A Quiet Diversification. Altair Solves Across Multiple Disciplines

Interview with James Scapa, Chairman, CEO and Founder of Altair

James Scapa at Altair’s annual user conference in Detroit. Scapa founded Altair 34 years ago and has been leading the company since. (Image courtesy of Altair.)

James Scapa at Altair’s annual user conference in Detroit. Scapa founded Altair 34 years ago and has been leading the company since. (Image courtesy of Altair.)

James Scapa is an engineering software CEO like no other. He opens the annual Altair Technology Conference (ATC) in Detroit with a remembrance of an employee who had a heart attack. He asks all assembled to get our hearts checked.

Scapa may be genuinely concerned about the health and well-being of his employees and users, a characteristic only feigned in our industry, if attempted at all. We catch up to him after his keynote to learn more. We find Scapa very personable and approachable. He listens attentively, making you feel as if you really matter, and speaks thoughtfully.

Altair may be the last big independent simulation vendor from the U.S. that can compete with ANSYS, and Scapa has been its leader since he founded the company 34 years ago. This interview has been a long time coming. Scapa meets us, flanked by Amy Messano, CMO of Altair for all of a few months, who acknowledges she has a lot of catching up to do.

“I’m still absorbing all this information,” says Messano.

After the keynote, we just have to ask how Scapa plans on avoiding heart attacks, himself. But it comes out as:

How do you stay fit?

Do I look fit? Thanks… I guess. I exercise in a gym at home. My goal is work up a sweat at least once a day, even if I have only 15 minutes a day to do it.

Scapa started Altair in 1984 with a BSME from Columbia and an MBA from the University of Michigan.

How does an MBA type run a company that peddles software to PhDs?

I don’t think they see me as an MBA type. Do you? I’m a pretty technical guy.

Sensing that we may get thrown out—and end up with a too-short interview, we decide to play it safe.

Where does the name “Altair” come from?

The name of the company comes from a star. Altair, also known as Alpha Aquilae (Latin for eagle), is the brightest star in the constellation Aquila the Eagle. It’s 17 light years from Earth. If light were making that round trip, the images of a company forming would be beaming back right about now.

And it starts with an “A,” says Scapa.

It is important to be at the beginning of the alphabet when procurers from Big Auto are going through their alphabetized list of approved vendors.

Why Detroit?

Scapa’s roots are in New York, but he had to set up Altair HQ in the Detroit area to be close to the automotive industry. The company’s first client was GM. Then Ford. Then Chrysler. Altair had achieved the hat trick of the auto industry, corralling all three of Detroit’s biggest players. Altair then parlayed its home field advantage abroad to gain international customers. In Japan, Fiat in Italy. The company has since diversified, as has Scapa. He has bought a home on the West Coast, close to the company’s Sunnyvale office in the San Francisco Bay Area. All four of his kids live in California. Two are engineers in the Bay Area (Menlo Park and San Mateo), and the others live in Southern California, near Los Angeles.

My oldest is in Pasadena, at Caltech. The youngest works at Oracle in Santa Monica.

Altair has its roots in the automotive industry but has diversified to the point where the automotive sector is 40 percent of its business. (Image courtesy of Altair.)

Altair has its roots in the automotive industry but has diversified to the point where the automotive sector is 40 percent of its business. (Image courtesy of Altair.)

Is Altair mostly about automotive?

A western expansion may be what it takes to convince the world that Altair is more than a simulation vendor only serving the needs of the automotive industry. The move to establish Altair as more than just an automotive software vendor may be a company directive.

“I’ve been told to not have all my examples about cars,” jokes James Dagg, one of Altair’s three CTOs. Yet, one presentation after another at ATC draws its examples from Altair’s rich experience in the automotive industry.

For 15 years we were very automotive centric. And then we began to branch out towards other markets. These days, the other markets are growing much faster, but auto still means growth for us and remains a really important industry. We have 8,000 customers, of which around 1,700 are in the auto sector. It’s not just the 20 OEMs—it’s the supply base and the companies that feed those guys. And many of those companies are more diversified than they used to be. They also recognize the risk of being only in one industry. So, while we are tremendously more diversified today, we can’t ignore the fact that a huge part of our business remains automotive.

