Dassault Sytems Lowers its Q1 2020 Guidance: Read-Throughs for the ER&D Service Industry
Dassault Decreases its Growth Guidance by 600 Bps
Dassault Systems lowered it Q1 2020: the company is now expecting revenue growth in the range of 14%-17%, down from a 20-23% guidance (that includes the acquisition of Medidata). The company has suffered from weaker than expected new license and services revenues. Meanwhile, revenues of Medidata were on a “momentum and license renewals were up too.
Dassault Felt the Pain of Slowing Revenue Growth Throughout 2019
Dassault had a relatively difficult year in 2019 in terms of software license sales. The company suffered from decelerating license growth until Q4, when license revenue growth was flat at CC/CS, impacted by German automotive clients, and overall delayed decision-making.
As a result, the company was targeting a decline in license in Q1 2020 of up to 5% at CC/CS, impacted by China, and the automotive and Boeing situations. We estimate that software license revenues will be down by to 20-25% in Q1 2020.
Read-throughs: Clients Keep the Lights On
- New investment (i.e., new licenses) is on hold
- Clients favor to “keep the lights on,” with license renewals and maintenance still growing. We expect them to cut their maintenance spending in the next two to three quarters
- The manufacturing sector overall os worst hit
- The life science industry continues to invest in R&D software, especially at the clinical trial stage, despite several clinical trial specialists highlighting that the current sanitary situation made clinical trials outside of the scope of COVID-19, challenging to conduct
- We continue to favor ER&D service vendors that have a diversified client base, outside of the manufacturing sector. Automotive and aerospace specialists will suffer globally, along with Indian vendors with low double-digit EBIT margins and limited revenue diversification.