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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
April 3rd, 2006


By Brent Holliday
Greenstone Venture Partners

Are The Big Hitters Still Swinging?

“Where To, where do I go?
If you never try, then you'll never know.
How long do I have to climb,
Up on the side of this mountain of mine?” – Coldplay, Speed of Sound

When the NASDAQ closed at a five year high this week (2,340 being a somewhat hollow victory compared to 5,000 six years ago, but almost a double from 1,280 in late September 2001) it got me thinking about our local public technology heavyweights and how they have recovered.  Have they been resuscitated like the NASDAQ index?  Or have they languished?  You can only go so far on good stories about start-ups selling for $20 or $30 million or companies getting new financing or partnerships.  The real health of your technology industry is driven by the success of your biggest companies. 

In BC, the latest figures the government and trade associations are using show about 45,000 technology workers (78,000 employed in the broadest sense of technology companies, including everyone at Telus for instance) working at about 8,000 companies.  If you do the math, that’s 10 employees per company, which shows you just how many small companies there are in the industry (when Telus employs >10,000 and Electronic Arts, Business Objects and Kodak (Creo) alone account for about 5,000 more).  What is more interesting is that the industry is generating $12-14B in annual revenue, accounting for 5.3% of the province’s GDP, up from the 3-4% range just a couple of years ago.  This all sounds nice and healthy, except for the fact that the top 10 companies account for about 85% of the revenue and more than 60% of the employees in the province.

Five years ago, the top technology companies in BC either by revenue, market capitalization and/or employees were (I don’t include Telus, but I think the government figures do include it):

Ballard Power
QLT
Creo
PMC-Sierra
Sierra Wireless
MDA
Angiotech
Electronic Arts Canada
Seagate Software
Pivotal

This list does not include Alcatel (formerly Newbridge), Motorola, Glenayre, Redback (formerly Abatis) or Broadcom (formerly HotHaus) which employed many tech workers in late 2000, early 2001.

The list hasn’t changed much through the dark days of 2001-2003 and the improving markets of the past two years.  BC’s top technology companies today are:

MDA
Kodak (Creo)
Business Objects (Seagate Software/Crystal Decisions)
Angiotech
PMC-Sierra
Sierra Wireless
QLT
Ballard Power
Electronic Arts Canada
Aspreva
Cardiome
Abgenix
AnorMed

The last four life sciences companies, new to the list from five years ago, may soon be joined by Neuromed, which has signed some huge deals recently.  Clearly the life sciences sector is booming locally.  Some new technology companies emerging in the last few years that have lots of local employees and growing revenue and/or market cap are Xantrex, Ascalade Communciations, Rail Power and Carmanah Technologies.

How are these top tech companies doing?  Is the new height of the NASDAQ reflecting booming times for our companies?  Well, I put MDA at the top of the list for a reason… it is a rocket ship <grin>.  Its revenues are out of this world <grin>.  This company is in its own orbit.  OK, I’ll stop with the puns.  MDA’s stock was under $20 five years ago and it’s over $45 today.  The revenue has grown steadily to $832M in 2005.  This is a very big company doing very well.  I especially like their division focused on data sales.  Amalgamating data and owning it can be very profitable and their geodata (see Google Earth for example) and real estate databases can be packaged and re-packaged in a variety of meaningful formats (see Zillow (www.zillow.com) for another example).

Business Objects continues to hire like crazy and grow the staff in Vancouver.  The company is coming off its best year fiscally and its stock price is nearly back to what it was when they acquired Crystal Decisions in late 2003.  Another very good story at the moment for the local industry.

Kodak (Creo) is doing OK.  The overall company is languishing a bit, still losing money, although revenues are picking up.  In a $14B company it’s hard to pull out the $1B or so that Creo may be contributing to see if it is growing.  Locally the layoffs have been minimal and quite a few jobs are posted (although someone has said to me that this is replacement for employees that are naturally leaving to seek other work).  Creo has been a great story for our industry and it is nice to see that, so far, Kodak is keeping the local company moving forward.

PMC-Sierra is a great recovery story.  Its bread and butter business five years ago was networking chips and we all know that the telecom/networking market went for the biggest nosedive this side of the Queen of the North.  This company did US$700M in revenue in 2000 and sported a $40B market capitalization.  In 2002, the revenue was $218M and the stock had gone from $200 a share to $3.38.  They expect to do almost $400M in business in 2006 because broadband and storage chips (they were entering storage in 2001, but revenues have been tiny compared to broadband networking) are now (finally!) hot.  The recent acquisition of Avago helped cement their storage chip business (now almost 50% of revenue) and adding 170 engineers didn’t hurt either.  The real recovery in this company, led by its bright management, was the shift to Asia.  Over half of its revenue will come from Asian markets this year because the company started concentrating on Asian channel strategies three years ago, anticipating the larger demands from these countries.  PMC has come a long way from the old MPR days on the hills of SFU, selling to one small Israeli customer… 

Sierra Wireless is (hopefully) earlier in the recovery period than PMC-Sierra.  Unlike most technology stories of the past five years, where the slope was down, the bottom was hit and the recovery started, SW had a mini-peak in 2004 when sales spiked and froth began around their bold venture into the handset market with the Voq smartphone.  Sales hit US$210M in 2004, but plummeted to US$107M in 2005. Predictably after a crisis like that, major changes in management took place with David Sutcliffe and Andrew Harries leaving the reins to Jason Cohenour. 

This company has always been at the forefront of wireless packet data, leading the way with their Aircards for laptops in the old CDPD format in the late 1990s and then with emerging 3G wireless broadband standards.  For the past few years, most of us have employed 802.11 or Wifi for our wireless data needs, so the Aircards were sold mainly to corporate clients with specific mobile applications requiring more broad coverage for their users.  Now, Asia and North America have rolled out EV-DO networks into most metropolitan areas.  The mainstream business users are starting to adopt the utility of broadband everywhere (mainly the idea that they don’t have to keep signing in to new networks and you can punt your cable or telecom ISP).  This would appear to benefit SW as its products are in the market.  The last quarter saw a 35% jump in revenue, so perhaps the recovery is coming.  After Motorola and Glenayre left town, BC’s long legacy of leading the world in packet data technology has been left to Sierra Wireless and a handful of interesting start-ups.  Let’s hope they bounce back again.

So, overall the big boys are doing well, at least the ones that I know well enough.  I’ll leave the life sciences and alternative energy companies to others for comment.  This augers well for our industry as I indicated earlier.  Without their revenues and employee counts, we are a cottage industry at best.  2006 looks like a very good year for revenue growth around town.  Enjoy it.

 

What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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