Is PTC on the verge of entering a new golden age?
PTC is battling its way into a position where they can shift the balance at the top of PLM. According to CIMdata’s 2017 report on PLM direct revenues, Dassault Systèmes and Siemens PLM are the clear dominators, while PTC is ranked a somewhat distant third.
But PTC’s Jim Heppelmann is confident in the prospects of the recent deal with automation giant Rockwell.
“If this is the coming ‘golden age,’ then I think there will be a ‘platinum age’ to follow because the best is yet to come,” Heppelmann said.
And he has a point – the strategic alliance with Rockwell is only one of several indicators of PTC’s progress in recent years. PTC’s IoT, IIoT, AR, PLM and CAD areas have developed successfully, and combined with a new business model—subscriptions instead of perpetual licensing—the company is approaching a point where things can change in a dramatic way.
The Rockwell deal plays a significant role. Automation may very well be the critical component PTC needs to establish a complete competitive solution. But there is a difference between an engagement, as it can be characterized now, and a ‘marriage.’
Rockwell will make a $1 billion equity investment in new PTC shares. Rockwell’s chairman and CEO, Blake Moret, will join PTC’s board of directors. This speaks to a deep involvement between Rockwell and PTC; but can it be seen as a first step towards a merger?
“No,” says Heppelmann. “I view the investment as an ‘exclamation point’ on the commercial partnership. Rockwell Automation invested $1 billion in PTC to cement the commercial partnership and because they think PTC’s stock price will continue to rise and they will see a good return on the investment itself.”
From a competitive stand-point, it’s a great idea to strengthen capabilities related to automation. This is especially true for vendors in automotive and aerospace, which applies to both PTC and Rockwell. But the competition is fierce, and Dassault and Siemens will be hard nuts to crack.
No doubt the investment, along with Rockwell’s new board seat, will ensure that both parties take the relationship seriously and that governance of the relationship is monitored at the highest level. At the same time, PTC’s leader is careful about integrity; the companies will cooperate, but not have control of each other:
“At around nine percent ownership, Rockwell does not control PTC, nor have the ability to block or force any strategic moves that PTC might consider down the road,” Heppelmann stated.
Collaboration to Build an Integrated Smart Factory
It’s clear that this partnership is of great importance for both players, not only in terms of what they already receive from the partnership, but also regarding the technological capabilities this collaboration paves the way for.
PTC and Rockwell intend to utilize both companies' resources, technology, industry skills and market presence. Collaboration will include technological cooperation across organizations and joint global marketing initiatives.
More concretely, PTC and Rockwell have agreed to adapt their respective "smart factory technologies" and combine PTC's ThingWorx (IoT, IIoT), Kepware (for industrial connectivity) and Vuforia (augmented reality) platforms with Rockwell’s FactoryTalk MES, FactoryTalk Analytics and Industrial Automation platforms.
“We have been collaborating on the R&D front to build an integrated ‘smart factory’ (i.e. Industry 4.0) suite that incorporates the connectivity platforms from PTC, together with Rockwell Automation’s FactoryTalk capabilities. This will produce a ‘smart factory’ suite that is both broad and deep, and unmatched in the industry. More news to come on that later,” said Jim Heppelmann. He continued, “The other area of collaboration is on the sales and marketing front, as both companies now have the right to sell the entire integrated suite. Because Rockwell has a large installed base of customers and a factory sales force many times larger than PTC’s, the sales and marketing collaboration will greatly increase the reach of ThingWorx, Vuforia and Kepware into the market.”
ROCKWELL’S BLAKE MORET ON STAGE, speaking about the company's "Connected Enterprise" vision. This vision combines state-of-the-art technology—smart, connected devices, advanced analysis software, remote monitoring, control systems and the like—with a coherent link of real-time information about factories, people and machines. This makes for an IIoT “story” that reminds me of concepts like the German Industrie 4.0, Made in China 2030 and the Smart Manufacturing Leadership Coalition in the United States. In a nutshell, it's about linking all the silos of information contained in companies, and then extracting business value from the data using advanced data analysis tools.