Today, we are just under 40 percent automotive.

Why don’t all engineers use Altair?

Scapa admits that his company is somewhat long on simulation but short on marketing. He points to Messano, signaling that this situation is about to change.

Would you say Altair is the leading simulation software provider in the automotive sector?

I believe so. We’re definitely the number one simulation software provider for all industries at what I call the high end of simulation, if I can define the high end as auto, aero, ship design, rail, and heavy machinery. The other guys have many more customers, but they are spread in the mid-market, which we view as an opportunity. We are experiencing very fast growth in aerospace. I do want to point that out because most of the aerospace companies are making a transition to the Altair solution side.

The “other guys” is an obvious reference to ANSYS, the current giant of simulation vendors. The “transition” for aerospace companies may be due to the fallout of MSC Software’s decline. Once the preeminent simulation leader in the aerospace industry, the company’s influence seems to have wilted and it was recently acquired by Hexagon, for whom aerospace is only of peripheral interest.

Why bother to take Altair public?

It’s unusual for a company of Altair’s size to be publicly traded. The company had $400 million in revenue in 2018 and is expecting that figure to be between $460 and$470 million in 2019.

We ask Scapa why Altair would choose to go public.

Scapa explains that he saw two choices for the company to grow big fast, with a financial base and marketing. One was to sell the company, and the other was to raise capital by offering its stock to the public.

We have been pretty aggressive since the IPO.

Indeed, the company has acquired several companies.

Scapa maintains a controlling interest in the company, being its largest shareholder, and has an equity of at least 25 percent of Altair.

Is it hard owning so much of the stock when it takes a tumble? What happened with the drop in July when share prices dropped by $6?

That was when we bought Datawatch.

Scapa blames the stock’s volatility on programmatic trading, where one analyst’s unfavorable outlook can trigger a sell-off.

The stock market is particularly sensitive these days, quite frankly. And when anything happens with the stock, there is so much programmatic trading.

What makes you think Altair can be successful with financial data processing?

Scapa remains bullish on Datawatch and I praise Datawatch’s ability to handle streaming data at the conference. Industry analysts, however, were more skeptical, questioning whether a geeky engineering software company could make headway in the financial software industry.

The financial analysts hated that acquisition. They did not understand it. They called it an “orthogonal investment.” Datawatch had great technology, but was poorly managed. The analysts were worried what the purchase would do to our bottom line.

The purchase was a huge bet for Altair. At $175 million, it was the biggest acquisition the company has ever made.

Datawatch has certainly diversified Altair’s customer base, which now includes “most of the major banks” and financial services, adding to its base of mostly engineers. But engineering firms could also stand to benefit from Datawatch.

One of the large aerospace companies got super excited because they have years and years of flight test data. They don’t even know what to do with all this data, and suddenly we have technology that has the potential to help them really mine that data and really apply it towards lots of different things.

So that is the Scapa Solution, Diversification?

Clearly, Scapa sees the next expansion of Altair involving a redefinition of the company. It is not to be thought of as a stodgy simulation company, understood only by PhD practitioners, but as a data analysis company. Perhaps Altair has not caught the wave of democratization, like its chief competitor ANSYS, or been able to defend itself from a CAD company (Autodesk) also declaring itself a simulation company.

If Autodesk can cross over, why not Altair?

The business Altair is in is not as narrowly defined as some people would like it to be.

Do you have a business degree?

Finding out we don’t, he simplifies his explanation to suit the audience.

How you define your business is really important. We used to have one single product, and when we brought our second product most of my employees were very upset about it. They felt we should stay focused on the one thing that we do. They were wondering, What are you doing, Jim? Whenever we expand, it’s the same thing. But I define our business as a company that applies math and algorithms to make decisions.

That includes, but is not limited to, product design decisions, it seems.

