Enterprise Software Market – Where’s It Going?

Summary

The worldwide enterprise software market returned to growth in the fourth quarter of 2016. The enterprise software market has expanded on the back of relentless innovation and available capital. Once again, exchange rates played a role, with the marginal weakening of euro relative to the dollar. This 1.5 percent exchange rate fluctuation provided a slight lift to revenues reported in euros that ARC subsequently translated to US dollars for this report.

Suppliers included in this report recorded combined quarterly revenue of slightly over $24 billion, representing a 2.6 percent year-over-year growth.

Supplier Revenues

This ARC Advisory Group report discusses the most recent quarterly revenue results of the major publicly traded enterprise software companies.  We translated financial results reported in foreign currencies to US dollars using an average exchange rate for the given reporting period.  The suppliers’ reporting period for this analysis was the quarter ending in December 2016, unless stated otherwise.

While this report focuses on the enterprise software portion for the respective companies mentioned, the R&D expenses shown are a factor of total company revenues.

AVEVA Q4 2016 numbers were not available in time to include in this report.

American Software (Logility) reported total revenue of $26.4 million for the quarter ended January 31, 2017.  This represents a decline of 2.4 percent from the same period last year.  License revenues declined by 21.6 percent to $4.0 million.  While services and other revenues slightly increased by 0.1 percent to $11.8 million, and maintenance revenues increased by 4.1 percent.  Cloud Services Annual Contract Value (ACV) increased approximately 47 percent to $4.9 million for the quarter compared with $3.3 million in the same quarter of the previous year.  

Autodesk reported total revenue of $478.8 million for the quarter ended January 31, 2017.  This represents a decline of 26.1 percent from the same period the previous year.  Revenue from the Platform Solutions and Emerging Business (PSEB) segment, which includes the Autodesk Design Suite, declined by 49.1 percent to $82 million.  Revenue from the Architecture, Engineering, and Construction (AEC) segment declined by 16.1 percent to $213 million.  Finally, the Manufacturing segment experienced a 24 percent decline to $147 million.  EMEA revenue was $186 million, Americas was $211 million, and APAC was $82 million.    Total GAAP spend (cost of revenue plus operating expenses) was $646 million, a decrease of 2 percent compared with the fourth quarter last year.  New model annualized recurring revenue (ARR) was $529 million, an increase of 107 percent compared with the same period last year.  Total ARR was $1.6 billion, an increase of 16 percent compared with the fourth quarter last year as reported.

Dassault Systèmes achieved total revenue of $951.7 million for the quarter, representing an 8.4 percent year-over-year growth rate.  Software-related revenue (new and recurring licenses and maintenance) increased by 7.5 percent to $834.5 million.  Services revenues increased by 14.6 percent to $117.2 million.  By product line in euros, CATIA revenues increased by 2.0 percent, while ENOVIA decreased by 3.5 percent, and SOLIDWORKS increased by 12.4 percent.  Geographically, revenues from the Americas increased by 5.6 percent, Europe by 12.5 percent, and Asia by 11.5 percent in reporting currency.  The company’s strong revenue results from industry diversification and positive contributions by all product lines.  

Descartes reported revenues of $52.8 million for the quarter ending in January 31, 2017.  This represents 9.5 percent growth over the same period in the prior year.  Services revenues of $51.4 million represent an 11.0 percent year-over-year increase.  Quarterly revenues from the US increased from $25.1 million to $27.4 million, EMEA from $18.0 million to $19.5 million, Canada from $3.1 to $3.6 million, and APAC from $2.0 million to $2.3 million.

Hexagon’s Industrial Enterprise Solutions (IES) division consists of the manufacturing- and engineering-focused businesses, Hexagon Metrology and Intergraph PP&M.  The division focuses on engineering software for creating and leveraging information critical for planning, constructing, and operating plants and process facilities, as well as for CAD (computer-aided design) and CAM (computer-aided manufacturing) software and metrology systems.  The division reported $463.0 million in revenue for the quarter.  This represents an increase of 0.5 percent year over year.  In reporting currency (euro), the company increased its revenues by 2.1 percent.  Geographically, 34.7 percent of revenues came from the Americas, 38.4 percent from EMEA, and 26.9 percent from Asia.  Hexagon acquired Multivista, provider of visual cloud-based construction documentation solutions, in August 2016.

IBM’s Software segment reported revenue of $5.29 billion in external sales for the quarter.  This represents an increase of 1.4 percent over the same period last year.  Under the company’s new segment reporting structure, total software no longer exists as a segment.  Instead, the company’s software revenue is included within the technology services & cloud platforms, cognitive solutions, and systems segments.  Given the current focus on IBM’s software revenue performance, the company will continue to report total software revenue performance throughout 2016.  It consists of solutions software, which increased by 1.4 percent.  Integration software, which is a part of technology services & cloud platforms, increased by 1.7 percent.  Operating systems software, part of the systems business, declined by 12.5 percent. 

