configuration) management, and technology lock-in.

Leveraging technology assets unique to PTC, i.e., Pro/Engineer, CoCreate, and ProductView (and Windchill in future Creo releases), Creo is being designed as a scalable suite of interoperable and easy-to-use product design applications that will provide the right-size solution for each participant in the design process. As mentioned earlier, PTC expects to release Creo 1.0 in the summer of 2011, and the offering will feature a number of Apple App Store-like solutions (where the pricing model is yet to be determined).

To be more precise, the first Creo applications will be released in June 2011, followed by additional applications in July and the fall of 2011, whereas Creo 2.0 applications are slated for 2012. Creo applications will be standalone and extension products that run on Windows PCs and will be priced and sold directy and through resellers like traditional PC software. They will be "right sized" for the role of the user and will support mobile devices in the future, but they are not ultralight single-task applications by Apple developers designed for iPad or iPhone devices (just to make a fair distinction between all these applications).

To entice its existing customers to think about Creo, the company has re-branded some of its existing design products to reflect that they are part of the Creo family of products. To that end, ProductView became Creo Elements/View, Pro/ENGINEER became Creo Elements/Pro, and CoCreate became Creo Elements/Direct. PTC Creo will offer upwards compatibility with the PTC products that the customers are using today. When Creo 1.0 (and Creo 2.0 at a later stage) are released, existing Parametric and direct CAD customers on maintenance contracts will be able to use the new Creo applications with the same or greater functionality at no additional cost.

Creo 1.0 Components

Creo Elements/Pro (formerly Pro/ENGINEER) is a family of three-dimensional (3D) product design solutions based on a parametric, feature-based solid modeler that enables changes made during the design process to be associatively updated. Designers can use Creo Elements/Pro for detailed design (CAD), manufacturing/production or computer-aided manufacturing (CAM), and engineering simulation/analysis or computer-aided engineering (CAE).

In addition, designers can exchange CAD data with a multitude of sources in various standard formats, allowing them to create more innovative, differentiated, and functional products quickly and easily. Creo Elements/Pro can improve product quality and reduce time-to-market by enabling users to evaluate multiple design alternatives and to share data with bi-directional associativity.

For its part, Creo Elements/Direct (formerly CoCreate) is a family of explicit CAD and collaboration software that enables customers pursuing a lightweight and flexible design strategy to meet short design cycles and to create product designs more quickly. The product’s explicit or direct modeling approach enables product development teams to create and modify 3D product designs relatively quickly.

This fast and lightweight design approach gives designers both the flexibility to make changes to a product design late in the development process and the ability to work with multi-source CAD data. Creo Elements/Direct enables users to reduce design cycle time, improve workgroup collaboration through an integrated data management system, and decrease product development costs.

This entire spectrum of product development needs is enabled by Creo’s architecture, which has an interface to a PLM platform (by PTC or a third-party PLM provider), common data model, and data compatibility layer as the foundation. Thus, Creo Elements/View, formerly known as ProductView, provides the interoperability between different file types. Only one Creo Elements product, Creo Elements/Direct, will continue to be developed independently of Creo 1.0 and Creo 2.0 applications to ensure that PTC's existing Creo Elements/Direct customers have all of the advanced direct modeling capabilities that led them to choose CoCreate in the first place.

Examples of these diverse design needs: structural simulation, conceptual engineering, visualization & markup, configuration modeling, 3D technical illustrations, schematics, 3D direct modeling, 3D parametric modeling, etc. Both PTC’s existing direct and parametric CAD products can at least import 2D sketches today if their existing own 2D sketching capabilities are not necessarily robust enough.

In addition, Creo will be able to handle both the direct model/assembly files (for released-level document management) as well as the parametric data. The parametric data that users manage is usually a combination of “engineering” parameters (i.e., sizes, material, simulation/analysis data, etc.) and business data (i.e., part numbers, status, costs, availability, etc.). Creo’s direct modeling approach will allow users to manage all of their parametric data, thus making changes and exporting files (for various outputs) much easier.

Creo products, announced in October 2010, are expected to boost sales in the product design market by providing right-sized applications for diverse users, file types, and modeling styles, as well as complex product assembly. The following four self-explanatory key technologies will be promoted and delivered in Creo: AnyRole Apps, AnyMode Modeling, AnyData Adoption, and AnyBOM Assembly (the latter slated for availability only in Creo 2.0, which will depend on the Windchill PDMLink module, that will need to be installed).

The final Creo components are the aforementioned Creo 1.0 applications, which are different from the aforementioned "Elements" in that most of them are totally new standalone applications. The following seven Creo 1.0 applications are slated for June 2011: Parametric, Direct, Simulate, Schematics, Illustrate, View MCAD, and View ECAD, while Sketch will come out in July 2011 and Layout in October 2011.

PTC already has great capabilities for product configuration, and it will be interesting to compare the capabilities and integrations of what  PTC plans to release in 2012 with the Rulestream products, which according to the Siemens Website (Siemens acquired Rulestream in late 2009)  is a "closed-loop learning system that delivers continuous improvement to promote lean processes and facilitate extensive reuse that underscores innovation. In any case, the upcoming bill of materials (BOM)-driven assembly management feature should come in handy to many customers, especially those in the industrial and automotive industries where high numbers of product configurations are common.

Ascertaining PTC’s Competitive Position

PTC is best known for its mechanical design capabilities that support producers of federal aerospace & defense (A&D), durable consumer goods, high-tech, medical products, and machinery. The vendor also has a strong mechanical design presence in power-train groups at automotive original equipment manufacturers (OEMs), such as Toyota and Volvo, and a large number of automotive suppliers.

