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Autodesk: A Software Vet's Growth Spurt


For a software company, surviving more than 20 years is a feat in itself. But computer design stalwart Autodesk Inc. (ADSK) isn't creaking along these days -- it's thriving. The secret: It has consistently come up with ways to rejuvenate and adapt its core product, AutoCAD. A reinvention of its sales model and aggressive moves into red-hot overseas markets have also propelled Autodesk -- the second-oldest PC software company, behind Microsoft (MSFT) -- to No. 25 on the BusinessWeek 50.

As companies adopt its array of software to design buildings, bridges, roller coasters, and other structures, Autodesk has reemerged as one of Silicon Valley's most unlikely success stories. Last year, Autodesk's profits almost doubled, to $222 million, and sales increased 30%, to $1.2 billion. While most software companies struggled to regain Wall Street's confidence, Autodesk's torrid growth helped triple its stock to $38, though it has cooled this year. And on Mar. 15 it launched a new set of products that should stoke the comeback, say investors, analysts, and company execs. "There's a lot of irons in the fire, and that will beget even better results down the road," says Dan Hanson, an analyst with Merrill Lynch Investment Managers (MER), which owns 1.9 million shares of Autodesk.

Designing Productivity

Autodesk has long dominated design software -- an important market, but one modest enough to avoid forays from heavies such as Microsoft. Five years ago, with its sizable lead in architecture and engineering software in place, Autodesk began a diversification strategy, with new divisions that crafted programs for specific industries such as manufacturing, infrastructure, and entertainment. Last year those divisions accounted for about half of its sales. "Our idea is to democratize this software for all-size companies so they can get productive," says Chairwoman and Chief Executive Carol A. Bartz.

Customers say that Autodesk is backing up its promises. Phil Steiger, senior network administrator for Energy Absorption Systems Inc., a Chicago-based maker of guard rails and other highway safety devices, says he's particularly fond of Autodesk's new software that lets engineers mock up 3D designs. The program automatically draws images into two dimensions and lets several people work on one product at the same time. Now products are getting to market 25% quicker. "If we didn't have Autodesk we couldn't do our job," says Steiger.

Like much of the industry, Autodesk moved toward a subscription sales model about four years ago. Steiger used to buy about 20 new versions of the software every five years at about $6,500 a pop. Starting two years ago, he began paying $1,000 per license per year, saving $30,000 over five years. And now that his engineers get annual releases instead of upgrading every five years, it takes them only a few hours to learn the new version rather than a week or two of off-site training. Autodesk benefits as well: Subscriptions, now 17% of total sales, are "a stable revenue stream for our investors," says CEO Bartz.

Targeted investments in overseas markets have helped boost the company, too. Autodesk has been operating in China for 10 years, but in 2003 it opened a new development center in Shanghai. Last year it launched a wholly owned subsidiary to focus more on building software tailored to the Chinese market. Asia-Pacific was Autodesk's hottest market last year, growing 36%, compared with 25% growth in the Americas.

Looking ahead, Bartz is confident that Autodesk can continue to innovate and enable companies to ride the global manufacturing wave. Only 15% of its customers have upgraded to more-profitable 3D programs, and nearly 90% of beta users surveyed said they will upgrade to the new release. "We're at the beginning of a great run," says Bartz. In the technology industry, sometimes you can teach an old dog new tricks.

By Spencer E. Ante in New York


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