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Analyst Blog

Autodesk Inc. (ADSK - Analyst Report) has acquired GRIP Entertainment, a privately-held artificial intelligence (AI) game middleware company. The deal has been closed this month, but no financial details or terms of purchase were disclosed.

The acquisition of Montreal-based GRIP Entertainment’s technology assets will boost Autodesk’s present Gameware offerings and expertise, enabling a more comprehensive AI solution. Autodesk’s own AI middleware, Kynapse, offers high-performance 3D pathfinding within dynamic environments, and automated tools for generating low level AI data.

GRIP Entertainment offers two AI middleware products that are used for video game development (GRIP Character Control System and GRIP Digital Extra System). They provide high-level AI authoring tools to help define and control non-payer characters (NPC).

Very recently, Autodesk’s gaming middleware was used by Epic Games to create the last part of the Gears of War trilogy. In the Gears of War 3, the developer, Epic Games, used Autodesk’s Scaleform middleware to create the user interface, integrating it with Unreal Engine 3 (game engine developed by Epic Games) and AutoDesk FBX.

Popular videogame titles such as Prototype, Mass Effect (1and 2), HALO WARS and Crysis 2 have used Autodesk Scaleform to build flash-based user interface tools and middle ware.

In our view, Autodesk’s improvements in 3D design technology and product portfolio provide a competitive edge. Autodesk’s aggressive acquisition of small companies would prove beneficial for expansion of its product portfolio and broadening its industry and geographic reach that would provide long-term growth impetus.

Other Acquisitions

In early August, Autodesk acquired San Francisco-based Instructables, a popular online community for people seeking to discover, share and be inspired by DIY (Do-It-Yourself) project ideas. In July 2011, Autodesk completed the acquisition of Pixlr, a popular free online service for social image creating, collecting, editing and sharing.

Also recently, the company acquired certain technology assets from Koblenz, Germany-based Numenus GmbH. Numenus’ technology is efficient in creating life-like images by directly using NURBS (nonuniform rational B-splines) data. NURBS is a mathematical representation of 2D or 3D objects, which can be of standard shapes (such as a cone) or free-form shapes (such as a car).

Recommendation

Autodesk is expected to introduce a collection of new web-based services in late third quarter. These acquisitions, particularly of the web-based communities, will boost the company’s cloud offerings going forward.

However, increasing competition from Adobe Systems Inc. (ADBE - Analyst Report), Parametric Technology Corp. and Avid Technology Inc. remains a headwind.

We have a Neutral recommendation on Autodesk shares in the long term. Currently, Autodesk has a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold rating.

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