Ottawa Citizen

Search­ing for the next tech cham­pion

Mi­tel and DragonWave are top two can­di­dates

- BERT HILL Business · Investing · Nokia · Siemens · Dubai · Doha · New Delhi · Mumbai · Singapore · Indonesia · Malaysia · Ottawa · research and development · California · Sweden · Nortel Networks · Huawei · United States of America · QNX · Research in Motion · Europe · European Union · Shenzhen · AT&T · Whirlpool Corporation · Richmond · Paul Davis · the Chinese government · Akamai Resource Locator · Rogers Communications · Apple Inc · Google · Samsung Group · Eastman Kodak · Microsoft · Adobe · Facebook · Alcatel-Lucent · Lucent · Cisco Systems · Cisco Systems · Mitel Networks · DragonWave · Peter Allen · SMART Technologies · Microsemi · Amdocs · Bridgewater Systems · Skyworks Solutions Inc. · Media Cybernetics · Thermo Fisher · Fisher Scientific International Incorporated · Cadence Design Systems, Inc. · Telus · Rockstar Consortium Inc. · Larry Bird · Glatfelter

The tech­nol­ogy in­dus­try in the na­tional cap­i­tal re­gion had a rough 2012 as a weak global re­cov­ery and in­creased com­pet­i­tive pres­sure forced big play­ers such as Al­ca­tel-Lu­cent and Cisco Sys­tems, many small com­pa­nies and sev­eral de­fence in­dus­try play­ers to cut jobs.

Tech­nol­ogy em­ploy­ment fell more than six per cent dur­ing the year to 41,500 jobs, only slightly above the post-bub­ble low in 2004 and al­most 30,000 be­low the re­cov­ery high in 2007.

There were few can­di­dates ready to step into the lead­er­ship

vac­uum de­spite a host of promis­ing but tiny so­cial me­dia, gam­ing, cloud com­put­ing and other star­tups with big dreams for the fu­ture.

Mi­tel and DragonWave are the big­gest con­tenders. They had rad­i­cally dif­fer­ent years. Mi­tel out­per­formed com­peti­tors and its stock soared 60 per cent in the sum­mer, then stum­bled and ended the year with the stock just slightly pos­i­tive.

Mi­tel cut 200 more jobs dur­ing the year as chief ex­ec­u­tive Richard McBee bet that sell­ing com­mu­ni­ca­tion gear to smaller com­pa­nies in a few key mar­kets through part­ners was bet­ter than di­rect sales. But sales weak­ened dur­ing the year and Mi­tel had to cut costs to get back to prof­itabil­ity.

DragonWave, an­other home­town gi­ant, had a rough year. It was forced to slash em­ploy­ment early in 2012 and post­pone an earn­ings call at the end of the year be­cause of weak sales and trou­ble in­te­grat­ing a big ac­qui­si­tion of Nokia Siemens Net­works gear. Chief ex­ec­u­tive Peter Allen trav­elled to Dubai, Doha, Delhi, Mum­bai, Sin­ga­pore, In­done­sia and Malaysia try­ing to make the NSN deal work. At one point in the sum­mer DragonWave stock fell 50 per cent. Even with the late warn­ing of bad sales and a post­poned earn­ings call, DragonWave ended the year with the stock down just 10 per cent. Not great but re­mark­ably good un­der the cir­cum­stances.

Smart Tech­nolo­gies, an in­dus­try leader in in­ter­ac­tive white­board tech­nol­ogy sold to educators and tele­vi­sion net­works, con­tin­ued to shrink. Started in Ot­tawa, it grew to be­come a ma­jor pro­ducer with hun­dreds of Ot­tawa as­sem­bly staff. But that op­er­a­tion closed, the founders left and new man­age­ment is slash­ing re­search and devel­op­ment em­ploy­ment, now be­low 100, even deeper.

Fortress Pa­per, which makes spe­cial­ized cel­lu­lose for Asian cloth­ing man­u­fac­tur­ers, went from hero to zero in one year.