We have one customer now that uses the technology to decide how they will allocate their marketing funds to their retail stores. In order to give incentives to globally distributed retailers, they have to process a huge amount of data about demographics, historical sales data and more.

Again, we’re in the business of applying math and algorithms, optimization tools, and data science to make decisions. It’s different than engineering data, yes, but it’s still data. With this acquisition, we can deal with live streaming data, like the kind traders on the stock exchange deal with.

But think of the world of IoT. Your watch is tracking your heart rate continually. The data is streaming in from everyone wearing their watches. We can plot that data—at high speed, in real time—from every person on the planet.

The fact that not everyone on the planet can afford an Apple watch may not have occurred to Scapa, but he is on a roll, so we don’t interrupt him.

Suppose you want to collect all data and do some processing on all that data and look for anomalies, by city, for example. How do you do that? Well, we’re bringing technology to let you do that. We had better. There’s a lot of sensors out there, and the number of them is exploding. And they are all being connected.

Can you see why this is going to get very interesting?

Yes, we totally see. Are we not engineering.com?

Do you feel like you are in the lead in terms of data acquisition and analysis?

We take the lead on most things, quite honestly. I think we’ve been quietly taking the lead as a private company, and as a public company I think we continue to take the lead. We haven’t historically been as good at marketing, I admit. Other companies with better marketing may be perceived as leaders by virtue of their marketing. For example, generative design is something we pioneered. We were awarded Technology of the Year for OptiStruct in 1994 by IndustryWeek.

Yeah, we had that 20 years ago. Before generative design became massively hyped, Altair was doing it, but calling it topology optimization and selling it as Inspire.(Image courtesy of Altair.)

Yeah, we had that 20 years ago. Before generative design became massively hyped, Altair was doing it, but calling it topology optimization and selling it as Inspire.(Image courtesy of Altair.)

Altair kind of invented generative design, didn’t it?

We kind of did. And we’ve done thousands and thousands of projects and we have thousands of customers and users. And the technology we have is so far advanced over everybody else, but other companies have better marketing than us. At least now—everyone is talking about generative design.

Does it bother you that other companies are better known for something you invented?

It bothers me. It’s a two-edged sword. We now call it generative design.

We’re such engineers. We called it by its engineering terms. We don’t call it that anymore. Autodesk came out with “generative design,” and honestly, that’s a great name. It’s really great. We’ve embraced it. Autodesk is bringing attention to generative design. Their marketing is great.

I’m asked not to name names, but a couple of CAD companies are mentioned as usurpers to the generative design throne. Altair definitely feels as if it, as a simulation company, has a technological as well as a chronological lead here. The engine of generative design is basically analytical. What would CAD companies know about that?

They [CAD companies] are talking to the top-level executives. We’ve been working with their engineering teams for 20 years.

But I did hire a new Chief Marketing Officer [says Scapa, again referring to Messano, CMO]. We are trying to transform our marketing. One day, I hope the CAD companies will be complaining that Altair is getting all the visibility.

Altair acquired SimSolid, and now claims to be as revolutionary a solver as ANSYS Discovery Live. (Image courtesy of Altair.)

Altair acquired SimSolid, and now claims to be as revolutionary a solver as ANSYS Discovery Live. (Image courtesy of Altair.)

There’s been a lot of buzz about ANSYS Discovery Live. What do you think of it?

Once again, they have really good marketing. They did a really nice job of marketing it. We have SimSolid. I’ll call SimSolid a direct competitor, but go talk to some customers.

SimSolid isn’t a real-time solver, though. Discovery Live lets you alter the geometry and see the results in real time.

Discovery Live is not exactly realtime. On the CFD side, it may look like real time. It shows results right away, but look closely and you’ll see it is still resolving the results. For structural simulation, which is where SimSolid plays, it’s the same thing.

Discovery Live is not real time? Just fast?

SimSolid is fast, too.

You are quite sold on SimSolid. You’ve invested a lot in it.

