1. About the product strategy of PTC.

Pei: Could you briefly introduce PDS? Is it a software solution, or a product development strategy provided by PTC. What’s the difference among PDS1.0 to PDS4.0?

John: The PDS is the combination of software services and business strategy for our customers. There are 7 stages currently.

The first stage is for the people to optimize their engineering CAD solution, so, make sure that you have most up to date CAD solution which in our case will be PRO/ENGINEER Wildfire 2.0. The second stage is to make sure that you have control of your data, so that you manage them with data management solutions, so that is, being Windchill PDMLINK or soon to be INTRALINK 8.0. So we are providing the Windchill version of our Pro/INTRALINK for our customers. So now PDMLINK will be based on Windchill platform, and that will be coming out in June next month. That’s stage two. Stages 3 through 6 are different application areas from changing configuration management to project management and collaborations. So those are stages 3 to 6. And the 7th stage is the integration to manufacturing, arranging your data and through data management capabilities integrating them with financial and enterprise application systems like SAP or Oracle.

So that is a combination of software, which is Pro/Engineer Wildfire, Windchill PDMLINK or Windchill PROJECTLINK at the application, and also the enterprise systems integration software into the manufacturing, packaging services around optimizing and getting the best value out of your software solution and service packages as well, and conducting it into a stage format. So you start from step 1 all the way to step 7, and we recommend that. So, PDS is the combination of business strategy, it is a software application and services.

Pei: PTC announced GPD (Global Product Development) recently, please give me an overview.

John: Just as Tom Friedman said, THE WORLD IS FLAT. It is the economic issue that is driving this. You can get low cost, but high end engineering services in China, India, Russia and Brazil, much lower cost than you can Western Europe, United States or Japan. So with technology, GPD means that large companies can have engineering teams in Europe, U.S, Brazil or China or India working on a project at the same time. For example, Dell Computer has headquarters in Austin, Texas, but they send engineering designs to China to localize with different keyboard, different monitor, and different power supply. So they build the product that can be localized.

First, GPD basically means that it is offering the solutions for our customers so that they can design anywhere and build anywhere. That would include PRO/ENGINEER can be floated across the Internet and licenses can be transferred from one engineering team to another engineering team; Second, GPD means that out customers can do some low cost engineering in India, in China and some parts of Eastern Europe, by this way they can get five engineers for the cost of one engineer in the United States or Western Europe; Third, GPD means that all the data are integrated, so that the data can be reviewed by any engineers, no matter where they are.

Briefly, our initiative around GPD is to ensure our customers to design anywhere and build anywhere.

Pei: What are the main progresses of Windchill 8.0 and PRO/ENGINEER Wildfire 3.0, compared with the former versions?

John: The primary initiative of Windchill 8.0 is the integration of Pro/INTRALINK into Windchill. The former version of PRO/INTRALINK was C/S data management application and was not based on the Internet. The newest version of PRO/INTRALINK will be based on Windchill Internet technology, and is written in Java and using Internet tools to integrate into Windchill. The customers of PRO/INTRALINK are going to migrate from intranet and client server application to Internet based application, so we are very excited about that. Windchill 8.0 also offers better functions to manage heterogeneous Cad tools like the UG NX, CATIA, Autocad, SolidWorks, and PRO/ENGINEER particularly. This new version will be released in June.

PRO/ENGINEER WILDFIRE 3.0 is the newest version. The benefit of 3.0 is that all the applications of Wildfire will be integrated with the new user interface. There are also some enhancements in visualization tools.

There are 15 million students around the world that use our software in middle schools and high schools. Children ages from 10 to 18 are now using a software application called PRO/DESKTOP. It is going to be retired in 3-5 years and be replaced by PRO/ENGINEER Wildfire.

Pei: Which cPDM solutions are the main competitors of Windchill? What are the main competitive advantages of Windchill compared with the main competitors? And what are the disadvantages?

