April 3rd, 2006
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
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
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):
Electronic Arts Canada
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
Business Objects (Seagate Software/Crystal
Electronic Arts Canada
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
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