The stock had soared when a con­verted Thurso pulp mill locked up big con­tracts as pro­duc­tion ramped. But then the mar­ket changed swiftly as Asian growth slowed and other com­peti­tors en­tered. The re­sult is Fortress stock fell 75 per cent.

Some sim­ply dis­ap­peared. Exar, a Cal­i­for­nia chip com­pany that owned the former Galazar and Ne­te­rion Ot­tawa star­tups, closed the Ot­tawa doors as a new CEO charted a new course for sur­vival. It once had more than 100 em­ploy­ees here.

The fu­ture of Ot­tawa’s tech­nol­ogy sec­tor is in­creas­ingly in the hands of giants with head­quar­ters around the world. As the year closed, Eric­s­son was search­ing for a for­mula to re­store prof­itable growth. It cut 1,550 jobs in Swe­den, about nine per cent of the work­force, in what may be the first of more cuts.

When sales lagged early in the year, Eric­s­son blamed a down­turn in older wire­less gear in­her­ited from Nor­tel Net­works. That was rich — the Nor­tel CDMA prod­ucts had kept Eric­s­son on track in 2009-11 when Huawei Tech­nolo­gies started at­tack­ing. It was also wrong.

Pres­sured by U.S. reg­u­la­tors, Eric­s­son ad­mit­ted that the Nor­tel wire­less gear was re­spon­si­ble for about only one-fifth of the prob­lems.

Al­ca­tel Lu­cent got a life­line from in­vest­ment bankers with a $2.2-bil­lion credit line but had to put up patents as re­serves — a de­ci­sion that both­ers the new French So­cial­ist government. Nar­rowly avoid­ing a bank­ruptcy pro­tec­tion fil­ing, Al­ca­tel went through one round of 5,500 lay­offs and was work­ing on new plans to re­duce losses.

Mean­while, the Ot­tawa re­searchers at QNX Soft­ware spent much of the year un­der in­tense pres­sure from par­ent Re­search in Mo­tion to de­liver new op­er­at­ing soft­ware to re­store com­pet­i­tive­ness and end a huge loss of mar­ket share. The fruit of their work could de­ter­mine very soon whether RIM sur­vives.

With the own­er­ship of so many once-in­de­pen­dent Ot­tawa com­pa­nies out­side the coun­try, ob­servers had to turn to con­fer­ence calls to read the tea leaves. James Peter­son, the can­did CEO at Mi­crosemi ( Zar­link), said dur­ing a sum­mer con­fer­ence call: “The big ques­tion we get on the road is, ‘Hey, what’s go­ing on in Europe?’ It’s un­com­fort­able. We know it.” The Zar­link com­mu­ni­ca­tion chips helped the new owner while the med­i­cal chips in hear­ing aids and other de­vices were sim­ply steady con­trib­u­tors.

Mys­tery sur­rounded an­other big sale: March Net­works. Now in the hands of Shen­zen In­fi­nova, a Chi­nese com­pany, af­ter a bargain $90-mil­lion sale last year, March con­tin­ued to roll out sales an­nounce­ments. But the par­ent com­pany shares took a 40 per cent plunge this sum­mer with no ob­vi­ous rea­son and no dis­clo­sures.

Am­docs, the Is­raeli com­mu­ni­ca­tion soft­ware com­pany that bought Bridge­wa­ter Sys­tems last year, spent 2012 try­ing to re­duce costs while big U.S. phone com­pa­nies put off de­ci­sions. AT&T fi­nally an­nounced bil­lions in spend­ing plans, but it will likely take many quar­ters be­fore the Bridge­wa­ter ad­vanced-billing soft­ware gen­er­ates ex­pected re­sults.

Sky­works So­lu­tions, a hot stock with chips in most of the ma­jor smart­phones, cooled out as the year pro­gressed af­ter a re­mark­able sure. There was one small early warn­ing. The former hold­ers of SiGe, an Ot­tawa chip­maker, got $5.4 mil­lion less than the $58 mil­lion they were hop­ing for in per­for­mance con­sid­er­a­tions that were part of the orig­i­nal $275-mil­lion deal.

