ADSK; $45.00; C-1-1-7
Volatility Risk: Above Average
Reported EPS (Jan): 2002A $2.12; 2003E $2.30; 2004E $2.88
The Evolution of Design Solutions, Design Infrastructure, & The Model
* Many of the themes or topics at Autodesk's analyst meeting were similar to those of the past 1 to 2 years - namely, the breadth, development and success of the diverse design applications product line, the evolving sales model, i.e., more direct sales and a better channel, the new revenue model, i.e., recurring subscriptions revenues, and the development of its "collaboration solutions", or what we call design infrastructure. Our main inference however from the meeting is that there has clearly been evolution and progress in each of these areas - with the potential for more. What we also saw was a depth of management across the businesses.
* In the "design creation" business, the installed base of vertical applications (building design, MDA, and GIS) has continued to grow; there are 2.2 million units of basic AutoCAD, indicating therefore a larger vertical base than we'd assumed. Autodesk has "fundamentally changed the way they develop and deliver software"; we expect the next Inventor release in the next few months, and the next AutoCAD "aggregation" release is about a year away, plus "extensions" in the interim for subscribers. In design infrastructure (Streamline, ProjectPoint), the approach, as they indicated during our panel last week, is to offer relatively easy to deploy applications for its mainstream customer base - to "leverage design data" - though it will also now invest in its own consulting capacity as well.
* In its sales model, direct grew to 20% of FY02 revenues from 14% in FY01; the proportion is planned to go higher still. It has doubled its direct sales reps and its overall coverage of "named accounts", including the 90+ global accounts, has continued to improve, both for specific products and for the whole portfolio. Subscriptions are a growing part of deferred revenues and over time could at least supplant the current packaged upgrades revenue, another key change we foresee in the model.
* In the Discreet division, which had a weak 4Q02 and FY02, the company believes it is seeing signs of stability and that there is renewed growth potential from its pending new products (next month) and market trends in post-production, broadcast, games & animation.
* We are reiterating our intermediate term Strong Buy rating.
