Boss at Zar­link owner ad­mits to some shiv­ers

Peter­son can­did on weak re­sults

Ottawa Citizen - - BUSINESS & TECHNOLOGY - BERT HILL

James Peter­son is one CEO who doesn’t beat around the bush. “Baby, it’s cold out­side,” he told an­a­lysts last week as

Mi­crosemi Corp. dis­cussed weak De­cem­ber quar­ter re­sults.

Too bad other com­pany lead­ers are not as can­did as Peter­son in dis­cussing how a weak global econ­omy, the U.S. bud­get dis­putes and other prob­lems are hit­ting re­sults.

When the top and bot­tom line num­bers are ter­ri­ble, other chief ex­ec­u­tives find ob­scure num­bers in the mid­dle to make things look bet­ter. Not Peter­son, or Jim­mie P, as he signs his mes­sages.

The Cal­i­for­nia com­pany, which bought Ot­tawa’s Zar­link in Oc­to­ber 2011, missed an­a­lyst ex­pec­ta­tions for both sales and prof­its in the De­cem­ber quar­ter. Over­all sales rose just 2.8 per cent to $247.6 mil­lion from a year ear­lier, but were down six per cent from the Septem­ber quar­ter and are ex­pected to fall an­other four to eight per cent in the March quar­ter. Com­mu­ni­ca­tion, aero­space and in­dus­trial prod­ucts ex­pe­ri­enced the big­gest se­quen­tial de­clines while de­fence rose, swim­ming smartly against an in­dus­try trend.

“We are do­ing the things we should do,” Peter­son said. Mi­crosemi is cut­ting $6 mil­lion in sales, ad­min­is­tra­tion and re­search spend­ing, with the re­search cuts still to come.

Can­dour has its lim­its. While Peter­son told an­a­lysts “we did ag­gres­sively cut head count,” he wouldn’t say what that means for the Ot­tawa op­er­a­tion. It shed most of the old head­quar­ter staff, cut­ting to about 100 em­ploy­ees fol­low­ing the takeover. An­other 400 former Zar­link em­ploy­ees in Texas and Europe also likely felt some pain.

Peter­son said his com­pany is in­vest­ing in the Zar­link com­mu­ni­ca­tion and med­i­cal chip prod­ucts. Based on the “pos­i­tive con­tri­bu­tion and work ethic,” he guessed that em­ploy­ment here is “sim­ply flat­tish.”

How long it will stay flat­tish is an­other good guess. Mi­crosemi, like many tech­nol­ogy com­pa­nies, is shift­ing op­er­a­tions quickly from North Amer­ica to cheaper lo­ca­tions. For this year, Mi­crosemi ex­pects that the cur­rent weak quar­ter will be the trough for bad num­bers and things will im­prove in the June quar­ter be­cause sales book­ings are im­prov­ing.

Many com­pa­nies des­per­ately want in­vestors to look be­yond the next quar­ter or two in hopes the sum­mer will start a turn­around. In­te­grated De­vice Tech­nol­ogy (owner of the former Tundra), San­mina (former Bre­con­ridge) and VMWare ( EMC) all sur­prised an­a­lysts with much weaker than ex­pected fore­casts for the March quar­ter. Even Roper In­dus­tries, a Florida di­ver­si­fied tech­nol­ogy com­pany whose stock kept ris­ing to record lev­els seem­ingly im­mune to the weak econ­omy, said sales growth, ex­clud­ing re­cent ac­qui­si­tions, will be “quite mod­est” in the first six months. One prob­lem is an in­dus­trial and sci­en­tific cam­era di­vi­sion (in­clud­ing Lumen­era of Ot­tawa) that de­clined 13 per cent in the last 12 months in the face of “ter­rific head­winds,” ac­cord­ing to CEO Brian Jel­li­son.

Ot­tawa’s big­gest tech­nol­ogy em­ployer, IBM, which had 3,000 em­ploy­ees when it stopped dis­clos­ing lo­cal head count two years ago, served up bet­ter than ex­pected news in the quar­ter with some un­der­cur­rents of con­cern. The gi­ant con­tin­ued to drive re­mark­able profit growth while over­all sales re­mained flat. It is per­form­ing the feat by shift­ing jobs to lower-cost re­gions, driv­ing growth of higher-profit seg­ments, dis­card­ing weaker prod­ucts and strate­gic ac­qui­si­tions. Shares rose five per cent on the news.

It is also buy­ing back stock in large quan­ti­ties, which cheers the heart of mega-in­vestor War­ren Buf­fett and oth­ers. Through his Berk­shire Hath­away in­vest­ment ve­hi­cle, he bought $10.7 bil­lion of stock in 2012 to emerge as one of the big­gest sin­gle hold­ers with a 5.4-per-cent stake.

But within the fourth-quar­ter num­bers were rea­sons to pay at­ten­tion.

Sales in Canada, for one, fell nine per cent com­pared to de­clines of just one per cent in the U.S. and three per cent in the huge Europe, Mid­dle East and Africa mar­ket. IBM tried to soften the bad Cana­dian news, sug­gest­ing it suf­fered from weak com­par­isons with 13 per cent growth a year ear­lier.