GET­TING IT RIGHT …

Some com­pa­nies bar­relled on de­spite the econ­omy. Roper In­dus­tries, a di­ver­si­fied in­dus­trial prod­ucts player in­clud­ing the Ot­tawa Lumen­era line of sci­en­tific cam­eras, pro­duced sur­pris­ingly con­sis­tent re­sults. Thermo Fisher Sci­en­tific makes re­search gear for sci­en­tists and com­pa­nies de­vel­op­ing new prod­ucts. It is not the most ex­cit­ing busi­ness but the per­for­mance was ex­cel­lent and in­vestors were de­lighted even if mar­kets were chal­leng­ing.

Ku­dos to MHPM Project Lead­ers for lead­ing the team that launched a re­built Bluenose II schooner in Septem­ber, the lat­est ver­sion of the icon on the Cana­dian dime.

The $15.9-mil­lion job is the lat­est in a long line of projects for the Ot­tawa op­er­a­tion in­clud­ing the Rich­mond Oval for the 2010 Olympic Games.

There are many small pri­vate Ot­tawa com­pa­nies like En­syn, En­er­gate and MyGro­ceryDeals that per­formed though they op­er­ate well out­side the spot­light. MyGro­ceryDeals built at ros­ter of 550,000 reg­is­tered U.S. users who rely on its food store rat­ings rather than price fly­ers. Af­ter years of hard work, chief ex­ec­u­tive Paul Davis and his team have built a prof­itable op­er­a­tion.

Ca­dence De­sign Sys­tems and Synosys had good years. That’s a pos­i­tive sign be­cause cus­tomers are buy­ing their chip de­sign soft­ware for the next gen­er­a­tion of gear even if sales of older gear is weak.

Huawei said it will dou­ble an Ot­tawa work­force of more than 100 as part of plans to sup­port the in­stal­la­tion of LTE ad­vanced wire­less tech­nol­ogy at Bell and Telus. The cel­e­bra­tion quickly cooled as the new top global seller of tele­com gear came un­der in­tense U.S. pres­sure be­cause of al­leged con­trol by the Chi­nese government and pos­si­ble se­cu­rity is­sues. Huawei had hired many top former Nor­tel Net­works sci­en­tists as part of the devel­op­ment of the Ot­tawa op­er­a­tion. De­spite be­ing ef­fec­tively frozen out of the U.S. mar­ket, ex­cept for some pop­u­lar low-cost smart­phones, Huawei grew vig­or­ously dur­ing the year — though not quite as fast as in pre­vi­ous years.

While the for­est prod­ucts in­dus­try had a mod­est year, some niche com­pa­nies did well. Glat­fel­ter, which makes air-laid cel­lu­lose for di­a­pers, weath­ered the mar­ket storm. It im­proved prof­its by ef­fi­ciency im­prove­ments at a big Gatineau plant.

Aka­mai Tech­nolo­gies, which bought Blaze Soft­ware of Ot­tawa for $19.3 mil­lion in Fe­bru­ary, kept up the mo­men­tum as the year rolled on. Com­pa­nies may worry about sales and prof­its in slower times but mak­ing their web pages work faster for cus­tomers and em­ploy­ees was still an im­por­tant pri­or­ity.

Two small Ot­tawa com­pa­nies in tech­nol­ogy baron Ter­ence Matthews’ group of in­ter­ests had much bet­ter years. True Con­text So­lu­tions re­ported stronger re­sults sell­ing soft­ware that makes life eas­ier for re­pair tech­ni­cians with a sales push from AT&T, Bell, Rogers and other big part­ners. Coun­ter­path lined up ma­jor phone com­pa­nies as clients for soft­ware that man­ages busi­ness com­mu­ni­ca­tions.

THE YEAR THE PATENT TROLLS SLEPT UN­DER THE BRIDGE …

While Ap­ple, Google and Sam­sung fought patent bat­tles around the world, Ot­tawa’s own patent trolls had quiet years. Wi-LAN was oc­cu­pied fil­ing law­suits against giants for al­leged patent vi­o­la­tions, chang­ing law firms and courts and buy­ing up new patents, but failed to demon­strate the re­sults in­vestors hoped for.

