MSC.Software Delivering on Promise
By Daratech Research Staff
July 7, 2005 -- There's been a lot of news coming out of MSC.Software lately - news that may take a number of industry-watchers by surprise.
Investor interest in MSC is at an all-time high. MSC's shares have doubled in price (going from $7.23 per share a year ago to $13.80 at the close on July 5, 2005), as many institutional investors expand their positions in the company. Per filings with the SEC, almost 80% of MSC's 30.4 million shares are owned by institutional investors or mutual funds - including the 11% owned by Valueact, the group that had sought to take MSC private in 2004.
These are knowledgeable investors, clearly expressing confidence in MSC's management and its plan for getting business performance back on track. The company has not filed financial statements in over a year so it is difficult to say if the company is profitable, but these investors clearly believe that the company is doing quite well.
MSC discovered in early 2004 that there might have been improper accounting of software contracts in Korea and that the accounting treatment of stock options of a departing employee of a foreign subsidiary may have been incorrect. The company has since been engaged in a review of its accounting practices. In April 2005, MSC fired KPMG, the auditor during this review and then, in May, announced that it had engaged Deloitte & Touche as its independent accountants, with the intention of bringing to a swift close the accounting investigation currently underway at the company.
In addition to getting its financial house in order, the company is making headway in cleaning up its large and often confusing product portfolio. The company currently markets somewhere around 250 products, some with only one or two customers; MSC will encourage those customers to try more commercially viable products in order to reduce its product support costs for low-use products. This rationalized product set will free critical R&D resources to concentrate on more cutting-edge products and reaffirm MSC's thought leadership.
MSC has also begun to spread its wings and explore opportunities outside the sphere of its long-standing relationship with Dassault Systemes. MSC announced on June 13 that it had joined the Design/Simulation Council, an industry group hosted by Don Brown of CPDA, that is "focused on improving interoperability and creating open standards within product development technology." As part of the announcement, MSC Software CEO Bill Weyand said that "MSC.Software is wholly committed to being an 'open company' and our customers have been very clear about wanting to work within open, well integrated virtual product development process and architectures. Only through an open framework can our customers truly reduce the time and costs associated with product development."
Finally, MSC has been reporting solid wins and endorsements from marquee accounts. Key among these is the announcement that Chrysler Group has selected MSC.SimManager as the foundation for a new engineering management system in its noise, vibration and harshness; crash; and durability simulations environment. MSC and Chrysler will jointly develop this new capability over the next 24 months; the deal is valued in the "multimillions" of dollars, according to an MSC spokesman. Similarly, a number of key accounts have committed to using the MSC.MasterKey licensing scheme to give their engineers access to a wide array of industry-leading products such as MSC.Nastran, MSC.Marc and MSC.ADAMS.
Customers buying product and entering into long-term contracts, investor confidence, a skilled and committed employee team - clear predictors of a positive future. MSC will be announcing second quarter results towards the end of July and will be providing more information on its view of the marketplace and the company's position at that time. But, if anything, the last three months have only proved what Weyand said during the last analyst call: that the company is "in the right place at the right time with our VPD strategy."
