Good question @thunderhead .

The way I think about competition and the value of incumbency in enterprise sales is to recognise that large corporate clients are not a monolithic entity, but are complex organisations, where different functions and business units are likely to have made their own, often uncoordinated, software procurement decisions over many years. This is often exacerbated when companies acquire other businesses operating different platforms. Sure, they usually migrate onto common finance and HR ERPs in the first year or two (if they are good at integration), but often consolidating software used within the principal activities in the business units happens later, if at all.

The actual situation varies enormously from company to company. Some companies are incredibly disciplined, with a single corporate enterprise architecture and roadmap, with strong central control of procurement decisions. However, many are not. Continuity of a coherent strategy can be interrupted by changes in executives, including business unit leaders and CIOs.

Secondly, even in those companies with a single architecture and disciplined, centrally-controlled procurement, the strategy itself may follow a "best-of-breed" approach. So the firm may have different software suppliers for different functions within the design process such as schematic capture, layout design and routing; signal integrity analysis and rule checking; preparation for manufacturing; and simulation. Indeed, the software suppliers often sell separate programs or modules for these capabilities and I believe it is a relatively recent phenomenon as part of the SaaS revolution for the platforms to become more integrated.

Thirdly, as the technology develops, smaller, more agile and more innovative companies will come to market with a new feature which can be licenced by a customer on a stand-alone basis. This get’s the new firm a foot in the door, from which they follow the tried and tested “land and expand’ strategy.

So while it is true that switching costs and network effects create high barriers to entry (and exit), in reality the picture is more complex.

From the customer perspective, retaining the ability to switch has value as well. If you adopt one integrated platform and completely integrate your workflows into your software supplier, the barrier to exit is so high that you have essentially placed your enterprise in the hands of your supplier. This is something that the strategic risk management process of the customer organisation should flag and be able to mitigate.

So, these are some of the reasons that create openings for “attackers” to compete. Clearly, $ALU has been eyeing the enterprise sector for some time. NEXUS didn’t look like it was a big deal prior to 2019, it took off in 2020 and then declined in 2021. This was put down to COVID, which makes sense because the enterprise deals require a lot of time at the corporate HQ making presentations, giving demos, and running through the hoops in the corporate procurement process. In FY22 NEXUS was folded into Altium Designer as an integrated platform, and now the enterprise component is reported within that. $ALU is now on a tear in the enterprise space, with sales of just $1.0m in FY19 reaching $33.0m in FY23. I believe that we are just at the start of the enterprise journey, and the $/seat here are much, much higher. That to me is the upside.

These remarks are based on my career experiences outside of the electronic industry both as director of corporate transformation of a large multinational where I had to work closely with the CIO on enterprise information architecture and also as a consultant to firms across several sectors (energy, industrial, pharma). In all cases, the enterprises were technology intensive, with software used not only in the corporate ERP space but also in the principal value-adding activities like R&D, design, project delivery and operations. So, while I am extrapolating and it is important to read my comments with that knowledge, I have no reason to think that electronics corporates are that different, because the underlying causes are more about human and organisational behaviour. These have been constants across all sectors I have worked in.

Good observations @mikebrisy.

That sounds a lot like my workplaces (universities). Even though we are regularly told by the administrators that we need to use the official software provided by the uni, they often don't have the right programs, or maybe they've only paid for a subset of the available modules. Then unsurprisingly, it doesn't suit all the different departments. (My maths department has very different requirements to physics, or to literary studies.)

So then we ask for a more suitable program, or the modules that we need, and are basically always told that there are no more central funds available, so our department will have to pay for it ourselves. So we do.

Exactly this happened with Dropbox. The administrators didn't want staff using Dropbox (officially due to data security, but I think it was the cost) so they provided another Australian-based "solution" for backups. But keeping backups wasn't the main reason we wanted Dropbox --- we wanted a way to easily sync files to a cloud storage server so that we could access them from other computers (say when you upgrade to a new machine, or when you're travelling, or just so that you didn't need to use up all your hard drive space), and also easily share files with other people.

So while the uni's solution would have worked for backing up data that you want to make sure you keep, they didn't pay for the option to have a desktop client that would automatically sync your files. So they must have expected us to "regularly" (ie. multiple times a day) upload our files to the cloud via the browser interface. It also wasn't easy to share files with people outside the uni.

So the staff (with research grants) just paid for Dropbox, and everyone else ignored the local solution. (Eventually the uni converted everything over to Microsoft 365, and OneDrive does the trick.)

TL,DR: I completely agree that big organisations will very likely end up with "multiple" solutions in the various departments.

Bring on the spiffy-pop!

Wow. So much for my musing about no valuation upside. And yes, it was a double spiffypop and then some for me today :)

My ALU holding is neutralising my DTL holding

Growth wins again!

Hah! @harryd - good point. I'd never make such a comment about a microcap, where the SM community can indeed move the market. But there is serious volume moving in today, which points to funds increasing their positions. I dont think the SM community has much heft against that. I also doubt many buy analysts are stalking my straws - they'd take one look at my SM Portfolio performance and run a mile!

But seriously, I haven't update my valuation (I need to do some surgery on the model, so that is for later this year), but I can see that with a positve result and my last valuation just rolled forward 12-months, its definitely not in my sell zone and I am sitting tight.

Of course, as is often the case - particularly with the high ratio techs - market euphoria on a good result and upgrades often unwinds over the coming weeks/few months. IF I was a trader, I'd probably play that today. But I'm not. When to sell? If someone offers me $52 today, then I'd take it.

Undoubtedly a good result but wow, what a reaction from the market!

A 26% intraday move is one thing for a tiny nano-cap. But for a a $4.8b company!? That's what the market thought Altium was worth at the close of trade yesterday -- making it (roughly) the 100th largest stock on the ASX.

Today, the company is worth a full $1.25 billion more.

Amazing. Well done to those enjoying a spiffy pop today!

(FYI -- a "spiffy pop" is when a stock rises more in a single day than your entire cost base. A term coined by Motley Fool founder David Gardner)

Today's action means that selling ALU at almost any multiyear period was not ideal. Why would that not continue over the next decade, as long as the business is tracking as expected?

Everyone has these stories but owned ALU at $0.91 back in 2012 when I didn't know what I was doing really (maybe still don't). Back then there were capital allocation issues and was languishing so the then CEO and Founder was essentially forced out from what I understand. The company went on to greater things I guess so an exception to the 'founder led businesses outperform' mantra.

Can read the announcement here - Microsoft Word - Altium ASX Announcement 15 OCT 2012.doc

Think I doubled my money and sold - pains me every time I look but I did buy back in recently so enjoyed today.

Awww...tough luck. Totally agreed on not knowing what we're doing (then and now) - it applies doubly to yours truly ;)

Aram is essentially like a founder given his long and deep involvement with this and related businesses (ultimately acquired by ALU which brought him back to the company), and his skin in the game.

For months, if not years, the share price stagnated, and I was beginning to question the thesis on Altium's place in the increasing trend of digitisation after I took an initial holding around the 30s when it levelled off after the rejected takeover.

It seems much of the rally is driven by those thoughts rather than the FY23 result. A result that probably didn't deserve a 25% increase.

I find it amusing that the market even today is now still playing catch up on Altium.