John: The main competitors of Windchill are Teamcenter, MatrixOne and SAP PLM. We don’t see very much ENOVIA, Smarteam in the market, and we see AGILE in very limited market place. So the three biggest competitors are, Teamcenter first, MatrixOne second, and SAP third. SAP is seen more in Europe.

The differences are pretty straight forward. The advantage of Windchill is that it is an integral system of PRO/ENGINEER Wildfire and Windchill in the same database. PRO/ENGINEER is the best modeling tool in the world, and we think PDMLINK and PROJECTLINK are the best control tools of the engineering data and collaboration, also our visualization is very good.

One of the other advantages is that we offer Windchill in the low end market hosted by IBM, using ASP model. For $100 / per user / per month the customers can get an access to Windchill PROJECTLINK, for $125 they can get Windchill PDMLINK, and for $150 they can get both.

UGS is a nice and a respected company. Teamcenter has great customers like General Motors, but it has to integrate Metaphase, IMAN and some other applications with different structures and databases.MatrixOne is a small and good company, a niche player. MatrixOne does well in electronics and high-tech. They have nice PLM software, but they don’t have their own CAD tool. Historically, they manage PRO/ENGINEER data better than we did. But with the Windchill 8.0 and our LINK Solutions, we have fought back.

SAP is a highly respected company and it’s the defacto standard in ERP market. Sap markets their product very well. CIOs with financial and operational background may tend to use SAP alone in their enterprise, so we have to sell through it and discuss with the potential customers about the integration with CAD, the control and collaboration tools in Windchill to win the cases.

The historical disadvantage is that we tried to make Windchill offering to all people like a toolkit. In about 4 yrs ago, we also re-architected Windchill to be more application specific. We are going after the medical market, aerospace market, etc. Templates are built specifically for vertical manufacturing markets. So we are going after the specific market where before we just deployed a toolkit to customers which required large amount of customization and which was the disadvantage.

Pei: In your view, which types of products are the main competitors of PRO/E? Or both? First type, SolidWorks, Inventor and Solid Edge; Second type, CATIA and UG NX.

John: Autocad is at the low end, and SolidWorks, Solid Edge are at the mid end and CATIA and UG NX are at the high end. PRO/ENGINEER is positioned between the high end and mid end. The CAD users seldom change among PRO/ENGINEER, CATIA and UG NX. But after the introduction of Wildfire with the native Windows interface, more and more low end and mid end CAD users are changing to PRO/ENGINEER, because they use the price of mid end CAD to buy PRO/ENGINEER, the best 3D design tool. The price of basic module is similar to SolidWorks and Solid Edge, with some advanced functionalities in assembling, surfacing, and manufacturing. With the similar functions, PRO/ENGINEER is much cheaper than CATIA and UG NX.

2. About the view of PLM market

Pei: All the main vendors in PLM areas got progress and good financial result last year. In your view, what are the main reasons?

John: The reason for some competitors of us have done so well is primarily because acquisition. Besides acquisition, Autodesk also captured the opportunity of the migration from 2D to 3D. Our growth was primarily because the re-architecture of the technology, however, we are planning to buy some companies this year too.

Pei: In recently three years, the revenue from new license of PTC was going down. Was that the trend of all PLM vendors? Do you think the high end CAD and cPDM market has saturated? How do you think about the trend of changing from 2D CAD to 3D CAD?

John: The reason for the revenue going down was because the software price was going down. So we have to sell more seats in order to get exceed in the revenue.

We had a pretty good growth in the license revenue last quarter. The biggest opportunity we also have is that channel growth has been dramatic. Our channel is now up to 300 partners. Our VARs are growing. I saw a large number of seats sold to low end customers.

Now we don’t see many accounts in the high end CAD market, and the competition is mainly focus on the mid end market. We pay more attention on the distribution channel to pursue the trend of changing from 2D CAD to 3D.

Japan, China and India are huge markets of changing 2D to 3D. US, Western Europe, Taiwan and Korea begin to saturate, but Eastern Europe is not saturated at all. So we just invest in Russia, because we believe that it will be great opportunity for 3D CAD in Russia.

