Thanks for the excellent report earthling. If you don't mind, I'll add my comments with double dashes underneath your numbered comments. One thing that impressed me about the CC is that almost every analyst congratulated MCRE on a great quarter. I'm not used to hearing that much optimism from the analysts.
1. OEM has grown from 11% to 36% of revenues. OEM partners now include Sony,
Intel, HP, and Intergraph (which includes Painter on a workstation).
-- OEM partners also include Lockheed-Martin. These are essentially licensing revenues.
2. They divide their business into 3D professional (35% of revenues), 2D professional
(33%), and consumer photo and imaging (32%). The 2D has dropped from 45% of
revenues in 1996 because Kai's Power Tools hasn't had a release in 18 months.
Painter is the strong product in the 2D category and is doing well.
-- The company does not break down revenues on a per product basis.
-- Kai's Power Tools will have a new release during the first two quarters of 1998.
-- Projected marketplace growth: 3D professional will grow 35% per year, 2D professional will grow 20% per year, and the consumer photo and imaging (see #6) will grow 65% per year.
3. The 3D category had new releases of Ray Dream and Infini-D during the quarter.
Also, Real Time Geometry licensing started to add revenues for the first time.
-- RTG and the related technology from other product teams is viewed as "core" technology that will allow MCRE to enter new markets. See additional comments in # 11 below.
-- A related category is the 3D camera by Real 3D (in Japan?). Real 3D will ship the camera as a commercial product in 1Q98 with MCRE's RTG software. MCRE will receive licensing revenues for this product.
-- MCRE is the number 1 supplier of 3D tools on a cross-platform (Windows, Mac, etc.) basis. Interoperability across platforms is important in this market.
4. They are now running 86% gross margins, which is up from last year due to the
efficiencies gained from the mergers.
5. Japan had a bad quarter because distribution was still in transition. They expect a
good quarter this time.
-- I think he said that international sales should be 30-40% of MCRE's business?
6. They say that market researchers project 65% annual growth in consumer home
imaging tools. According to PC Data, in July/August MCRE had 45% of the consumer
photo market. So they feel that this is going to be a growth area for the going forward
with their main products now being Goo, Soap, and Art Dabbler. Wilczak said that
they will release a major new product in this category next year.
-- The consumer photo and imaging numbers by PC Data are actual "sell-through" numbers for Goo, not "channel-stuffing" numbers.
-- The 45% number is for the North American market.
-- MCRE is the only company that has a "trilogy" of tools -- Goo, Soap, and Art
7. There will be a new release of KPT in 1998.
-- Sometime during the first two quarters of 1998!
-- MCRE will introduce "major new consumer products in the next couple of quarters."
8. They are excited by the big exposure that Goo has gotten from the fact that it is
currently being demo'd on thousands of show-floor computers.
-- It is being demo'd under license to Intel, to show off the capabilities of the Pentium II processor. Nice PR to be showcased by Intel -- this is great for MCRE's visibility.
9. During Q4 there will be the following releases: Bryce 3D (note: this name is a little
confusing; it is actually the latest release of Bryce, which has always been a
3-dimensional application; it seems they thought calling it Bryce 3D was catchier than
calling it Bryce 3.0); Detailer for 3D Studio MAX, Final Effects Complete, and
LogoMotion for Windows.
-- In 1998 there will be a new release for the video special effects market. (I personally see this as big potential market as digital video becomes more prevalent. Already Power Goo is being shipped with L.A. Vision's "Dazzle" product, which is a $399 box that plugs into your PC's parallel port, and takes video from any analog video source such as a camcorder, VCR, or TV, and converts it to digital MPEG1 video or digital still frames. The still pictures or video files can be sent via e-mail . . .)
-- MCRE is looking at the digital video market, but they think it is too early to bring a product to market.
10. They see two big new opportunities. One is the licensing of their streaming 3D
technology. According to Wilczak, MCRE has invented an entirely new medium,
which he calls 3D objects. A browser or an online service could bring you the JCrew
catalog and you could spin the clothes around and look at them from all sides. To do
this, a browser or online company would license the 3D objects technology from
MCRE. Also, the creators of the catalog would buy a 3D scanner, using technology
which MCRE has licensed to Lockheed (and presumably will license to others).
-- Actually, Wilczak said that 3D objects would be a "new media type." (similar to streaming video, etc.) I thought he said "streaming 3D would be a new media type that did not previously exist."
-- MCRE wants it to be an open industry standard. He is currently talking with potential partners and "Big Players" about partnering to bring this technology to market. Talking with major browser and online companies . . .
11. The other big new opportunity is something he called Decision Support
Visualization for the enterprise market. Right now they are working on prototype
engine development, and they are looking to partner with larger companies in vertical
markets such as data mining, financial services, and medical information. He said it is
drawing in engineering from all parts of the company (though to me it smells like one of
Kai's interface concepts).
-- MCRE expects to have something in the marketplace by early 1999. MCRE will not sell it directly. Instead, it will be licensed to other companies that will incorporate it into their software packages.
12. He talked about his move from CEO to Chairman. He sounded quite sincere in
saying this is not a departure, but rather a bid to bring in top level management so that
they can continue to run a 300-person company and also pursue all these various
partnerships. (Maybe they should buy Live Picture and get John Scully to join.) He
said he wants to grow MCRE into a world-class billion dollar company. I think he
used the term "world-class" about 15 times.
-- MCRE needs top experienced management to correctly manage explosive growth, and to give them the ability (credentials) to attract additional top talent.
-- More experienced management is needed to realize the company's vision.
-- Wilczak is not going anywhere.
13. My impressions: Wilczak is energetic and good at conveying his conviction that
there's a great business to be built around visual graphics. I suspect that he and Kai in
combination could wow almost any group. The technology is real. The talent at the
company is deep. Lately growth has been good, though not awesome--no home runs.
But the level of enthusiasm shown by Wilczak is pretty contagious. I just hope they can
juggle all the balls and not lose the needed focus. |
