Parametric Technology Corporation (PMTC) was incorporated in Massachusetts in 1985 and is headquartered in Needham, MA. The current President and CEO is James E. Heppelmann and as of September 30, 2010, PMTC had 5,317 employees; 3,361 of which were located outside of the United States. The company’s IPO was in 1989 and it is currently categorized as a mid-cap stock. Reflecting this, Parametric Technology is included in of the S&P Mid-Cap 400 Index.
The company offers solutions in the product development market, which encompasses the product lifecycle management (PLM) and the CAx market (computer-aided design, manufacturing, and engineering (CAD, CAM, and CAE)). These solutions help companies increase innovation, improve product quality, decrease time to market, and reduce product development costs.
On May 31, 2011 Parametric Technology acquired MKS Inc., which was a global application lifecycle management (ALM) technology leader. Its flagship product, MKS Integrity®, coordinates and manages all activities associated with developing software intensive products. With the unification of MKS’s ALM solutions with PMTC’s PLM solutions, it will enable manufacturers to better align the management of a product’s hardware components and related software.
Revenue is generated through the sale of software licenses, maintenance services, and consulting and training services. Sales are reported by product groupings (Desktop and Enterprise) and by distribution channel (Direct and Indirect). Enterprise revenue (46% of fiscal year 2010 sales) includes PLM solutions, while Desktop revenue (54% of fiscal year 2010 sales) includes CAx solutions. Direct sales efforts are focused on the large business market (72% of fiscal year 2010 sales) and are supplemented by third-party resellers (28% of fiscal year 2010 sales), who provide a cost-effective means of focusing on the small- and medium-sized business markets.
Product lifecycle management solutions include the Windchill®, Arbortext®, Creo Elements/View™, Relex®, and InSight™ products. As a family, these products address common challenges that companies, particularly manufacturing companies, face in their product development processes. These challenges include product data management, communications and collaboration with the extended enterprise, portfolio management, change management, regulatory compliance, technical and marketing documentation, heterogeneity of systems, and product service and maintenance requirements.
Desktop solutions include the integrated CAx software (Creo Elements/Pro™ and Creo Elements/Direct™), Arbortext authoring products and Mathcad® engineering calculations software. These products assist in reducing design cycle time, improving workgroup collaboration, allowing changes made during the design process to be updated throughout the process, and the reduction of product development costs. This enables customers to create more innovative, differentiated, and functional products quickly and easily.
A factor to consider when looking at this company is the sensitivity of earnings to the overall economic environment. Historically, during times of economic difficulty the earnings of PMTC have taken a hit. For instance, during the previous two recessions, earnings dropped, from $0.53 a share to a deficit of $0.20 from 2001 to 2002 and from $0.98 a share to $0.43 from 2008 to 2009. Parametric Technology does not distribute its products directly to the public. Its customers are firms who use PMTC’s solutions to design and manufacture their own products, which are then sold to the public. Typically, in times of economic uncertainty, the public will reduce spending, therefore reducing income to Parametric Technology’s customers, which in turn leads them to decrease/postpone their own spending. This process has an adverse affect on PMTC’s income.
The industry for PLM and CAx solutions is relatively mature and offers slow growth potential at best. There is intense competition for customers and it tends to be difficult to gain market share. Moreover, decreasing product differentiation and the training, data conversion, and other startup costs associated with system replacement by customers makes it very difficult to dislodge incumbent design systems. Competitors include Dassault Systemes SA (DASTY), Siemens AG (SI), Oracle (ORCL), SAP AG (SAP), and Autodesk, Inc. (ADSK).
In order to remain competitive in the industry and gain additional market share, the company invests heavily in research and development (R&D) to enhance and develop products. In 2010, approximately 20% of revenues as well as roughly 35% of the employees were dedicated to R&D. As a result of these efforts, recent new product launches and upgrades included Windchill® 10.0 (April 2011), Creo 1.0 (June 2011), Mathcad® Prime 1.0 (Q2 2011) and a new release of Arbortext scheduled for the fall of 2011.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.