“Instead of having a network for each feature of the company—one for devices, one for the PLCs and one for the ERP system—we have now reached a point where it is possible to standardize on a single network,” Blake Moret says, adding that, "With this infrastructure in place, it is possible to add a new layer of productivity through information management and analytics solutions that can handle the large data sets created in the business. Much of this analysis can be done directly at the workshop floor.”
Rockwell’s CEO Blake Moret: “Enable Us to Accelerate Growth”
Rockwell Automation's CEO, Blake Moret, claims that the company is an industry leader in terms of industrial control and software engineering related to the shop floor.
This is generally true so together with PTC's PLM, CAD, IoT and AR solutions, there’s definitely potential to enable industry businesses to take advantage of IIoT.
"We believe,” said Moret, “that this strategic partnership will enable us to accelerate growth by building on both companies' innovative capabilities, existing software and solutions in the pipeline. Through these factors, we can sharpen the value of our Connected Enterprise vision (‘the online company’) and deepen our customer relationships.”
He also claims that when IT and OT (Operational Technology) converge, the cooperation is a natural foundation for a common focus between the companies. “Together we will offer the most comprehensive and flexible IoT solution in the industrial area. Our capital investment in PTC also reflects our confidence in the partnership and the significant increase in the effects we expect to create for both companies when we work together to profitably increase subscription revenues,” Moret concluded.
Gartner’s Marc Halpern’s View: “IoT a Key Driver”
It is not a surprise that Moret points to IoT as an important factor. Marc Halpern, Gartner’s PLM analyst, confirms that this may have been decisive.
“This deal may be about more than just PTC’s IoT capabilities,” said Gartner’s PLM analyst, Marc Halpern.
“From Rockwell’s point of view, Thingworx may be the most important part of the deal but this may be about more than just IoT. PTC is one of the most prominent software companies in design software and PLM besides IoT,” Halpern said.
But the deal also may have other overarching reasons. There have been unconfirmed rumors over the years that PTC has been looking for an outside party to invest or buy them. However, these rumors decreased after Heppelmann took over from Dick Harrison.
Halpern’s general observation in this context is that, “it has been a trend for industrial firms to buy into the software markets I cover.” He offers several examples:
- Back in 2007 Siemens bought UGS for $3 billion. UGS had—and still has—the largest PLM installed base.
- More recently, Schneider Electric, made a large investment in Aveva, which is big in facilities design, ship design, power plant design, etc.
- Hexagon acquired Intergaph in 2010, and furthermore bought CAE and simulation developer MSC.
- More recently, Siemens made a decent-sized investment in Bentley Systems—another significant vendor selling design software.
“This indicates that this may be part of a bigger trend of industrial manufacturers buying into significant suppliers of engineering, design and manufacturing software, “asserts Halpern.
But generally, Halpern added, there’s a consensus that PTC’s IoT assets are the key driver. However, he notes that IoT is still in the very early phases which makes it hard to say if $1 billion is the right price.
“I have received mixed reviews of Thingworx from end users. Recently, a European client said they tried it out and had a good experience. Before that, a U.S. client reported not such a good experience. The IoT area is still young and we have much to learn,” Halpern said.
The Rockwell Deal Can Have a Dramatic Impact
Why is the automation side so important for PTC? From a technology standpoint, it provides a component that links product development and advanced manufacturing functionalities more closely. This is crucial, as PTC’s competitors, in the case of Siemens PLM and the Digital Factory division, are already there, while Dassault has solutions, but still some distance to go in terms of automation advancement.
The ace up PTC’s sleeve is their best-in-class IoT and IIoT platform ThingWorx, which is already connected and to some extent integrated to the PLM suite, Windchill.
Commercially, the Rockwell deal could have a dramatic impact depending on how the technological cooperation and solutions evolve. If it turns out to be a success, it would mean that PTC seriously joins the battle at the top tier of the PLM and automation arena. Even if a merger in one stroke would change the situation, the present initial collaborative efforts will affect the balance at the top. But there’s a long way to go to become cutting-edge competitive in the combined PLM/automation area.
