Strong PLM Market Seen Currently Held in Check by Global Economic Downturn

But powerful underlying economic trends will continue to drive growth in sales of product lifecycle management solutions, ARC projects; services seen growing faster than software

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Dedham, MA — July 3, 2009 — Powerful underlying economic trends are continuing to drive the growth in sales of product lifecycle management (PLM) solutions, but the current global economic downturn which will hold down all market growth for PLM at least through 2009, according to a new ARC Advisory Group study.

Demand for increased efficiency and productivity, a continuing need for collaboration across a global manufacturing lifecycle, the rapidly growing need for product reinvention and innovation, the continued growth of manufacturing in emerging economies, and expanding adoption of an a more holistic end-to-end product lifecycle management (PLM) solution set will contribute to continued growth in the worldwide PLM market, ARC writes.

The product lifecycle management market grew substantially in 2008, with the first two quarters of that year representing some of the best quarters historically for some PLM companies. Unfortunately, the last two quarters of 2008 signaled the beginning of the global economic downturn, with the third quarter slowing considerably, and the fourth quarter making precipitous drops in revenues for most PLM suppliers.

The current year is not projected to improve much, with regions like EMEA showing negative growth for the short term. Based on the declining economy growth forecasts, the 2008 PLM market going forward will be substantially more conservative, according to ARC.

Dick Slansky, the principal author of ARC's "Product Lifecycle Management Worldwide Outlook" study, said that companies in the manufacturing sector are refocusing their strategic direction toward innovation and new product development to gain critical market share and grow top line revenues.

"However," Slansky said, "this does not mean that they are ignoring cost containment and productivity, especially in the current economic climate. While innovation, new product concepts and design are necessary to a company in order to maintain its competitive edge, getting the right product, at the right time, to the right market sectors will often determine a company's profitability."

Growth Markets for PLM

The changing demographics of both industrialized nations and the emerging economic regions will drive significant portions of the market for technology and the consumer demands for certain sectors of national, regional, and global populations, ARC writes. This is creating a critical demand for knowledge capture across all domains of the product lifecycle, including design, manufacturing processes and general domain expertise.

Moreover, knowledge reuse will be essential as companies seek to maintain and improve their products and services, as well as establish ideation and innovation as a component of their end-to-end product development process.

Global energy requirements — more specifically, alternative energy generation and non-green house gas generating energy sources — are poised to experience very significant growth in the next decade and beyond. In the alternative energy sector, wind-generated power and the equipment and infrastructure required for power generation appears to be positioned well for strong growth.

Growth for PLM Services

While the overall forecast for the PLM sector will be substantially lower, PLM services are projected to grow faster than software. Software sales are projected to grow at a rate of 5.5 percent compounded annual growth rate (CAGR) over the forecast period, and services growth at around 7.5 percent, with much of that growth coming from consulting, maintenance and implementation services.

Forecasted services growth is for the software companies themselves and not for third-party service providers. Nearly all PLM software companies are continuing to build their own service organizations, acknowledging that, on average, 60 percent of the PLM revenue is derived from services. Services will continue to grow over the forecast period, with most PLM software providers implementing a business strategy to continue to grow this sector.