Despite a weak European economy and the lingering effects of a buggy AutoCAD release, Autodesk fully expects to crawl out of its slump.
Analysts are expecting Autodesk's earnings to take a dip over its numbers from the same period last year when the company releases its second quarter earnings next week. "We are expecting a down quarter," said Sheila Ennis, an analyst with Hambrecht & Quist. "We are looking for $132.8 million (in revenue), down from $136.3 million last quarter and down from $141 million during the same quarter last year."
Philip Rueppel, an analyst with Alex, Brown, agreed. He said he recently lowered his expectations and now predicts the company to come in below $140 million.
CAD (computer-aided design) allows designers from various industries to create and manage 2D and 3D objects and spaces, and AutoCAD is the leading software for it, with more than 1 million units sold.
Autodesk's current problems are relevant across the software industry, not just because the company is the fourth largest software vendor, but because it has been expanding into multimedia and the Internet. How it's able to perform in these emerging fields may have a greater impact on its bottom line than these market doldrums.
Three years ago, CAD accounted for 95 percent of Autodesk's revenues, said Christine Tsingos, Autodesk's vice president and treasurer. Now, thanks to its diversification into other areas, including its four-month-old multimedia division, Kinetix, CAD accounts for 75 percent of the revenues. That new growth is "actually impressive when you consider the other businesses have taken off very well," she added.
Autodesk CEO Carol Bartz spent today and Tuesday in a series of biannual employee meetings, reading workers analyst reports and fielding questions. But neither Bartz nor anyone else at Autodesk would or could discuss earnings, citing SEC regulations.
Analysts and Autodesk officials attributed the disappointing financial situation mainly to two factors: a downturn in the European economy, where the company has 45 percent of its business, and the lingering effects of a buggy AutoCAD release 13.
Originally released November 1994, AutoCAD had several problems and needed several revisions. "It really gave the company a black eye," Ennis of Hambrecht & Quist said.
The final release came out in January. "Since then, reviews have been pretty outstanding," said Tsingos. But, she acknowledged, the buggy release "certainly hurt us a year ago and took us a long time to get the product right. It's pretty difficult to turn that around."
Tsingos also said the company is suffering from the effects of an weak European economy, especially in Germany, where AutoCAD is used most heavily in housing markets that are stagnant. "Whatever is in our power we will do," Tsingos said.
Ennis added that Autodesk's efforts in new media and the Net with Kinetix will help. "I carry a hold rating on the stock. I do believe their franchise has just an enormous value, and they still have the opportunity to leverage."
Steve Higgins, an analyst with investment firm Bear Stearns, added that his company also is neutral on the stock, but has faith in Autodesk as a company.
"If there's anybody that can turn this around, it will be them," he said. "It's a very good, well-run company. They're in a maturing marketplace, [and that's] getting more and more competitive."