Pei: Recently, UGS cooperated with Autodesk to seamless transfer JT and DWF, and Dassault Systemes are promoting 3D XML, I think there will be a competition about the 3D data format, especially using on the Internet. What’s your comment and what’s the strategy of PTC in this area?

John: PTC has a long history of maintaining open systems and of supporting a variety of the most popular standards for CAD, PDM, and graphics, including so-called "competitive" standards such as JT, DWF, PDX (Product Data eXchange). The main purpose of standards is to promote interoperability between systems, and, in PTC's view should not be used as a competitive weapon. PTC has a formal interoperability agreement with UGS in which we have licensed our products to each other so that we can each ensure that our products are interoperable with the others. PTC is a member of the JTOpen initiative. Both UGS and PTC have invited Dassault Systemes to join us in this interoperability agreement on multiple occasions but they have persistently refused.

Pei: Could you predict the growth rate of CAD and cPDM market in the next 5 years? According to Daratech report, the PLM market will grow 11% per year.

John: We believe our growth is going to be about 11% this year, almost align with the growth of PLM market. We will see the growth of Pro/Engineer and Windchill. Our revenue numbers are project to be $710M, $800M, $900M and $1B in the year 2005 to 2008. So, that will be about 10% growth a year. PRO/ENGINEER will continue to grow and Windchill will probably go faster than Pro/Engineer.

Pei: Do you think that PLM is just useful for giant companies, or PLM can also used by SME?

John: PLM is fit for SME, but small companies maybe don’t have IT infrastructure to support PLM implementation. Our strategy is Windchill on Demand hosted by IBM. We already have 708 customers and will increase 20 this quarter, so we think that Windchill on Demand is scalable for SME marketplace and we are very excited with the SME PLM market.

Pei: Now, the revenue of cPDM still account for very small percentage of the total revenue of all the PLM vendors. When could it exceed CAD revenue?

John: Now the cPDM revenue of PLM vendors is about 25% to 30% in the total revenue. Windchill grew 23% last quarter, and PRO/ENGINEER grew 2%. The revenue of PRO/ENGINEER and Windchill is $125M VS $51M. With the hyper-growth of cPDM solutions, the percentage of cPDM revenue of PTC will possibly exceed CAD revenue in about 5 years.

3.About the PLM technology progress.

Pei: Till now, there isn’t a standard definition of PLM. What’s the view of PTC about the definition?

John: Our definition is all around GPD.

Pei: There are three types of PLM vendors. CAD background, ERP background and neutral background. In your view, what’s the key difference among these three types of solutions?

John: UGS, Dassault Systemes and PTC understand engineer dimension, SAP understand financial dimension, and MatrixOne understand data management dimension. We think PTC and probably UGS know the integrated environment better than any others. IBM also knows about global product development because they deploy CAD for many global manufacturers, such as Chrysler, Boeing, etc. They just burden with the tools from Dassault Systemes. Anyway, the point is that PTC, UGS and IBM are in an integrated environment. We compete more with UGS than neutral providers. And we actually partner with IBM in consulting services against UGS.

PLM market is still fragmental. In ERP, SCM and CRM market, 2 main vendors account for 80% of the market place. But in PLM market, 4 main vendors share 80%.

To win the competition, each player needs to be consolidation. We have seen the consolidation of UGS and Dassault Systemes. Our consolidation is mainly about technology strategy, about GPD. We will buy some very complementary companies to make out growth.

We know better than anybody else to manage PRO/ENGINEER. In PRO/ENGINEER there is a feature called associativity. Associativity means that there are dependence between parts and assemblies. We can work closely to manage that, but none of the third parties can do.

Pei: In 1990s, the feature modeling and constraint based modeling of PRO/E were very powerful and got great competitive advantage. Are there still any technological advantages of PRO/E, compared with other 3D CAD systems? What are the main progresses of PRO/E in recent years from the technological view? And what will be the next innovation?