Rock­star Con­sor­tium, the Ot­tawa owner of many former Nor­tel Net­works patents, spent the year dis­tribut­ing about a third of the 6,000 patents to Ap­ple and other part­ners. It wasn’t talk­ing about plans to turn the Nor­tel patents into rev­enue. Mo­said, sim­i­larly, was quiet as be­fits its new pri­vate sta­tus in the hands of U.S. pri­vate eq­uity. But Cisco Sys­tems ended that with an ill­tem­pered as­sault on “ex­tor­tion and rack­e­teer­ing” tac­tics against Mo­said in the run-up to a court case in the U.S. Mo­said de­nied the charges, say­ing Cisco was just try­ing to open a new front in a war it has lost.

Google and Ap­ple had a big sur­prise at the end of the year. They put aside their dif­fer­ences to jointly bid on patents of East­man Ko­dak in a move that kept the dig­i­tal cam­era gear from soar­ing like the Nor­tel Net­works patents had to $4.5 bil­lion. The price of $525 mil­lion was one-fifth of ex­pected re­sults and car­ried the added bonus of end­ing numer­ous Ko­dak suits. Fi­nally, the un­holy al­liance of Google and Ap­ple brought in sev­eral other giants, in­clud­ing Mi­crosoft, Adobe and Face­book. The clear mes­sage to smaller patent en­force­ment com­pa­nies like Wi-LAN, Mo­said and Rock­star is that the giants are de­ter­mined to con­trol the sup­ply of patents and prices.

THE BEST DE­FENCE IS …

For many de­fence com­pa­nies, the U.S. fis­cal cliff wor­ries are noth­ing new. They have been deal­ing with re­duc­tions in U.S. mil­i­tary spend­ing as wars wind down in Afghanista­n and Iraq. Gen­eral Dy­nam­ics, Lockheed Martin, Rock­well Collins, Cur­tiss Wright and other com­pa­nies with Ot­tawa op­er­a­tions were forced to trim sales and earn­ings fore­casts as U.S. de­fence spend­ing cuts hit.

There were small cuts at CMC Elec­tron­ics op­er­a­tions in Ot­tawa and Mon­treal af­ter it forecast weak sales in the De­cem­ber quar­ter caused by slower than ex­pected de­mand for cock­pit re­newal projects on mil­i­tary he­li­copters. The par­ent com­pany, Ester­line of Washington state, said the lay­offs would trig­ger sev­er­ance costs that would hurt re­sults.

Cur­tiss-Wright didn’t let wor­ries about de­fence spend­ing cuts stop ac­qui­si­tions. It forked out more than $335 mil­lion for four ac­qui­si­tions for en­ergy, sen­sors and other spe­cial­ized tech­nol­ogy as the year ended.

LOOK UP, LOOK WAY UP …

The satel­lite in­dus­try has been a strong and re­li­able per­former for the Ot­tawa econ­omy for years. This year was dif­fer­ent. ComDev’s Ot­tawa op­er­a­tion was cut by more than half as weak fed­eral government satel­lite spend­ing cuts hurt sales. It pre­vi­ously had more than 100 highly spe­cial­ized em­ploy­ees work­ing on projects like a big tele­scope con­trol package for NASA and a Radarsat project for the Cana­dian government. De­spite mak­ing the Arc­tic a key part of the po­lit­i­cal agenda, the Con­ser­va­tive government has not fi­nanced the satel­lites that will be an im­por­tant part of fu­ture growth.

Te­le­sat started to turn the cor­ner as the ad­di­tion of new satel­lites sup­port­ing Bell TV and other broad­cast clients gen­er­ated sig­nif­i­cant rev­enues and re­newed prof­itabil­ity. But for­eign ex­change changes were just as im­por­tant. The U.S. and Cana­dian in­vestors that con­trol Te­le­sat squab­bled over how to ex­ploit their stake. With stock mar­kets in a funk, an ini­tial pub­lic of­fer­ing proved elu­sive, forc­ing Te­le­sat to bor­row more money to keep the in­vestors happy with div­i­dend pay­ments. But top Te­le­sat ex­ec­u­tives and some em­ploy­ees had an ex­cel­lent year. They shared $48.6 mil­lion in spe­cial bonuses early this year as part of the first round of $656 mil­lion in spe­cial div­i­dends to the rest­less own­ers.