IFS reported $100.8 million in revenue for the quarter, which represents an 11.6 percent year-over-year decrease.  License revenue decreased by 27.2 per-cent and Maintenance declined by 7.1 percent.  Consulting revenue declined by 5.7 percent.  Europe North contributed most to the increase in consulting revenue in the reporting currency.  The increase in reporting currency was adjusted for revenue coming from the acquisition of VisionWaves. 

Infor reported revenue of $707.3 million for the quarter ending January 31, 2017.  This represents a 5.3 percent growth from the prior year.  Revenues from license fees increased by 14.4 percent, product update and support declined by just 0.3 percent, and consulting services and other fees increased by 8.6 percent.  From a regional perspective, revenues from the Americas contributed 62.8 percent, EMEA 29.6 percent, and Asia Pacific 7.6 percent to Infor’s revenues.

Manhattan Associates’ revenues increased by 4.4 percent year over year to $147.6 million.  Revenues from the Americas increased by 5 percent, EMEA declined by 2 percent, and APAC increased by 3 percent.  Digital commerce and technology modernization programs continue to drive significant long-term growth opportunities for the company.  Management stated that the demand for omni-channel, store, and distribution management solutions continued to increase.  Global license revenues increased by 8.4 percent to $22.1 million.  Services revenues increased by 4.6 percent to $111.9 million.  Hardware & other revenues decreased by 3.5 percent to $13.5 million.  

Oracle’s Software segment recorded $8.17 billion in revenues for the quarter ending February 28, 2017.  This represents 3.8 percent increase over the same period the previous year.  New software licenses declined by 15.8 percent to $1.4 billion, and cloud software subscriptions and platform service grew by 73.4 percent to $1.01 billion.  Infrastructure-as-a-Service (IaaS) revenues increased by 17.1 percent to $178 million.  From a regional perspective, total software revenues increased by 7.3 percent in the Americas, declined by 2.3 percent in EMEA, and increased by 3.0 percent in Asia Pacific.

PTC reported revenues of $288.0 million for the quarter ending in December 31, 2016.  This represents a marginal decline of 0.7 percent year over year.  Subscription & license revenue increased by 23.6 percent to $89 million.  Support revenue declined by 10.0 percent.  Professional services declined by 4.2 percent.  The overall decline in revenue was due to higher subscription mix, which negatively affected near-term reported revenues.  Management noted that customers are adopting the ThingWorx platform for their IoT initiatives.

QAD reported total revenue of $73.3 million for the quarter ending in January 31, 2017.  This represents an overall increase of 5.8 percent from the same period the previous year.  QAD’s license revenues increased by 9.5 percent, subscription revenues grew by 38.9 percent.    Revenues from professional services were $17.9 million vs. $18.2 million last year, a marginal decline of 1.6 percent and Maintenance and other revenues declined by 1.7 percent.  By vertical, high tech and industrial represented 33 percent; automotive 32 percent; consumer products and food & beverage 21 percent; and life sciences 14 percent.  By geography, North America represented 46 percent, EMEA 30 percent, Asia Pacific 17 percent, and Latin America 7 percent of total revenues.

SAP’s quarterly revenue increased by 4.4 percent to $7.2 billion.  Software licenses and support revenues declined slightly by just 0.1 percent to $2.3 billion.  Meanwhile, cloud subscriptions and support revenues increased from $691 million to $892 million.  In reporting currency (euro), the company’s total software, cloud, and services revenues increased by 6.0 percent.  From a regional perspective, revenues in the Americas increased by 4.0 percent, Asia Pacific Japan (APJ) region by 8.0 percent, and EMEA by 8.0 percent.

Conclusion

The majority of enterprise software suppliers included in this report experienced year-over-year growth during the fourth quarter of 2016.  While some of the on-premise revenues continue a downward trend, cloud/subscription-based revenues continue to grow.  The relationship between the euro and the US dollar appears to have stabilized. The removal of currency translation effects should help provide greater insight into long-term trends in the market. Some of the industry trends affecting revenues include a widespread transition from perpetual licensing to subscriptions, industry consolidation through mergers and acquisitions, and corporate technology investment cycles.

ARC will continue to monitor these trends and associated supplier performance in the coming quarters.

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Keywords: Enterprise Software, Quarterly Supplier Revenues, Asia Pacific, Europe, Middle East & Africa, Latin America, North America, ARC Advisory Group.