In the A&D industry, PTC's product data management (PDM) capabilities have a large presence in both Europe and North America. The vendor has significant business among key medical device manufacturers and also has a presence in the pharmaceutical industry, supporting new drug application (NDA) submission processes with the US Food and Drug Administration (FDA). To clarify the latter, PTC's Arbortext product can be used to support the authoring and managing of documentation required for new drug applications to the FDA. Other PTC products such as Windchill PDM and Creo are not used to design and develop pharmaceuticals.

PTC has a presence in most major discrete manufacturing industries, primarily from a design CAD and PDM (i.e., product authoring and content sharing and management) standpoint, and for enterprise-wide collaborative design. More recently the vendor has tackled project and product portfolio management (PPM) and customer needs management. In addition to a strong PLM foundation with its Windchill technology and a strong customer base, PTC has lately made investments that address enterprise-wide PLM and complementary needs to support manufacturing and customer-facing activities, especially in field service.

PTC has not yet targeted the process industries, which require recipe and formula management, for which support it relies on partners. Siemens, SAP, and Oracle do have some process PLM capabilities (as discussed in my recent series), while Dassault Systemes has recently joined the club with its acquisition of Enginuity.

Thus, a large amount of PTC revenues are related to sales to customers in the discrete manufacturing sector. A decline in general economic or business conditions or a decline in spending in the manufacturing sector or the A&D industry vertical segments (given some talks about a double-dip recession and/or slow recovery) could cause customers to reduce or defer spending on PTC’s products, which would cause the company’s revenue and earnings to either decrease or grow more slowly.

In addition to Dassault Systemes and Siemens for traditional CAD solutions, PLM solutions, manufacturing planning management (MPM) solutions, visualization, and digital mock-up solutions, PTC competes with Oracle and SAP, which offer PLM solutions that control product data within the larger framework of their Enterprise Resource Planning (ERP) solutions. Although PTC’s PLM solutions are more specifically targeted toward the product development processes within manufacturing companies and offer broader and deeper functionality for those processes than ERP-based PLM solutions, PTC is sometimes at a disadvantage in IT departments that consider their ERP system as their main system of record.

The challenge for PTC (and for its best-of-breed PLM peers, if you will) is to persuade business users and IT managers beyond its traditional stronghold in engineering departments that PTC is their product data system of record. PTC and its partners provide the PLM-ERP product and services integrations for the vast majority of large customers who must connect the product development of PLM to the resource planning and manufacturing execution of ERP.

Some PTC PLM peers stand a better chance to capture user loyalty and staying power with their broader functional footprints. For example, PTC does not compete with Siemens in the realm of manufacturing execution systems, where Siemens offers Simatic IT); plant engineering and simulation (where Siemens offers Tecnomatix and COMOS); or motion control, where Siemens offers the hardware and numerical control (NC) software inside a production machine that controls its motion. Dassault offers similar extra-PLM plant automation capabilities via DELMIA and SIMULIAwhich will soon be enhanced by the recent Intercim acquisition.

PTC’s Automotive Aspirations

PTC’s attempts to foray into the “entire automobile” design (from its powertrain stronghold) will be met with stiff resistance from its competitors (but that doesn't prevent auto makers like Hyundai Kia Motor Company [HKMC] from switching to PTC if that's what they see fit). Dassault Systemes’ strength in the automotive sector comes from a number of reasons, one of which is its long history of serving the industry, especially on the design side. CATIA has established itself as the design package most chosen for body in white (BIW) design, and the vendor has been making moves to stay ahead of the competition.

For example, a recent PR about Dassault Systemes deployment at BMW is a good testament to the vendor’s capabilities. “An entire car” used to mean the mechanical parts design, but has over time expanded into “mechanical + electrical + electronic” design. Most recently, embedded software design has also been added, so people are talking about system engineering now.

For its part, Siemens has lately been challenging Dassault’s industry dominance, as many automotive companies are taking a closer look at the power of NX (e.g., Nissan, Fiat, Chrysler, Daimler, etc.), particularly as many OEMs already deploy Teamcenter. This combination can result in better IT efficiency as well as increased workflow productivity. Another important reason for Siemens’ surge in automotive is that many of its competitors lack strong simulation capabilities both at the product design and manufacturing design levels.

Siemens’ NX product design product and NX CAM machining process simulation product connect well with this holistic design and manufacturing simulation capability. Within automotive in particular, Siemens has been seeing very beneficial “pull through” between PLM and MES. Moreover, the vendor is starting to see this synergy within complex discrete manufacturing in general (as can be seen at Rolls Royce Aerospace).

I will say that Siemens’ investment in its products’ openness, though it may have sounded monotonous over the last several years, is also paying off for the vendor. By not necessarily locking customers into a closed system, Siemens has been able to win company-wide decisions as well has more focused projects, which then establish a beachhead from which companies can expand over time.

For its part, PTC has made the right choice to lean toward openness by supporting the de facto 3D visualization standard, JT format. Only time will tell whether with Windchill 10.0, which also includes the “embedded software” design capability (due to the recently completed MKS acquisition, see Part 2), PTC will be able to capture the hearts and minds of many more automotive OEMs.

Some time ago (and not much recently), market observers and some of PTC's competitors speculated on the possibility of PTC being acquired. I don’t see much reason for concern there (after all, almost everyone is for sale if the price is right). PTC’s customer base is large enough that a buyer would most likely be motivated to maintain and enhance PTC's offering.

The finale of this blog series will conclude with my discussion with PTC’s executives about the recent events and the company’s current state of affairs. In the meantime, your comments, thoughts, suggestions, or individual experiences with the aforementioned product development issues and PTC’s related solutions are more than welcome as always.
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