In­ter­na­tional Dat­a­cast­ing was rocked by a spir­ited takeover fight in­volv­ing key fig­ures who took over the com­pany just a cou­ple of years ear­lier. The maker of satel­lite broad­cast gear turned back the chal­lenge but just a cou­ple of months later a new board threw the top ex­ec­u­tives out the door.

IDC wasn’t the only com­pany with a re­volv­ing door on the ex­ec­u­tive suite. Pa­cific Safety Prod­ucts went through four chief ex­ec­u­tives in al­most as many months as it strug­gled with sales of bul­let­proof vests and other pro­tec­tive gear.

OUR OWN COR­PO­RATE RAIDER …

Brook­field Re­new­able En­ergy launched a hos­tile $150-mil­lion bid for West­ern Wind En­ergy, a Van­cou­ver op­er­a­tor of wind farms, af­ter back­ing the los­ing side in an ear­lier pri­vate eq­uity raid for con­trol. The bid could be a sign of a re­vival of in­ter­est in the alternativ­e en­ergy com­pany. Brook­field had a great start to the year when a wet win­ter drove power-dam pro­duc­tion. But it paid a stiff price when na­ture turned and dry and wind­less weather se­ri­ously hurt re­sults from power dams and wind farms.

Still Brook­field did bet­ter than some other Ot­tawa re­new­able en­ergy com­pa­nies. Io­gen laid off 150 em­ploy­ees af­ter a joint ven­ture with Shell to de­velop a prairie plant turn­ing straw into ethanol fi­nally col­lapsed. Rod Bry­den’s Plasco had a chal­leng­ing year get­ting a garbage-to-en­ergy busi­ness on stream. Hopefully, with a deal with the City of Ot­tawa fi­nally in place, other deals will fol­low.

The big­gest deal of the year was likely the Eric­s­son deal, es­ti­mated at $100 mil­lion, for Be­lAir Net­works. The spe­cial­ist in Wi-Fi ac­cess gear used in air­ports and other pub­lic. Be­lAir has about 120 em­ploy­ees.

Con­stel­la­tion Soft­ware made numer­ous ac­qui­si­tions dur­ing the year led by Har­ris Com­puter, an Ot­tawa op­er­a­tion. But sales and prof­its from soft­ware sold to school boards and lo­cal government lost steam be­cause the re­ces­sion is catch­ing up with tax rev­enues.

UBM, a big Bri­tish out­fit, bought full con­trol of Canada NewsWire for $30.8 mil­lion and plans to merge with PR Newswire and a grow­ing line of trade shows. It is try­ing to sell UBM TechIn­sights, an Ot­tawa re­verse en­gi­neer­ing com­pany. To­gether with Chip­works, TechIn­sights makes Ot­tawa a much-quoted ad­dress when Ap­ple, Sam­sung and oth­ers un­veil pop­u­lar new smart­phones and tablets. Geeks wanted to know what soft­ware and hard­ware was in­side and the Ot­tawa wizards had the an­swers.

MXI, an Ot­tawa maker of air­craft main­te­nance soft­ware, was sold to Moelis, a U.S. pri­vate eq­uity in­vestor, af­ter los­ing a big patent case. Se­pro­tech was bought by WESA for $9.4 mil­lion in a re­verse takeover in­volv­ing two water pu­rifi­ca­tion com­pa­nies.

Some deals didn’t make much sense. J2 Global, a Cal­i­for­nia com­pany that owns Pro­tus of Ot­tawa, bought a big pub­lisher of con­sumer mag­a­zines, Ziff Davis, for $167 mil­lion in cash. J2 makes its money sell­ing dig­i­tal fax and email ser­vices to busi­ness cus­tomers. But it said that it knows the dig­i­tal ad­ver­tis­ing mar­ket, both as a buyer and a seller of ad­ver­tis­ing. It hopes to make money with PCMAG, Com­puter Shop­per and Tool­box, which claim 50 mil­lion on­line monthly hits and $60 mil­lion in an­nual rev­enues.

