However, not all software companies benefited equally as IT budgets were cut significantly in the industries most affected by Covid-19. Engineering software vendors were hit by lower spending in aerospace, automotive and construction. We expect this trend to improve as economies progressively reopen.
Key messages
- Demand for design and simulation software from aerospace, automotive and construction companies should recover as economies reopen
- Growth is being driven by attractive long-term trends including the move to the cloud and artificial intelligence
- More environmental regulation is fuelling the need for 3D modelling software
Cyclical and secular demand
Engineering software is used in the aerospace, automotive and semiconductor industries to design and manufacture lighter, more durable and complex equipment. Demand for engineering software is being driven by products becoming more complex, more connected and more subject to environmental regulation. Historically, sector revenue growth has been in the high single digits, except in 2020, when companies like Dassault Systèmes indicated a decline in its organic revenue growth as key customers such as Boeing and Toyota had to cut their IT budgets due to the pandemic. We expect billings growth to accelerate in the second half of 2021 as economies reopen and demand for manufacturing picks up.
Over the longer term, more growth will come from the move to the cloud, especially for engineering software, which is lagging behind in terms of cloud adoption at less than 10% (see figure below). Covid-19 is being a catalyst for this as the cloud provides customers with more flexible and scalable software solutions.
Cloud penetration by application
1 Customer relationship management
2 Human capital management
3 Enterprise resource planning
Sources: UBP, IDC
More innovation coming
Autodesk’s generative design technology, based on artificial intelligence and more specifically machine learning, makes it possible to design better and more sophisticated products. General Motors have used Autodesk’s generative design and 3D printing to create a new seat bracket where seat belts are fastened.
While the old version of the seat bracket was a boxy part made of eight different components welded together, generative design came up with one stainless-steel piece 40% lighter and 20% stronger than its predecessor.
More energy-efficient buildings
The construction industry is responsible for 40% of CO2 emissions in the world. There is increased environmental pressure on the sector to reduce its carbon footprint to meet the global climate ambitions set out in the Paris Agreement. This can only be achieved by using software to design more sustainable infrastructure and reduce waste.
President Joe Biden’s proposed stimulus plan announced during his election campaign is tilted towards infrastructure investment, which should drive more demand for engineering software. This plan aims to make 2 million homes more energy efficient, upgrade 4 million buildings and construct 1.5 million sustainable housing units.
Building information modelling (BIM) is a new process based on 3D models used by construction companies in more and more countries (see figure below) to collaborate more efficiently with their architects and subcontractors rather than rely on separate design drawings. Also, using 3D modelling software, such as Revit from Autodesk, is the only way construction companies can calculate the exact carbon footprint of a new building.
Building information modelling penetration
Sources: UBP, Autodesk
Note: The products or services mentioned are provided as general information only and are not intended to provide investment or other advice. Not all products or services described are available in all jurisdictions. Past performance is not a guarantee of future results. For the full disclaimer, please refer to Legal Aspects.
Dimitri Kallianiotis
Equity Specialist
Go to his Linkedin profile.
Nicolas Laroche
Global Head of Advisory Investment
Go to his Linkedin profile.