Time for rational exuberance

2.12Coverexhuberance2-230X369.jpgBy Tony Patterson
From SCAN's Print Edition

I came to Ottawa thirty-one years ago. The high tech story of that day was the lingering fallout from the demolition of Microsystems International Ltd. two years before. This retreat from the marketplace left the world’s microchip market to a trio of suppliers led by Intel, which in turn had been pulled from the brink of insolvency just a year or two before by a large order from MIL.
There wasn’t a lot of hope for the future of high tech in town. There wasn’t a lot of history of high tech. Nortel’s research arm had come here in the sixties to nestle closer to R&D at federal communications labs (Nortel created MIL and a few years later canned it). Prior to that only Computing Devices of Canada, spun out of the National Research Council, had made much headway.
A few of MIL’s alumni used the company’s offices, copiers and phones, as well as their own severance, to get some activity underway. But the understanding of how high tech clusters get created out of the destruction of dominant players wasn’t yet formed. Nobody really believed that Calian, Mitel, Mosaid and the like stood much of a chance of success. What were their track records? Mitel got started as a venture to peddle imported lawnmowers. When this didn’t work the company’s founders, Michael Cowpland and Terry Matthews, peddled their skills as tech consultants for a time until they devised the first of their telephony breakthroughs. As for venture capital, it would be another twenty years before much of that flowed to the incipient Silicon Valley North.
By the turn of the millennium what had transpired? Mitel had crested a wave, in 1981 the first company out of Ottawa to be listed on the New York Stock Exchange. There were 1,500 companies in Ottawa’s tech sector employing 75,000 people and a number of them that had not seen the light of day 15 years before were now prominent players on the world stage. Corel, Newbridge and Cognos come to mind.

Then there was another dump. It wasn’t an MIL-type setback. It was a worldwide market correction in the market Ottawa had built a worldwide presence in, through Nortel and JDS Fitel in particular. Jim Balsillie, co-CEO of Research in Motion, which continues to expand operations here, says that Ottawa “was the hardest hit city in the world” by the meltdown.

But that was five years ago and more. And unlike the high tech wilderness that faced the pioneers who survived MIL’s collapse, there was infrastructure in place to help the sector recover. And lots of track record. Most of those pioneers were, are, still pursuing the dream, still building value. It took a quarter century for them to build Silicon Valley North out of the ashes of MIL. In the past five years, the number of tech companies in Ottawa has surged 20% beyond the pre-collapse high mark, with a corresponding increase in employment.

And diversification has become a hallmark of Ottawa high tech. It was once telecom, telecom, telecom. It’s now clean energy, software development, gaming, medical devices, defence and security systems, and still a fair bit of telecom. Nortel was staggered but it wasn’t slain. It’s on its way back again.

When I think of where we are and where we’ve come from I can’t help feeling that this should be a time for celebration. There’s a lot to celebrate and when better than 2008?

We should be jumping for joy, actually, that out of nowhere a little company like Allen-Vanguard could develop enough muscle in a couple of years to carry off Med-Eng and anchor a half billion dollar defence and security powerhouse in our town. Last month A-V reported record Q4 revenue, more than doubled to just over $50 million. A month earlier it booked a $25-million repeat order for electronic counter-measures systems.

A-V had to find $650 million to complete the Med-Eng acquisition. It took less than a month. PlascoEnergy raised $54 million and said it would more than double its staff of 85 people in order to reach further into Canadian and international markets. Also last quarter satellite product maker International Datacasting Corp. raised $10 million in a short-form public offering of 12.5 million common shares; RAMTelecom Inc. planned to raise $2 million through a brokered sale; VoIP software maker Bridgewater Systems raised $35 million in its initial public offering, selling more than 6.36 million shares at $5.50 each; fibber-to-the-home start-up Enablence Technologies Inc. bolstered cash reserves to $67.53 million after a public offering October brought in gross proceeds of $57.5 million; Cyrium Technologies secured continued financing from key investors, bringing total funding for its proprietary solar cell technology to more than $5.5 million; iotum, a voice 2.0 company, secured new funding from boutique investment and management consulting firm Verdexus; water and wastewater treatment equipment maker Seprotech Systems Inc. raised $500,000 in private placement.

Not a bad few months of fund raising. A pretty good time for sales and bottom lines as well. Macadamian, the privately held software design company, reported increased revenue by more than half in fiscal 2007, to $10.2 million, while winning 44 new customers; following a successful pilot project, March Networks, which reported record Q2 revenues, got the go-ahead to supply a chain of 1,600 US gas station convenience stores with its retail business analytics software and professional services; Seprotech Systems Inc. raised revenue by 144% to $7.9 million in FY ’07; wireless networking company DragonWave Inc. almost doubled sales, up 91.4% to $9.9 million in Q2.
Calian Technologies Ltd. raised overall revenue by 33% to $45.7; Telesat Canada lifted operating revenue to $130.4 million, a 14.9% percent increase from last year’s third quarter, and raised profits by 33.3% to $26.4 million; navigation systems maker OSI Geospatial Inc. raised revenue by 70.1% in Q3 and closed several contracts with the Australian and U.S. military; Cognos Inc.’s Q3 revenue jumped by 16.3%, resulting in a near doubling of profit to $31 million.

COM DEV International Ltd., based in Cambridge with design operations in Ottawa, was awarded a $24-million contract to provide advanced payload electronics for a major commercial satellite constellation; Mitel received a contract to supply advanced IP communications solutions to the Dutch government, in a deployment the company called ‘massive’; satellite products maker International Datacasting Corp. boosted revenue 36.8% in its third quarter.

Something else I think worth celebrating is the way we’re connecting to the world. The Ontario Chamber of Commerce gave an award to OZ Optics for expanding into foreign markets. No awards, but kudos are due Thermal Energy International Inc. for entering a three-party venture to establish a permanent office and assembly plant in China, and also FreeBalance, which opened an office in Pristina, Kosovo, to serve customers in Africa, Asia and Europe.

I mentioned infrastructure a while back. There are many components, not least the great pool of entrepreneurial and technical talent that has been developed over a quarter century. But the mix must include the support and services of governments. By this measure we continue to do extremely well. The public sector in Canada spends more proportionally on non-military R&D than any other industrialized country. Federal spending on science and technology passed $9 billion in 2006 and will reach $9.5 billion this year. Ontario’s comparable figure in 2006, the latest available, was $776 million. I don’t think it’s naïve to believe, as I do, that it’s easier to access programs and agencies of government when you live here.

All in all there’s a lot to be very glad about on the Ottawa tech scene. It’s a time, I think, for some rational exuberance. We’ve come a long way in a short time.

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