John: PRO/ENGINEER is the best modeler. And with Wildfire, the customers can use the native Windows interface, which means they can use the power and simplicity of Windows.? The main progress of PRO/ENGINEER is that integrated with Windchill.

Pei: Recently, UGS acquired Tecnomatix, and Dassault system are promoting Delmia. How do you think about the relationship between digital manufacturing and PLM? Does PTC also have the plan to provide digital manufacturing solutions?

John: PTC is convinced that manufacturing planning must occur near simultaneously with the product design in order that manufacturing companies realize the time to market, product cost, and change management efficiencies they seek. To enable simultaneous product and process development requires that the manufacturing planning capabilities be part of the same system that is managing the product data. Only in this way can the impact of changes to engineering designs on the process plan be efficiently identified and propagated. PTC is planning to add this type of capability to Windchill in the near future. UGS with Tecnomatix and Dassault with Delmia require a separate system for managing the product and the process data - an approach we believe to be fundamentally flawed.

Our approach will also be different in that we will focus on providing tools that the everyday manufacturing engineer can use and will want to use to create process plans, work instructions, estimate costs, and perform line balancing. Tecnomatix and Delmia have high tools for factory and robotic simulation, but these tools are only used when you are planning a new factory - not something you do every day - and are very complex to use and are very expensive. PTC will change all that. Stay tuned!

4.About PTC company

Pei: PTC grew very fast in 1990s but encountered some problems in the past five years. However, PTC has recovered now. What are the key factors of the fluctuation?

John: For Pro/ENGINEER and the mainstream CAD, the prices are going down. And secondly, Windchill and original PLM technology require long time customization to complete. Customers didn’t like that. I think that was OK before 2000 when customers were expected to pay Accenture, BearingPoint, and IBM a lot of money to customize the application, but that went away in 2001. Customers wanted quick turnout of the investment, out of the box of functionality and quick return on the business value.

Pei: What are the key strategies for PTC to continually grow in the next 3 years?

John: It will be the combination of organic growth of Windchill, Pro/ENGINEER and acquisition. And you will see the complementary of our GPD strategy being acquired.

Pei: What’s the feature of the enterprise culture of PTC? As I know, the sales team of PTC is very aggressive.

John: We actually transformed our sales guys in the last 5 years. You know sometimes people said that the aggression and arrogance of our sales team is because of their confidence with our company and products. Today we have turned over our sales team into the enterprise sales people. They now focus on creating customer value and the cost of ownership to our customers. They are smart and confident people, but now they have to change from selling software product with one step sales to selling application solution and strategy to the whole enterprise.

5. About Chinese strategy of PTC.

Pei: How does PTC progress in China? Could you describe your Chinese strategy?

John: Asia is our largest market now. So we have investment in sales, services and support to see the continuous growth. We have altogether 10 offices in China (including HONGKONG, Taiwan). PTC grew steadily in China for more than 12 years, and we are very strong in North Asia market. North Asian market in revenue is account for 31% of the revenue in the last quarter, higher than the US and Europe market.

In China, only about half of the customers pay maintenance fee, while in Europe, USA and Japan, 90% of our customers pay maintenance fee. So the growth of license sales and service sales are much greater in China than the rest of the world.

For us, China is the second biggest market after Japan. So we do think much of this market.

Pei: China is becoming the manufacturing center of the world. In your view, how do Chinese manufacturers improve their innovation capabilities?

John: 80% of the suppliers of Walmat are from china, so, they have the best supply chain management strategy in the world. In any global manufacturing companies, they have to use global product development strategy. Many of their products are invented in the U.S, designed in India, and manufactured in China. In the future, more and more inventions will be made in India or China, than in the U.S. or Western Europe. That’s the trend that I see.

So the advice is education. In China, 30% of the university students are major in engineering, while In U.S., it is 11%. Many Chinese government officers have engineering background, but in U.S., there are very little officers have engineering background. With more expertise in engineering, more and more products will be invented in China, besides made in China.