It may surprise some to learn that software for product design and manufacturing is one of the largest stand-alone software segments. A wide range of electronics, aerospace, heavy machinery, consumer product, automotive, and medical device companies spend about $5.5 billion annually on software for product design and manufacturing. And it makes sense since companies in these industries remain under pressure to accelerate time-to-market, reduce costs, and improve product quality.

PTC (NASDAQ: PMTC) is the third largest vendor in this category of software, with annual sales approaching $1 billion, and a global market share of roughly 18 percent. PTC’s primary competitors are French-based Dassault Systemes (Euronext: 13065, Paris: DSY), and Siemens PLM Software, a division of the giant German industrial conglomerate.

PTC has been experiencing recent strength in its software for product collaboration, which it calls Windchill. Windchill, in a nutshell, allows engineers, product designers, and manufacturing personnel to work in teams to create new products, and communicate throughout the globe. PTC’s recent Windchill wins at Nokia, Volvo Automotive, Otis Elevator, Lenovo (the former PC division of IBM), GE Medical Systems, and Cummins bode well for the company as it enters 2010.

PTC’s product sales growth rebounded very nicely, 48 percent year over year in the quarter ended December 31. The company’s gross margin rose from 66 percent a year ago to 71 percent, attesting to the rebound in product sales. In particular, the company’s Windchill product collaboration suite had a strong quarter, with major victories at GE Medical Systems and Cummins—both of which chose to switch over from their existing collaboration systems. Though the number of $1 million-plus deals rose from nine to 10 in the last quarter, PTC’s average order size for such deals almost doubled from $2.7 million a year ago, to $5.0 million. PTC continues to make progress in a series of major accounts that it describes as “dominos.” These are large industrial manufacturers who are considered leaders in their industries and remain under pressure to deliver innovative products to their customers. Having already closed on 11 of the 12 domino accounts that it originally set its sights on for 2010, the company raised the goal to 15 for the year. At the same time, PTC is in the midst of seeking to unseat its competitors at more than 200 accounts world-wide.

And while SAP and Oracle continue to evaluate their options in the product design software markets, PTC’s global customer base, which is comprised of over 1,000,000 maintenance-paying users of its software, represents a significant barrier to those who may wish to serve this market.

Healthcare spending represents some 20 percent of US GDP annually, yet technology driving the industry remains archaic. Doctors continue to keep track of patient health records in paper files, and clinical trial research is often conducted on paper. Boston has long been a hotbed of technology and startup activity, and two young companies that claim its suburbs as their home are improving how pharmaceutical companies and physicians use technology.

Athenahealth (NASDAQ: ATHN) is an on-demand software company that serves the medical industry, providing tools for medical practice management and electronic medical records (EMR). Due in part to the archaic nature of healthcare technology and the maze of insurance company billing procedures, revenue collection for physicians is a hopelessly challenging task. Doctors frequently lose out on revenue due to complicated billing procedures, constantly changing rules, and inefficiencies in the process, despite hiring teams dedicated to the job. Athenahealth’s flagship product, Athenacollector, launched in 2000, allows medical practices to outsource the process of billing paying entities like Medicare and private insurance companies. Leveraging modern technologies like Software as a Service and a social networking inspired rules engine, Athenahealth brings a large degree of automation to the claims process and drastically reduces the time it takes for doctors to get paid. Close to 15,000 physicians currently use the Athenacollector product, and customer satisfaction is very high.

Athenahealth’s second product, AthenaClinicals, was launched in 2006. It is an EMR product that is sold alongside AthenaCollector, and unlike the majority of solutions on the market today, is delivered in the Software as a Service model. Because Collector is a cloud solution rather than a client server product, it can partner with third party providers like radiology and blood labs to digitally track test results, entirely removing paper from the clinical process.

Phase Forward (NASDAQ: PFWD) is the market leader in Electronic Data Capture (EDC), software products and services which automate the clinical trial process. Founded in 1997, the company’s flagship product is InForm, which allows pharmaceutical, biotech, and clinical research organization conducting clinical trials to record, track, and analyze data in digital form. It is estimated that 60 percent of clinical trials launching this year will use an EDC product, up from 50 percent last year, leaving a surprising 40 percent that continue to use other methods including paper and disjointed excel spreadsheets.

Standardized digital capture of clinical trial data allows research organizations to rapidly analyze and identify relevant trends and signals as they develop. This allows the research organization to cancel and reallocate funding early on when a trial is showing signs of failure. It is estimated that drugs cost $800 million on average to be developed and brought to market, with the clinical trial process being a significant expense. Further, Phase Forward’s system is web-based and supports many languages, allowing data to be collected in various countries and languages. Increasing the population a research organization can draft to test new treatments and drive down costs are additional benefits provided by Phase Forward.

