The Value Angle
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While engineering software solutions provider Geometric Ltd. is a part of the Indian IT cluster, it stands out quite distinctly by virtue of its niche and differentiated products and solutions, says Sagar Lele
- The premium for solutions is increasing and the pricing for vanilla services may be slightly under pressure. Customers are now looking at linking the value and not the cost associated with these solutions to how much they are willing to pay for them.
- I believe that in every adverse situation, there is an opportunity. Over the last quarter, we have thought through our approach to the market and we have concluded that ‘Less is More’.
Manu Parpia
MD & CEO, Geometric Ltd
Remember high-school mathematics, which told you that the sum of the angles of any triangle would invariably be 180 degrees – no less, no more. Later, some of us may have come to a key differentiator – the dimension in which that triangle exists. Now, you could actually conceive of a triangle on the surface of a sphere. This is a completely different figure with more dimensions, a triangle indeed, but one whose angles sum up to more than 180 degrees! The factors that go into understanding this unique entity called a ‘spherical triangle’ – the calculation of angles, lengths, area and the theorems associated with it – all lend you a different standpoint of looking at it.
Similar is the case with the IT industry. Companies are looked at as in the same basket and are judged using the same metrics. Global technological spending patterns, the effects of Hurricane Sandy, the December holidays, pricing dynamics and hiring are among the typical factors that are looked at while judging any IT company. Add a dimension, look deeper and you might see something different! Geometric is an IT company, true. But how congruent is it with generic IT companies?
An interesting fact is that the correlation coefficient between the daily returns of Geometric and the BSE IT Index for the last one year is -0.06. The correlation coefficient varies between -1 and 1, representing perfect negative correlation and perfect positive correlation respectively. This makes 0 signify no correlation between the movements of two particular sets of numbers, which means that in the case of Geometric, it has hardly any correlation with the BSE IT index. This further validates the fact that we need to look at the company in greater detail and understand its operations and functions to a larger extent, rather than the usual criteria used to judge the IT pack.
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Geometric is a leading specialised engineering solutions provider. It has extensive experience in product engineering, manufacturing engineering, product lifecycle management (PLM) and outsourced product development (OPD). The company derives about three-quarters of its revenue from the Engineering and Automotive verticals. Its offerings portfolio requires deep technical knowledge, vast amounts of expertise and a profound understanding of the industry. This leads to the requirement, rather mandate, of functioning with a more solutions-based approach for Geometric.
Among the underlying trends in the IT industry is the one that is driving customers to look for IT service providers who can give them solutions or take care of problems. This is in contrast to the traditional mode of functioning, where customers put forward requirements and services were provided for by IT firms. Talking about this change, Manu Parpia, MD & CEO, Geometric said, “It is more of a process where you are expected to provide value-added ideas and innovations which will help customers win in the market”.
This brings about obvious movement in the way IT companies function, inducing them to cope with this change and in turn meet the challenges of conceptualising, analysing, executing and understanding the business implications of these solutions. Needless to say, Geometric is facing the same challenge. However, its integral presence in the verticals it functions in and its role in terms of solutioning at stages across the product realisation value chain have actually made this approach coherent with the functioning of the company. It has been working closely on product development and services across the design, manufacturing and visualisation space, thus inherently bearing an image of being a solutions provider and not a service provider.
So, what does Geometric actually do?
Geometric enables manufacturers to formulate, implement and execute PLM strategies that ensure efficient product realisation. It enables them to integrate product data across the complete value chain, with effective collaboration across multiple sites, suppliers and vendors. The company provides these services across various industry verticals like Aerospace, Automotive, Consumer Packaged Goods, Fashion, Heavy Engineering, High-Tech, upstream Oil & Gas, and across PLM platforms by software vendors like Dassault Systemes, Oracle, PTC (Parametric Technology Corporation) and Siemens PLM Software.
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It provides CAx solutions, as well as services in software engineering, application management, product engineering, manufacturing engineering, industrial and production engineering and model-based enterprise. Geometric also helps customers in developing products in the area of embedded systems. Its specialised offerings including test automation of automotive infotainment systems, safety-oriented drive assistance systems, etc.
To understand this better, take the example of the services provided by Geometric in the space of automotive electronics. At the conceptualisation stage, it would provide for concept modelling and rapid prototyping. To aid industrial design, it would bring to manufacturers its CAD, CAM and CAE solutions. It would work on the embedded systems used in the product by providing software development, implementation and testing. It would assist production by offering advanced engineering solutions like simulation and analysis of manufacturing factors like heat flow. Geometric also offers digital manufacturing simulations, tool design and planning, design and deployment of automation strategies, material flow simulations and material tracking to optimise manufacturing operations.
