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Morningstar | Ansys Is the Industry Leader in Engineering Simulation Software

Ansys is the industry leader in engineering simulation software. Its comprehensive simulation suite sets it apart in a fragmented market. Its solutions study all aspects of a product, such as multiphysics, electromagnetics, fluid dynamics, structural mechanics, and more. The company also has a large installed base of engineers using its products, which provides significant switching costs. Ansys' financial strength allows the firm to pursue acquisitions that cement its position in the industry. We believe the company is well positioned to benefit from several promising trends, and we forecast organic growth in the low double digits over the next five years.Ansys' portfolio is hard to replicate and switching costs are high, which ensures the company's number-one position in a market that is fragmented among many small privately held companies. Ansys' virtual environment is unique because it gives companies the ability to use more than one simulation tool at the same time, permits multiple users, allows modeling from parts to subassemblies and assemblies, and permits 3D and reduced-order models. Also, the company has sticky client relationships as a result of the high costs associated with training engineers in alternate software. This stickiness results in renewal rates around the mid-90s.We think Ansys will benefit from the engineering simulation industry's favorable growth outlook. The proliferation of smart products, which incorporate thousands of electronic parts and numerous systems that have to work together, is increasing the importance of cost-efficient design, which in turn drives simulation demand. Only 1%-8% of engineers within clients typically use Ansys' tools, and we think the underpenetrated market provides another good opportunity for growth. As testing requirements increase to test not only products, but also systems and environments, more engineers will be involved in testing and simulation. This trend bodes well for Ansys as clients demand more physics modules to solve complex problems and run many different complex tests at the same time.