Currently, Siemens Digital Factory division is number one globally on the automation side.
According to Statista’s 2017 numbers, the market shares look like this:
- Siemens: 19 percent
- ABB: 13 percent
- Schneider: 9 percent
- Rockwell and Mitsubishi Electric, both 8 percent
Compared to Rockwell, Siemens is definitely dominating the European market, finishing a close second in North America, while Asia Pacific is even.
During the 2017 fiscal year Rockwell’s revenues were $6.3 billion. For Siemens Digital Factory—including PLM, Automation and Motion Control—the 2017 fiscal year ended with $13.2 billion in revenues (€11.4B), of which around $3 billion comes from PLM making the automation-related revenues approximately $4 billion larger.
Rockwell is strong in the automotive sector, mainly in North America, and during 2017 Rockwell’s sales in automotive grew more than 20 percent.
In Europe’s car and truck industry, Siemens is the clear leading player in automation.
VIRTUAL COMMISSIONG: ADVANTAGE SIEMENS. With the advent of the digital twin of the mechanical and behavioral model of a machine or system, Siemens PLM complements its applications with the ability to drive those virtual models with the same PLC programs that will drive the physical twin of the machine or system in production. This allows for visual observation of machine or system responses to the PLC program, identification of potential shortcomings or areas for optimization, and activities otherwise not possible before the physical machine or systems are available.
Virtual commissioning allows engineers to connect the digital twin to the PLC to test, refine and optimize mechanical, electrical and logical designs—and the integration between them—well before hardware is assembled on the shop floor, and without the need to delay delivery or stop production.
Why the Siemens Automation Nut is Hard to Crack
What may pose a bigger problem than sales is—from a technological competitive perspective—that Siemens’ automation solutions are cutting edge in terms of digital. They have a head start in ready-to-use advanced digital products. As much as PTC is the most advanced in IoT and IIoT related to PLM, Siemens is the most advanced in automation related to PLM, with software like SIMATIC (MES) and the platform TIA Portal (Totally Integrated Automation Portal), which provides access to a complete range of digitalized automation services.
Notably, the integration and synchronization between PTC’s Windchill and Rockwell’s FactoryTalk suites is not an easy job. It will take time to create technology and business profits from the potential that the FactoryTalk’s MES, Analytics and Industrial Automation platforms bring to the table. But it’s not only about the development of seamless connections between the PLM system and Rockwell’s existing automation solutions. Just as crucial is the state of the automation technology that Rockwell offers, which is good but not the most advanced on the digital automation arena.
Let me give you an example:
Siemens’ automation solutions around the important area of Virtual Commissioning are hard to beat; even more so because Rockwell does not have such a solution.
Siemens has invested heavily in its virtual commissioning solutions. They’ve got the API’s between the virtual and the physical machine worlds, and they’ve already developed the “entrance code” that can “shoot” directly into the PLC’s to simulate, manage and run the equipment on the shop floor. It took Siemens years to develop and refine, and so poses a tough challenge for any combination of players on the market who want to compete in the cutting-edge world of PLM and beyond.
Furthermore, Dassault Systèmes has also developed hard-to-beat solutions, although they don’t have any close partnerships with automation experts, as is the case for Siemens. As part of the 3DEXPERIENCE platform, Dassault Systèmes makes its version of the digital twin come alive through its DELMIA portfolio, which includes several simulation tools as well as MOM capabilities (Manufacturing Operations Management) from the Apriso operations planning and optimization functionalities.
But as tough as this challenge may seem, PTC’s bet on Rockwell and vice versa is a proactive move. A direct connection to automation is a key component to fully compete with rivals like Siemens, Dassault Systèmes and SAP.
This partnership may be exactly what PTC needs to be able to form a complete digital end-to-end thread.
PTC has Never Before Been Worth as Much as Now
So, what about PTC entering a new golden age?