The company also develops and sells products for CAM solutions, Design for Manufacturability (DFM) tools, product design tools, measurement tools, a 3D shape-based encoding and search library, software for optimising material utilisation, etc.
Having looked at the products and services offered by Geometric, their nature appears to attract in-depth expertise, knowledge and experience. This is clearly different from other IT companies, which offer vanilla services of application development and maintenance. Generic IT companies have been trying to leverage their offerings using the new technologies of social, mobile, analytics and cloud computing. But all these services do not require the depth of technical know-how and manufacturing expertise that Geometric operates with.
In fact, Geometric’s presence in the industry not only requires it to be informed but also to use its experience to transform the business of its clients. It is thus likely to be affected less by cyclic and systemic factors and more by company-specific factors that have to do with the products and services it offers.
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Strategy & Opportunity
To thrust its performance, Geometric has adopted a strategy that would enable it to focus on the geography of Europe, the vertical of aerospace and the service of embedded systems.
Commonly for companies that provide engineering and PLM services, Europe captures the largest share of the license revenue pie. For Geometric, however, as of Q3FY13, Europe contributed to roughly 25 per cent of Geometric’s sales and the largest share of its revenues, i.e. over 60 per cent, came from the US. Focussing on Europe, thus, stands to reason for the company.
Similarly, the company wishes to ramp up its relatively less remarkable presence in the aerospace vertical, which would lead to growth in the coming years, especially considering the potential the industry offers.
In terms of services, the focus area for Geometric is embedded systems. The automotive electronics industry is driven by safety and emission regulations and the rising demand from customers for in-vehicle entertainment and connectivity. Opportunities in this space include:
- Driver Assistance: Chassis electronics, ABS, electronic stability systems
- Infotainment: Telematics, navigation devices, radio, multimedia digital audio, voice recognition
- Body Electronics: Heating, ventilation and air conditioning (HVAC) control, lighting motion control
- Safety & Security: Safety electronics, security, keyless entry/security
- Powertrain: Engine management systems, transmission systems, hybrids, electrical power systems
As per data from the Zinnov Embedded Systems Report 2010, the size of the global automotive electronics market was USD 81 billion in 2009 and is expected to go up to USD 137 billion by 2015. This growth is going to be driven by the acceptance, development and evolution of these in-built automotive systems, thus providing a humongous opportunity for Geometric.
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Geometric recently acquired Germany-based 3cap Technologies, GmbH for 11 million euros. 3cap is a specialist in the automotive industry, primarily powertrain and safety & security. It garners 85-90 per cent of its revenues from the automotive vertical and over 70 per cent from embedded software product development. 3cap has 110 employees and 7 customers, which are mostly tier-1 automotive suppliers. This acquisition surely aligns well with Geometric’s focus areas. “The use of embedded systems is increasing in all our customer products. This acquisition fills a major gap in the solutions we offer to our customers”, Parpia commented.
In terms of inorganic growth, an acquisition obviously fuels a company’s offerings portfolio. However, the true benefits of these transactions lie in the ability to one, integrate services and thus strengthen offerings, and secondly, cross-sell products and services to customers through the transaction. “Benefits will accrue if we successfully integrate. The real benefits come through integration, and that is where the challenge always lies. At this stage, the acquisition would add to the services we offer. But it will not take more than two-three years for us to integrate”, explains Parpia.
From this acquisition, Geometric is looking forward to leveraging 3cap’s capabilities to provide solutions to existing Geometric customers, growing 3cap’s existing customer base and introducing new offshorable automotive electronic offerings.
The Situation
Q3FY13 was a difficult one for Geometric, wherein its operating revenue declined sequentially by 2.85 per cent to USD 46.31 million, and the operating profit and net profit declined by 8.83 per cent and 6.75 per cent respectively. The company is also doubtful of meeting its yearly revenue guidance. In the previous quarter, the company had anticipated a slowdown of USD 1-1.5 million due to a reduction in business from a large North American customer. The gravity of the situation increased with an actualS reduction of USD 2.5 million. Furthermore, a decline of USD 2 million is expected from the same customer in Q4FY13. However, Geometric believes that this quarter would reflect the nadir of revenue decline from this particular client and that business will bounce back from the beginning of FY14.
Jargon Busters
Product Lifecycle Management (PLM)
This is the process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. It has four primary areas: Product and Portfolio Management, Product Design, Manufacturing Planning and Product Data Management.
CAx Solutions
Computer-aided technologies is a broad term for technologies like CAD (Computer-aided Design), CAM (Computer-aided Manufacturing) and CAE (Computer-aided Engineering) to aid in the design, analysis and manufacturing of products.
Embedded Systems
Embedded systems are software relating to sensors, processors and operating systems, built into a vehicle, as well as its various components and parts such as entertainment and engine management systems.