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Settlement and Other Issues

Back in November MCAD Magazine covered the uncomfortable divorce between PTC, developers of Pro/ENGINEER, and Rand, a global dealer and distributor of Pro/ENGINEER, as well as other MCAD products. This month there have been some newsworthy updates.

by Martyn Day, editor, CADserver, January 31, 2002

In 1998, PTC named Rand as the "master distributor" of PTC's core products. This agreement gave Rand the rights to provide Pro/ENGINEER and PT/Modeler throughout North America and Europe. Then, in a surprise move, in April last year, Rand signed an agreement with IBM and Dassault Systemes, and sold under just under 20% of the company to Dassault Systemes, one of PTC's biggest competitors, which meant that it would market, sell and service CATIA, DELMIA, ENOVIA, and SmarTeam. As IBM is Dassault's worldwide sales and marketing partner, Rand works in conjunction with IBM in each country.

After Rand had signed up to distribute Dassault Systemes’ CATIA modeling package, a serious competitor against PTC’s Pro/ENGINEER, this could only be seen as a slap in the face for PTC. However, by giving Rand a broad and in some cases exclusive contract, PTC appeared unable to extricate Rand and the oncoming IBM/Dassault threat from its user base. While IBM and Dassault representatives appear to have loved the coup, PTC set about competing against Rand with its direct sales force and what dealers it had left. The net result was some interesting phone calls to MCAD offices from puzzled users, being pursued by both companies to gain their custom.

On December 12th 2002, PTC announced that it had managed to amend its distribution agreements with Rand. The distribution agreements between PTC and Rand, were originally set to expire on October 1, 2005, but will now expire on December 31, 2003. Other significant modifications announced that Rand’s discount will be reduced to match other PTC resellers (effective Jan 1st 2003), Rand will continue to provide training and consulting until December 31st 2004 (with an option for an additional year) and that Rand will be enrolled from 2005 onwards in PTC’s Enterprise Software partner Program, allowing Rand to develop complementary technology to PTC products.

It’s hard to read between the lines here. Rand has lost two years of selling Pro/E and has only one left on reduced margin. PTC has pretty much allowed Rand to offer training, together with a promise to let Rand join the third party development program. With pretty poor financial results, and Pro/E market-share under threat, PTC still needs Rand to be out there selling, supporting and training and a one year sales deal, combined with a longer training and support contract will allow Rand to wean itself off Pro/E revenue while it concentrates on cranking up it’s Dassault-based products and internal training. Similarly, it will give PTC time to replace Rand with new dealers and distributors (more on that in a minute). I am sure the next year will not necessarily be mutually joyous relationship, however, this seems to be the best possible solution for all parties.

PTC signs new Distributor

As part of its quest to broaden its distribution, replace Rand and at the same time attack one of its competitors, PTC recently announced a distribution deal with European Value Added Distributor, Mensch und Maschine (Man and Machine). The deal allows Mensch und Maschine to distribute Pro/E and the forthcoming Pro/E Wildfire products in 14 European countries from March 1st 2003.

Mensch und Maschine is a German-based, eighteen year old company that has developed and extensive CAD and MCAD reseller channel throughout Europe. The company claims it has over 20% market share in the 11 European countries that its 1,000 resellers cover. MCAD sales contribute about half of its revenue (146.8M EUR in 2001). While this may not be really gripping news to most readers, what is important to note is that Mensch und Maschine has been and still is one of Autodesk’s most important MCAD distributors in Europe. So by taking on Mensch und Maschine, PTC theoretically has access to Autodesk’s European Inventor dealer channel, something which I am sure would not have pleased Autodesk’s European management team.

With Inventor on the ascent one does have to wonder why Mensch und Maschine would risk its relationship with Autodesk to work with PTC – a company that has been suffering some market-share erosion? I am sure that Autodesk’s movements to work more directly with resellers and customers in countries like Germany, leading to an uncertain future, would have prompted Mensch und Maschine to evaluate its future business model and perhaps look to see if the grass is greener from any other MCAD vendor. The real issue will be if Mensch und Maschine can persuade AutoCAD Inventor dealers to take on Pro/E Wildfire instead or as well, an idea that I am sure PTC is holding on to, some may say rather optimistically.

What’s also relevant here is that a major Autodesk distributor of its retail, AEC, GIS and MCAD products has opted to risk the wrath of Autodesk, by signing up a competitor, perhaps this is a sign that all is not well in Autodesk’s channel. Mensch und Machine describe the PTC deal as adding a third column to its business model, I wonder if Autodesk would see it more as a ‘fifth column’?

PTC earnings error

While I’m on the subject of PTC, late December, the company was forced to announce that it expects revenue for the fiscal 2003 first quarter (ending December 28, 2002) to be between $171 and $175 million, which is below the $180 million target the company had identified on its October 15, 2002 earnings call.

The inaccurate estimate was blamed on the implementation of a new accounting system. C. Richard Harrison, president and chief executive officer of PTC commented, “Under our new system, we are able to track maintenance revenues more precisely. Upon implementing the new system, we discovered that a relatively small portion of maintenance revenues more properly belonged in future periods. Because we learned of this matter late in the financial closing process, we are taking the extra time to assure the accuracy of our financial reporting.”

In these post-Enron times, with jittery markets, overstating revenue can bring a painful backlash, PTC’s stock lost up to 13% of its value following the announcement. With this hiccup kicking off 2003, PTC’s management appears confident of recovering lost ground with the release of Pro/E Wildfire, together with a broadened dealer base from its new European distributor. Time will only tell.

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