Never before in its history has PTC, in absolute terms, had a higher value than it does now. Wall Street has given the company a market cap total of $10.8 billion. Not even during the days when this “father of parametrics” owned the 3D CAD market in the late 90s did they have such a high value. When the company peaked during its pre-PLM era in 1998, PTC was worth $9.4 billion, but then things deteriorated. When Jim Heppelman took the helm in 2009, PTC was valued at $2.8B.
You don’t have to be a rocket scientist to figure out why PTC is worth around four times more today. Heppelmann was the initiator of the transformation of PTC from a CAD and PDM focused market player to a broad PLM, IoT, manufacturing and AR software developer.
But PTC’s story doesn’t end there. As a result of the recent announcement of Rockwell’s and PTC’s deep strategic alliance, Heppelmann raised the bar even higher.
Remember the GE venture, Windchill and GE's Proficiency? They continue to have the cooperation agreement in place with GE, “But due to GE’s restructuring, this partnership has been less active,” Heppelmann commented.
Positioned as PLM and IoT Leader
In light of this, the move towards seeking a partnership with Rockwell is typical of Jim Heppelmann’s perseverance. He doesn’t give up and believes that if one road is closed, there’s always another way open.
And his attitude has been rewarded:
- PTC’s PLM platform, Windchill, is positioned as a “leader” in analyst Forrester’s recent “Wave,” covering the PLM players with solutions for discreet manufacturing.
- PTC’s IoT and Industrial Internet of Things (IIoT) platform, ThingWorx, is positioned as leading in analyst Gartner Groups’ recent “Magic Quadrant.”
- They created a first generation of industrially viable Augmented Reality (AR) tools on the Vuforia platform.
- The integration between PTC’s IoT and PLM platforms, ThingWorx and Windchill, closes the lifecycle loop while making it possible to feed field data back into the PLM system for further innovation.
- The new rental-based business model, after a couple of tough years, is tipping over to the positive side, characterized by improved cashflow, increased revenues and profits.
- A potentially improved automation connection manifested in the recent announcement of the strategic alliance with Rockwell.
Finally – CAE and simulation are paramount as digital product realization moves ahead. To be more specific, simulation will play a critical role in every stage of a product’s lifecycle: during development, during manufacturing and finally in the hands of the user (for instance, to optimize the flows in a complex pipe system). In cases like these, digital twins are a coming technology that will make simulation capabilities necessary.
It is “the holy grail of digital exploration,” as ANSYS’ Mark Hindsbo wrote in a recent blog post. The interesting fact is that PTC is joining forces with this CAE and simulation company to meet the trend, and partnered with ANSYS to bring its Discovery simulation technology natively to PTC Creo.
“The partnership between PTC and ANSYS will bring the two worlds of parametric modeling and interactive simulation together so engineers can digitally explore designs at the speed of thought,” Hindsbo wrote. “The first product to ship as part of this partnership will be PTC Creo Live. Subsequently, we will work together to deliver the breadth of simulation capabilities in ANSYS Discovery AIM to PTC Creo as well.”
This is good news for PTC (and ANSYS, too) who had a potentially weaker standing in the simulation area compared to both Siemens PLM and Dassault Systèmes.
Showed the Critics That They Were Wrong
Regardless of Rockwell's major investment in a partnership with PTC, it is clear today that PTC is heading into a new period of growth.
When the investments on the IoT side began, there were many who expressed skepticism:
- "Can IoT really be worth the billion dollar bet Heppelmann made to buy the solution components for the ThingWorx platform?"
- "What about the CAD solution CREO's development?"
- "Is Heppelmann playing with fire?"
As additional fuel on the fire, the PTC leader swapped business models, moving from a perpetual licensing model to a subscription-based "rental model." Revenues dropped, and there were quite a few who questioned the dramatic reversal of this “mother company of CAD parametrics.”
Heppelmann’s comment on “playing-with-fire” is worth quoting:
“Perhaps we should think of it more like ‘harnessing fire’ and putting it to work, like an internal combustion engine, rather than just playing with it.”