“I feel like I’ve lived about four lifetimes in 12 years,” says Carol Bartz, chairman, president and CEO of Autodesk, the global leader in computer-aided design, or CAD, software. “I’ve been through technology bubbles and economic cycles. I’m fine with them -- they make the strong stronger.”
Founded in 1982 by computer programming pioneer John Walker, the San Rafael, Californiabased company has been producing PC software longer than any other company except one: Microsoft Corp., which got going in 1975. Autodesk, however, doesn’t approach the Redmond, Washingtonbased colossus in scale: Its $952 million in revenues for its most recent fiscal year amounted to just 2.6 percent of Microsoft’s $36 billion, and its 3,600 employees don’t begin to match the desktop giant’s 54,000.
More telling, Autodesk never did achieve the high-tech sheen of a cyber-age start-up because, Bartz contends, “we were always considered ‘Old Economy.’” Although Autodesk was among the first to commercialize CAD for architects and, later, for engineers, investors caught up in the tech boom apparently didn’t find its solid but mundane achievements as compelling as some of the fantasies spun by more high-profile enterprises. Between January 1, 1998, and the March 10, 2000, market peak, Autodesk’s share price rose 52 percent while the tech-laden Nasdaq composite index was rocketing 227 percent.
Conversely, Autodesk didn’t suffer the fallout from the bubble’s bursting, either. As of mid-May, Autodesk’s shares, at $35.41, were trading just below their five-year, split-adjusted high of $36.88, set May 7. The Nasdaq index was more than 60 percent below its apex.
In Bartz’s 12 years at the wheel, Autodesk has more than tripled its revenues and head count -- but with ups and downs along the way. Although the company has maintained a steady flow of products and upgrades by plowing more than 20 percent of revenues into research and development, its costs in recent years were rising faster than revenues.
Bartz attacked the cost structure last year with a productivity-improvement campaign, and for the fiscal year ended January 31, Autodesk’s net income quadrupled, to $120 million, on a 15 percent rise in revenues.
Autodesk has begun selling a new generation of products that, quite literally, take CAD to a different dimension. The latest software works in three rather than two dimensions; 3-D imaging lets customers construct far more sophisticated models, and thereby accelerate the design process, than do 2-D drafting tools.
The company, which has sold software to 98 percent of the Fortune 500 and counts 6 million licensees in 65 countries (60 percent of Autodesk’s sales are outside the U.S.), has lately been attracting the Hollywood animation and special-effects crowd to the 3-D technology purveyed by its Discreet division. In 1999, Bartz bought the unit, then known as Discreet Logic, for $410 million; it now accounts for 15 percent of total revenues -- and a bigger share of Autodesk’s current cachet.
“Eighty percent of video games are built on our product,” boasts Bartz. “Also, the last nine years’ winners of Academy Awards for special effects used Discreet products.” The most recent was The Lord of the Rings: The Return of the King.
Bartz, 55, grew up on a dairy farm in Alma, Wisconsin, and earned a bachelor’s degree in computer science from the University of Wisconsin in 1968. She managed software sales for 3M Corp. and Digital Equipment Corp. before joining Sun Microsystems in 1982. By 1990 Bartz had risen to head Sun’s worldwide field operations, reporting to CEO Scott McNealy. But she left in April 1992 to become Autodesk’s third CEO, following founder Walker and Alvar Green. Both retired; Walker now runs a technology research Web site, Fourmilab.ch, in Switzerland.
The straight-talking Bartz is outspoken on outsourcing and executive stock options -- she vigorously defends both -- and she was one of the seven New York Stock Exchange directors who voted against ousting embattled CEO Richard Grasso. “I admired him and his achievements,” says Bartz, who was on the NYSE board for a year and a half and resigned amid the post-Grasso overhaul.
Bartz discussed Autodesk’s resurgence with Institutional Investor Assistant Managing Editor Jeffrey Kutler.
Is there a lot of excitement in your games division?
Game developers have a huge need for new features. Their edge comes from building the next new villain or creature or background, so there is a lot of excitement. It’s a “hits” market. Even if you have one like Grand Theft Auto: Vice City, you have to keep working on the next one. We know how to build that fantasy world in media.
How specialized are your products?
Our products have certain things in common -- the graphical system, for example. But as we’ve evolved, particularly into 3-D, the needs of customers in the various markets have gotten to be very different.
Do you see your technologies as at all disruptive?
We consider them democratizing. Our technology has been disruptive in the sense that over 22 years, we have taken a technical concept for high-technology authoring of graphical information down to the masses. For instance, 3-D has been available in engineering for 20 years, but it was much too complicated and expensive until Autodesk Inventor democratized it. AutoCAD had democratized 2-D CAD in the same way, and Discreet’s 3ds Max software democratized gaming and animation.
How were you so successful at penetrating the Fortune 500?
We had to take a different approach to large corporations than to small and medium-size enterprises -- from architects to small manufacturers -- where we also have a huge penetration. Marketing to the SMEs was just a matter of walking through the front door. At larger companies, with older tools in place and entrenched ways of doing things, we were seen as disrupters, and we couldn’t just come in and speak directly to a chief information officer or vice president of purchasing. We had to get our feet in the doors of individual departments and expand from there through what we call viral marketing.
How do you size up your competition?
We are the only design company that hits all markets; others are only in manufacturing or in construction and so forth. Dassault Systemes of France is our biggest competitor in the manufacturing arena. In building and construction we have many local competitors in each country. In infrastructure we encounter ESRI, based in Southern California. The competition is good, but we can also say that strategically, we’re positioned to win.
You still provide earnings guidance.
We believe it helps both the buy and sell sides. More important, as we are making a big commitment to improving operating margins, putting out guidance proves how serious we are. Last year our operating margin was 12 percent, too low for a software company. We are projecting 18 percent to 20 percent this year and are committed to taking it higher.
How do you widen the margins?
Revenue growth helps, but we have benchmarked every function of the company against what we consider best practices. We took this as far down as how many transactions an accounts payable clerk handles. Outside consultants worked with us for months on a plan for improving productivity in every part of the organization. It’s important to look at basic efficiency every few years: You can grow and get sloppy. We did.
What is your response to critics of outsourcing?
We have a customer in Tennessee with eight employees that couldn’t find a manufacturer in the region to make pellet-fired stoves to its specifications. It went on the Web and found a company in China. The customer used our tools to design the product, transmitted the data to China, and the stoves are selling at a $2 million annual run rate. Is that bad? I made a profit; they created a business and made a profit. The impact in the local community of that $2 million is great.
What’s the next big thing?
Life-cycle management, which means converting the paper drawings or blueprints that are still prevalent in our markets into a digital form that can be tracked, revised and secured. That’s the big opportunity for this decade.
