Interest in digital twin technology is expected to sustain the market through 2023 despite reports of slowing growth. Four companies post financial results that point to a digital future and subscription payment models.
Company results are not always the best measure of how well a market is performing, but given the heightened economic uncertainty due to high inflation and rising interest rates, they are at least a source of some sort of economic truth. That said, the global forecasts for 2023 are a little mixed. Morgan Stanley predicts that 2023 is likely to see weaker growth and reduced inflation, with the U.S. narrowly missing a recession, Europe contracting and Asia offering green shoots for growth. It’s a complex picture, but what these four businesses we’ll highlight are showing is that there is reason for optimism, especially when it comes to the digitalization of engineering.
Deloitte, in its 2023 engineering and construction industry outlook, suggests that preparation will be key for the year ahead. Industry players, it says, are now keen to leverage emerging technologies “to expand business opportunities and boost profits by reducing costs in the long run and enhancing project execution.” This echoes the comments of several executives from businesses that have recently announced a set of financial results.
Perhaps the pick of the bunch is French-based Dassault Systèmes, a 3D software platform company. Dassault posted a €215 million profit on Q3 revenues of €1.37 billion, citing an 8 percent increase in software revenue, driven by strong subscription growth (versus the more traditional license model). A 15 percent increase in subscriptions of its core cloud-based 3DEXPERIENCE platform was key, while cloud software revenue grew by 21 percent. If anything, this reflects a growing desire for flexibility, scalability and efficiencies across industries.
Bernard Charlès, vice chairman of the board of directors and CEO at Dassault Systèmes (Picture courtesy of Dassault Systèmes)
For Bernard Charlès, vice chairman of the board of directors and CEO at Dassault Systèmes, the real opportunity has been in “virtualization,” using 3D technology to build, simulate and manage the real world. He refers to this process as “the next frontier.”
“Clients across all sectors, and society at large, face a complex and rapidly changing business environment,” said Charlès. “The role we play is as critical as ever. Virtualization opens possibilities well beyond digitization.”
He adds that the business’s virtual twin (powered by 3DEXPERIENCE) enables customers to “combine modeling, simulation and data science for a holistic approach to innovation and business optimization. We empower our clients to create virtual universes to operate the lifecycle of their products and the production systems. This establishes a valuable foundation to fully leverage the future of data science.”
Another company focusing on visualization and cloud-based tools is global industrial technology vendor Trimble. Headquartered in Westminster, Colo., Trimble recently posted Q3 revenues of $885 million with profits up at $86 million. Like Dassault Systèmes, Trimble has seen healthy annual recurring revenues of $1.55 billion, up 16 percent year-over-year, with growing software as a service (SaaS) and subscriptions to services models.
“Trimble is transforming and digitizing industries that support how we live, what we eat and how we move,” said Rob Painter, Trimble’s president and chief executive officer. “Our third quarter results simultaneously reflect the quality of the Trimble financial model and the reality of evolving macroeconomic challenges. We remain committed to executing our Connect and Scale strategy, which enhances productivity and sustainability outcomes for our customers.”
Trimble’s work in autonomy (it recently struck a deal with HP to collaborate on developing robotic solutions for internal construction projects) and in mixed reality (such as augmented reality and virtual reality) is interesting because it is these sorts of technologies that will help businesses deal with challenges, such as skills shortages and increasing productivity—if not now, then in the near future. Helping customers overcome their pain points in the short and medium term has to be a priority. That means exploring emerging technology developments as well as more manageable (and attractive) payment models and terms.
For the Nemetschek Group, a global provider of software for digital transformation in the construction and media industries, this shift to subscriptions and SaaS has been instrumental in the company posting continued double-digit growth in Q3 this year. Revenues climbed by 19.8 percent to €203 million, with profits of $39 million. Annual recurring revenue increased by 29.2 percent in Q3 to €551 million.
Yves Padrines, CEO of the Nemetschek Group
Headquartered in Munich, Nemetschek has also attributed its focus on new technologies and the digitalization of customers as another reason for its strong showing. For Yves Padrines, CEO of the Nemetschek Group, this and the recurring revenue model are fundamental to the company’s present and future.
“The successful transition to subscriptions and SaaS will lead to a strong increase in recurring revenues and make our business even more resilient,” said Padrines. “The same is true for our strong innovation pipeline. For example, this includes the new Bluebeam Cloud offering and our open cloud-based Digital Twin platform.”
Padrines adds that the industry’s efficiency shortcomings are becoming “even more visible in the currently changing environment in the construction and real estate sectors” and suggests that “digitalization and the usage of intelligent software solutions across a building’s life cycle are essential requirements for making construction more efficient, less resource-consuming and more cost-effective.”
Another technology company that focuses on new technologies to bridge real and virtual worlds is 3D measurement, imaging and realization solutions business FARO. Headquartered in Florida, FARO recently posted Q3 revenues of $85.3m, up 6.8 percent compared to Q2, although there was a net loss of $6.3 million.
According to Michael Burger, president and CEO of FARO, customer demand across its industry markets (including aerospace, automotive, defense and energy) “remained healthy,” while the company has also recently acquired UK-based GeoSlam, a mobile scanning and mapping company whose software creates 3D models for use in digital twin applications.
“Together with the building momentum of our recent product releases, the recent acquisition of GeoSLAM and the launch of FARO Sphere for cloud-based 3D model creation and collaboration, we have one of the industry’s most comprehensive suites of digital 3D solutions,” said Burger. “I am excited by the early customer response we have received on our combined offerings and the enormous market opportunity represented by digitalizing the physical world.”
The thread here is that digital twins and digital 3D visualization technologies are driving these results and the future viability of these businesses. Customers are looking for innovative solutions to increasingly complex and financially challenging problems. This is not expected to change in 2023. Using digital technologies to find efficiencies while also improving the accuracy and scalability of projects will continue to drive the market. Infrastructure in particular could be the consistent pillar here, supporting the adoption of new and emerging digital technologies.
However, all industries have an opportunity to prepare better against a backdrop of economic uncertainty. As Deloitte concludes in its report, “where companies invest, how they approach project delivery and how they differentiate themselves in the market is important, as the industry becomes more competitive in 2023.”