IBM doesn’t al­ways make com­par­isons easy. It high­lighted a 13-per-cent rise in busi­ness an­a­lyt­ics sales in the full fis­cal year, adding that the Ot­tawa soft­ware labs are im­por­tant con­trib­u­tors. But the quar­terly re­sults were less im­pres­sive, par­tic­u­larly in an­a­lyt­ics soft­ware that ex­cludes re­lated ser­vices deals. A key in­for­ma­tion man­age­ment soft­ware line, which in­cludes the former Ot­tawa Cog­nos, grew at a mod­est three per cent. Ra­tio­nal soft­ware, an­other Ot­tawa con­trib­u­tor, did much bet­ter with sales up 12 per cent.

Gen­eral Dy­nam­ics picked a good day to drop bad news. The gi­ant, which is Ot­tawa’s big­gest de­fence con­trac­tor em­ployer, re­ported a huge loss on trou­bles in an in­for­ma­tion sys­tems and tech­nol­ogy di­vi­sion that in­cludes most of the Ot­tawa shop. But be­cause Ap­ple re­ported weaker than ex­pected prof­its and sales for its new­est iPhone the same day, GD es­caped in­vestor scru­tiny and its stock held up sur­pris­ingly well. New chief ex­ec­u­tive Phebe No­vakovic said a string of ac­qui­si­tions in the in­for­ma­tion di­vi­sion ex­posed “a some­what bro­ken” process and promised to fix it be­fore any more deals. GD wrote off $2 bil­lion in former as­sets — a fig­ure an RBC an­a­lyst called “pretty eye­wa­ter­ing” — in the trou­bled di­vi­sion. Sales fell 12 per cent to $2.6 bil­lion. Over­all GD sales fell by a sim­i­lar mar­gin and it lost $2.13 bil­lion com­pared to a profit of $603 mil­lion a year ear­lier. Gen­eral Dy­nam­ics, like Lockheed Martin, its big­ger com­peti­tor and an Ot­tawa peer, faces un­cer­tain prospects be­cause of cuts to de­fence spend­ing in the U.S. and else­where. But it has deeper prob­lems that will likely re­quire more se­ri­ous at­ten­tion.

Open Text Corp., the Water­loo, Ont., busi­ness soft­ware com­pany with Ot­tawa op­er­a­tions, also left in­vestors scratch­ing their heads. The De­cem­ber-end­ing quar­ter’s re­sults looked good with sales up 9.6 per cent to $352 mil­lion and prof­its up a hand­some 28 per cent, far ahead of an­a­lyst ex­pec­ta­tions.

But dig­ging into the num­bers, the re­sults of new chief ex­ec­u­tive Mark Bar­renechea’s first year were less than daz­zling. The gains were driven al­most ex­clu­sively by a $342-mil­lion deal for Ea­sylink, a Ge­or­gia sup­plier, in July. Open Text now can de­liver crit­i­cal busi­ness in­for­ma­tion to clients from cloud com­put­ing net­works — pop­u­lar buzz­words that ba­si­cally mean cor­po­rate cus­tomers get crit­i­cal in­for­ma­tion much cheaper be­cause they no longer have to pay for cor­po­rate com­puter net­works and their high­priced keep­ers. Open Text staff in In­dia and other low-cost lo­ca­tions are now de­liv­er­ing for cus­tomers like Coca-Cola and Toy­ota.

With­out Ea­sylink, Open Text had a bad quar­ter: soft­ware li­cence sales plunged 15 per cent to an alarming $76 mil­lion and the pro­fes­sional ser­vices that sup­port this rich rev­enue stream took big hits. Bar­renechea said the U.S. fis­cal cliff and broader econ­omy were fac­tors. He is op­ti­mistic that soft­ware sales will pick up in the next six months but an­a­lysts are fore­cast­ing a de­cline this quar­ter in over­all sales to about $345 mil­lion. In­vestors re­main to be con­vinced. While the stock is up more than 30 per cent since Oc­to­ber, it wob­bled by five per cent on the news. In­ter­na­tional Dat­a­cast­ing Corp. said it has re­ceived more than $600,000 in or­ders for Su­per­flex video con­tent dis­tribut­ing gear and ser­vices from an undis­closed U.S. in­dus­try cus­tomer. Nor­dion has ap­pointed Grant Gard­ner as se­nior vice-pres­i­dent and gen­eral coun­sel. He pre­vi­ously worked in le­gal af­fairs for RIM, Cog­nos and JDSU. Wi-LAN, the Ot­tawa patent en­force­ment com­pany, said Al­pha Net­works signed a deal for undis­closed terms for dig­i­tal tele­vi­sion and dis­play in­tel­lec­tual prop­erty used in net­work ac­cess and gate­way prod­ucts. Roar­ing Pen­guin Soft­ware said Or­com, the fourth big­gest In­ter­net ser­vices com­pany in New Zealand, is buy­ing CanIt email spam fil­ter­ing soft­ware.

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