Autodesk 2006 Annual Report Download - page 72

believe that migration from our 2D products to our higher priced 3D products presents a significant growth
opportunity. While the rate of migration to 3D varies from industry to industry, adoption of 3D design software
should increase the productivity of our customers in all industries and result in richer design data. However,
this migration also poses various risks 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 increase in
customer seats of our 3D products, we would not realize the growth we expect and our business would be
adversely affected.
Longer term, once the mainstream market has migrated to 3D design, we believe the richer design data
created by our 3D products requires better tools for design information management, also known as lifecycle
management. We believe that for each author of design information, there are multiple users of that 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. We believe our large installed
base provides an 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 and Eastern Europe, present significant growth opportunities for us.
In support of our growth efforts in China, we opened our China Application Development Center (the “Center”)
during fiscal 2004. With a level of understanding of local markets that could not be obtained from remote
operations, the Center develops both products for the worldwide market as well as 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 emerging economies, where software piracy is a substantial problem.
Another significant part of our growth strategy is to improve upon our installed base. A key element of this
strategy is our ability to release major products on an annual basis. Strong annual release cycles have a number
of benefits. In particular, they permit us to deliver key performance and functionality improvements to customers
on a regular and timely basis. Annual releases also help us to increase product maintenance revenues and
significantly reduce our reliance on product upgrade revenues, thereby reducing the volatility of revenues we
have experienced in the past.
We are continually focused on improving productivity and efficiency in all areas of Autodesk in order to
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. Beginning in fiscal 2004, we undertook a restructuring plan
that concluded at the end of fiscal 2005, implementing certain productivity and efficiency initiatives throughout
Autodesk and committing to continuous improvements in our productivity. Our operating margin was 24% during
fiscal 2006, 19% during fiscal 2005 and 11% during fiscal 2004. These increased operating margins were achieved
at the same time we continued to invest in growth initiatives. Over the longer term, we intend to continue to
balance investments in revenue growth opportunities with our goal of increasing our operating margins.
We generate significant cash flows. Our uses of cash include share repurchases to offset the dilutive impact
of our employee stock plans as well as investments in acquisitions and investments in growth initiatives, such
as our recent acquisition of Alias Systems Holdings, Inc. (“Alias”) during the fourth quarter of fiscal 2006. See
Note 10, “Business Combinations,” in the Notes to Consolidated Financial Statements for further discussion. We
evaluate merger and acquisition and divestiture opportunities to the extent theysupport 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
product development and sales, market and channel development.
26