Ven­ture cap­i­tal was scarce but some com­pa­nies were suc­cess­ful in de­vel­op­ing busi­ness plans that at­tracted sup­port.

Di­a­bolo Tech­nolo­gies was a big win­ners, land­ing $28 mil­lion in fund­ing for chips that man­age the flow of cor­po­rate data and sup­port crit­i­cal anal­y­sis. Founded by former Nor­tel engi­neers, it first raised $15 mil­lion in 2008 but then had to cut jobs and change di­rec­tions when sales failed to match en­dorse­ments by some big in­dus­try play­ers.

En­syn Corp. got $20 mil­lion in fund­ing from a Brazil­ian pulp in­dus­try gi­ant for tech­nol­ogy that con­verts waste to bio­fu­els. The in­jec­tion ef­fec­tively val­ued En­syn at $330 mil­lion and val­i­dated tech­nol­ogy it has been nur­tur­ing for 30 years.

OneChip Pho­ton­ics raised $10 mil­lion to help start man­u­fac­tur­ing of tech­nol­ogy aimed at the home broad­band net­works. Chief ex­ec­u­tive Jim Hjar­tar­son said he worked hard keep­ing com­peti­tors in the dark. “For months I was like the mother robin try­ing to dis­tract the fox from the nest by hop­ing around with a wounded wing.”

Sev­eral com­pa­nies also were suc­cess­ful in find­ing new cap­i­tal. Blinq Net­works got $10.7 mil­lion for tech­nol­ogy which moves wire­less traf­fic in in­creas­ingly con­gested ur­ban cen­tres. En­er­gate got $8.9 mil­lion for new smart ther­mo­stat en­ergy con­ser­va­tion tech­nol­ogy. Sev­eral com­pa­nies raised $5 mil­lion or less in­clud­ing Em­botics, File­trek (for­merly GridIron) and Panacis.

Pri­vacy An­a­lyt­ics, a com­pany led by Univer­sity of Ot­tawa pro­fes­sor Khaled Emam, raised some undis­closed fund­ing for tech­nol­ogy that helps sci­en­tific re­searcher used pa­tient data with­out break­ing con­fi­den­tial­ity.

 ?? JULIE OLIVER/OT­TAWA CIT­I­ZEN ?? Clockwise from left: Rich McBee, CEO of Mi­tel, which cut jobs as sales and prof­itabil­ity dropped; CEO Paul Davis of MyGro­ceryDeals.com, which is headed for sales of $5 mil­lion this year, about four times more than last; Peter Allen, pres­i­dent and CEO...
JULIE OLIVER/OT­TAWA CIT­I­ZEN Clockwise from left: Rich McBee, CEO of Mi­tel, which cut jobs as sales and prof­itabil­ity dropped; CEO Paul Davis of MyGro­ceryDeals.com, which is headed for sales of $5 mil­lion this year, about four times more than last; Peter Allen, pres­i­dent and CEO...
 ?? CHRIS MIKULA /OT­TAWA CIT­I­ZEN ??
CHRIS MIKULA /OT­TAWA CIT­I­ZEN
 ?? JAMES PARK/ OT­TAWA CIT­I­ZEN ??
JAMES PARK/ OT­TAWA CIT­I­ZEN
 ?? WAYNE CUDDINGTON / OT­TAWA CIT­I­ZEN ??
WAYNE CUDDINGTON / OT­TAWA CIT­I­ZEN
 ??  ??
 ?? AN­DREW VAUGHAN/THE CANA­DIAN PRESS ?? The re­built Bluenose II, Nova Sco­tia’s sail­ing icon, re­turns to the water in Lunen­burg, N.S.
AN­DREW VAUGHAN/THE CANA­DIAN PRESS The re­built Bluenose II, Nova Sco­tia’s sail­ing icon, re­turns to the water in Lunen­burg, N.S.

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