Athenahealth and Phase Forward, based near Boston, are improving efficiency and removing costs from clinical trial and ambulatory medical processes. Investors are becoming increasingly aware of the crucial role these companies are playing in driving healthcare into the 21st century.

Based in San Raphael, CA, Autodesk’s (NASDAQ: ADSK) AutoCAD is the dominant brand in architectural and building design, with over nine million users of its flagship software. Over the last decade, Autodesk has virtually vanquished its competitors in this market, including privately-held Bentley Systems.

Autodesk was founded in 1982 by John Walker, one of the original authors of the company’s flagship AutoCAD software package. Together, with a band of co-founders who helped commercialize the product, Autodesk became the leading PC-based application for architectural drawings. The company came public in 1985, offering 1.6 million shares at $11.00 per share.

Best known for its AutoCAD software package, Autodesk’s applications stretch across building design, civil engineering, an estimated 55 percent of sales, mechanical product design, as much as 25 percent of revenue, and video editing and animation for the entertainment and gaming markets, the remaining 20 percent of sales.

We have been concerned for some time about Autodesk’s exposure to the architecture, engineering and construction (AEC) sectors which have dramatically reigned in their spending on automation and IT services in the last year. However, company revenue appears to have stabilized at an annual clip of about $1.6 billion, down from the $2.3 billion that the company recorded in calendar 2008. While we are not predicting a quick, snap-back to previous revenue levels, the company has the opportunity to participate in a global recovery, should there be an pick up in software spending in the economically sensitive customer segments that it serves.

Most of Autodesk’s revenues stem from PC based software, and the company should be a beneficiary of the Microsoft Windows 7 upgrade cycle. Microsoft’s long-awaited new operating system, Windows 7, addresses many of the shortcomings of Microsoft’s Vista, which was its first operating system debacle in many years.

Our view is that pent up demand exists for Windows 7, since many businesses have delayed purchases of new computers and software, due to Vista’s shortcomings, as well as the general economic malaise. The Windows upgrade cycle should drive an upgrade cycle for PC software developers whose products run on Windows 7, such as Autodesk. Autodesk recently announced that nine of its products, including its mainstream AEC and mechanical desktop products, now support Windows 7.

Finally, a weak dollar will benefit Autodesk since over 60 percent of its sales come from outside of the United States.

While it will be several quarters before Autodesk begins to show growth, revenue has stabilized, the company has exposure to the Windows 7 upgrade cycle, and derives over half of its revenues from overseas markets —all of which bode well for its future.

Google, the king of search, is often touted as Microsoft’s most potent challenger. Fueled by its meteoric rise through a competitive search market and shrouded in secrecy, Google is surrounded by a cloud of confusion. It has rolled out a series of products that compete with Microsoft’s dominant businesses, including GMail (competes with Hotmail and Exchange), Google Docs (competes with Microsoft Office), and Android (Smartphone and mobile device platform). None of Google’s newer products have achieved the penetration or dominance that it has in search, leaving many to question its ability to compete outside of its core business, or worse that it has lost focus.

Google’s Chrome products, a web browser and newly announced operating system, are designed to grow the market size for its core advertising business by stimulating interest in the internet infrastructure space. Chrome, Google’s web browser, brought a critical change to browser architecture: multi-process browsing. With traditional browser technology, errors or malfunctions in a tab cause the entire browser application to slow or fail. With multi-process browsing, failure in a single browser tab will be isolated to the tab. In the context of cloud computing, where data storage, chat, e-mail, word processing, and multimedia consumption reside in web browser tabs, stability of the browser becomes critical. Shortly after Chrome’s first beta was released, Microsoft and Firefox set out to mimic this crucial feature. Accordingly, while Google Chrome will never be a major player in the web browser market, the impact of its entry will help to pave the way for cloud computing.

Similarly, Chrome OS will succeed by inducing innovation in the OS market. Chrome OS will aim to strip out operating system size and complexity, and focus on a simple task: getting the user onto the web. This will have the added benefits of reduced power load, markedly easier security, and fewer crashes. Whether Google Chrome exceeds Apple OS X or Windows market share is irrelevant to the success of the venture, so long as Microsoft, Apple, and other technology players mimic Chrome’s key innovations.

While Google Docs might never replace or match the Microsoft Office franchise, it induces investment and innovation in the market for web based office productivity software. With Chrome OS and other products, Google is lowering the barriers to widespread adoption of the cloud computing model. The company will grow as the web is used to access and consume applications, data, media, and other services, by collecting demographic information and delivering targeted, relevant advertisements.