Autodesk 2003 Annual Report Download - page 27

Our fiscal 2003 net revenues were down 13 percent from the prior fiscal year. This revenue decline resulted
in an operating margin of 3 percent of fiscal 2003 net revenues as compared to 10 percent in fiscal 2002 and 15
percent in fiscal 2001. The decline in revenue this year was due to two primary factors.
First, we faced a difficult customer purchasing environment across the industries we serve, particularly
manufacturing, commercial construction, and media and entertainment. Our customers both delayed purchases
and purchased in smaller quantities than we would normally expect. We believe our customers were impacted by
economic pressures in their own businesses.
Second, our revenues were impacted by a relatively slow year for new product releases across many of our
divisions, leading to weakness in sales of both new commercial seats as well as sales of upgrades. In previous
years, when new product cycles occurred such as for AutoCAD, our flagship product, revenues from customers
upgrading and new commercial seat licenses resulted in significant revenue growth between years. During fiscal
2003, upgrade revenues for our AutoCAD-based software products decreased to $69.0 million from $229.7
million in the previous year, which is a decline much greater than the decrease in total net revenues between
years. Our most significant new product releases occurred either late in fiscal 2003 or are scheduled for release
early in fiscal 2004.
During fiscal 2002, we introduced in the U.S. the Autodesk Subscription Program, which is an option for
our customers who own the most recent version of the underlying product. Through this program, which is
available for a majority of our Design Solutions products as well as Discreet’s 3ds max, we offer customers
strong value while allowing us to reduce our dependence on revenues from customers upgrading when new
product cycles occur. While the customer subscription program met our internal growth goals during fiscal 2003,
subscription revenues were not yet large enough to offset the relatively weak upgrade sales. This was due to the
ratable revenue recognition model that we use for subscription bookings and the lack of availability of the
subscription program in several regions outside of the U.S.
Each of our sales geographies suffered due to the two factors described above. We generate a significant
amount of revenue in several countries, including the U.S., Japan, Germany, United Kingdom, Italy, France,
Canada and China. Japan was particularly weak in our Asia Pacific region, due largely to continued weakness in
the Japanese economy.
Our operating margins are very sensitive to reductions in sales revenues, given the relatively fixed nature of
most of our operating expenses, which consist primarily of employee-related expenditures, facilities costs and
depreciation and amortization expense. During fiscal 2003 we invested in several new internal product initiatives
which we believe will contribute to future operating margin growth. These investments were in areas such as
product lifecycle management, building lifecycle management, location based services, online collaborative
services and desktop video.
We have chosen to continue each of these important investments during our current sales slowdown because
we believe each of them is very promising, and we believe our ability to fund such investments during an
economic slowdown is a strong competitive advantage. By continuing to fund these initiatives, we have explicitly
chosen not to reduce our costs to a level that would achieve historical operating margin levels.
During fiscal 2003, we acquired three new businesses, Revit Technology Corporation, CAiCE Software
Corporation and truEInnovations, Inc. These investments either provide us with future opportunities in markets
where we have a limited presence or supplement existing technology. For a more detailed discussion, see Note
10, Business Combinations, in the Notes to Consolidated Financial Statements.
During fiscal 2003, we continued our cost reduction efforts, primarily in areas such as employee and
facilities related costs. The objective of this restructuring activity and other cost saving initiatives, such as no
incentive bonus payouts and mandatory time off for our employees, was to provide a level of profitability and
provide funding during fiscal 2003 for the investments described above. We believe that our recent activities will
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