I have invested a lot, but SimSolid usage is growing by 40 percent a month. It was up 10X over a five-month period earlier this year. There are 140 companies a month downloading it. Usage is skyrocketing.

Where is Ken Welch?

Ken, tireless champion of SimSolid, is not at ATC.

Ken is not here. He doesn’t like to fly very much. I’ve known Ken since his PDA days.

PDA was the company that created PATRAN, a FEA pre- and post-processor that was acquired by MacNeal-Schwendler Corporation.

Ken is great to have in our organization. He’s a complete evangelist for the technology. It’s just hard for him. SimSolid was very small. It was hard for them to go up against the CAD companies. It was hard for me to market against Autodesk. It was hard for them to market against us.

But we’ve also done a lot of work on the product since we acquired it. It’s dramatic—mostly from a QA standpoint. We’ve tripled the development team already.

It’s not clear how big the SimSolid development team was. Another Altairian tells me that SimSolid consisted of a total of three people.

So, you fell in love with SimSolid and gave Ken a blank check for it?

Pretty much. And not just me. Have you talked to James Dagg?

We had. An industry analyst tells me that Altair may have paid $20 million for SimSolid—a lot for a company that Scapa admitted during his keynote had revenues only in the “hundreds of thousands.”

Yes, we felt it was going to change the world. While other companies wondered where the revenue was, we saw the technology. Many were thinking that since Ken’s been trying to sell it for so long, it must not be any good. It didn’t help that SimSolid was a little company that it was new. People didn’t trust [the product] and Ken didn’t have enough resources to fix the software’s bugs.

And, by the way, I had the same concerns when we started looking at it.

You put SimSolid through its paces?

We spent six months putting it through its paces.

Testing SimSolid against Altair’s products?

We tested it against everything.

And you came away satisfied? When it wasn’t crashing, it would actually solve problems fast?

Yes, it’s amazing. It’s not just fast; it’s accurate. James Dagg showed that one very complicated structure. There are automotive companies that are trying to run entire car bodies [on the software].

The first day of the conference, Altair announced that it had just acquired Polliwog, a South Korean company that creates EDA software. And Scapa was soliciting questions about it. We played along.

When mechanical simulation adds electrical. Altair buys Korean EDA simulation company Polliwog. (Image courtesy of Polliwog.)

When mechanical simulation adds electrical. Altair buys Korean EDA simulation company Polliwog. (Image courtesy of Polliwog.)

Tell me about Polliwog.

That’s going to be a pretty big deal to Altair.

Altair already had electronics design software. What does Polliwog add?

We have a lot of electronics software, but we were really not playing the PCB world. In the world of EDA, you have integrated circuit design and you have printed circuits, then you have system-level design. Integrated circuit boards are designed by a very small number of companies—maybe only 200 companies.

Would you spell out where Polliwog will help in a product design?

For the Qualcomm, Samsung and Apple, it starts with the IC, or the chip. IC design is done by products from Cadence, Synopsis and others. At the next level of assembly, where the chip mounts to a printed circuit board, there had been a smaller software market. It’s maybe $1 billion a year in revenues today, but it’s growing like crazy because every product is now electromechanical—it has a sensor, it needs to be connected. In order to make that design, you have to design the printed circuit board—and you also very often have to write custom software that gets embedded on these chips. So, we have now all of the tools to do that—to write the code, and to develop these printed circuit board designs.

Polliwog let you have a full electromechanical toolbox? Like Siemens did with Mentor?

Yes, except Siemens paid $4.5 billion for Mentor. Mentor is a big player.

You had to reach across the world to get Polliwog. Why?

I look everywhere for technology. Since I have a home in Silicon Valley, I know the mentality that everything great has to come from the Bay Area. That centers on Palo Alto and Stanford. But if you understand what’s going on in the world, there’s amazing technology being created all over. I look all over. I bought some things in Silicon Valley. I bought a CFD company and I bought the runtime technology, but I’m looking everywhere for great technology.

We’re in 25 countries. That gives us eyes and ears everywhere. We’re looking in universities all over. We really are scouring the Earth for technology.