Autodesk 2005 Annual Report Download - page 30

to us. In particular, if we do not successfully convert our 2D customer base to our 3D products as expected, and
sales of our 2D products decrease without a corresponding conversion of customer seats to 3D products, we would
not realize the growth we expect and our business would be adversely affected.
We believe the richer design data created by our 3D products requires better design information
management tools, also known as lifecycle management. We believe that for each author of design information,
there are five to 10 users ofthat information downstream. As a result, we are developing and introducing products
that will allow downstream users, both within and external to our customer enterprises, to manage and share
their designs. Our large installed base provides a unique opportunity to sell additional products to design and
engineering departments and to expand our customer base from these design and engineering departments to
adjacent departments and into the supply chain.
Expanding our geographic coverage is a key element of our growth strategy. We believe that rapidly growing
economies, including those of China, India, Eastern Europe and South America, present significant growth
opportunities for the Company. In support of our growth efforts in China, we opened our China Application
Development Center during fiscal 2004. With a level of understanding of local markets that could not be obtained
from remote operations, the Center both develops products for the worldwide market and develops products
to specifically address the Chinese market. In addition, we believe that our products will have a competitive
advantage as a result of being engineered locally. We believe our ability to conduct research and development
at various locations throughout the world allows us to optimize product development and lower costs. However,
international development, whether conducted by us or independent developers on our behalf, involves
significant costs and challenges, including whether we can adequately protect our intellectual property and
derive significant revenue in areas, such as China, where software piracy is a substantial problem.
Another significant part of our growth strategy is based upon improving the installed base business model.
A key element of this change is our ability to release major products on at least an annual basis. Strong annual
release cycles have anumber ofbenefits. Inparticular, theypermit us to deliver keyperformance and functionality
improvements to the customer on a regular and timely basis. Annual releases also drive annual product
retirement programs, thereby reducing the volatility of revenues we have experienced in the past, as both the
release of the new version and retirement of the oldest supported version are currently planned to happen
annually. Volatility may also be reduced through the Autodesk Subscription Program, as revenue is recognized
ratably over the subscription contract period.
We are continually focused on improving productivity and efficiency in all areas of the Company. Doing so
will allow us to increase our investment in growth initiatives and improve our profitability. During fiscal 2004,
we conducted a rigorous study of our cost structure. Through the services of a major consulting firm, we
benchmarked Autodesk metrics against averages of other companies including other leading software
companies. As a result of the study, we undertook a restructuring plan that concluded at the end of fiscal 2005,
began implementing certain productivity and efficiency initiatives throughout the Company and committed to
continuous improvements in our productivity. During fiscal 2005, we increased our operating margin from 11%
to 19%, while investing in growth initiatives. Longer term, we intend to continue to balance investments in
revenue growth opportunities with our goal of increasing our operating margins.
Autodesk generates significant cash flow. Our uses of cash include share repurchases to offset the dilutive
impact of our employee stock plans, mergers and acquisitions, investments in growth initiatives and through
the end of fiscal 2005, a $0.015 per share quarterly dividend. The dividend was discontinued after the dividend
for the fourth quarter of fiscal 2005, which will be paid in April 2005. We evaluate merger and acquisition and
divestiture opportunities to the extent they support our strategy. Our typical acquisitions are intended to provide
adjacency to our current products and services, specific technology or expertise and rapid product integration.
Additionally, we continue to invest in growth initiatives including lifecycle management and sales, and market
and channel development.
Design Solutions Segment
The Design Solutions Segment consists of the following industry specific divisions: Manufacturing Solutions
Division, Infrastructure Solutions Division, Building Solutions Division and Platform Technology Division and
Other, which includes our Autodesk Consulting and Autodesk Collaboration Services.
18