Napster is fun ... who knew?

Napster announced today that it has redisigned its service so users no longer need to install client software on their computers. Not that big of a change -- I actually prefer having the software, which only takes up 7 MB of hard drive space -- but it's getting a good amount of coverage and gives me an excuse to write about Napster.

I only became a subscriber a couple of weeks ago. Until then, I'd never even thought about using the service, probably because I was an early user of the original Napster and was turned off when the name and the logo became attached to something that wasn't really Napster. I finally overcame that early this month and now just wish I had signed up long ago.

It's such a great deal, I can't believe Napster has the support of the music industry. For $10 a month, you get access to thousands of albums and millions of songs whenever you want to play them. I listen to, or at least play in the background, about three albums a day, so that would work out to be about 11 cents each if I only used Napster. That would be even cheaper than those dodgy Russian music sites (allofmp3.com, et al.) that the payment processing industry has essentially shut down. No one can be making much money from this -- including Napster, apparently -- but the same backwards-minded record companies that support lawsuits against anyone who ever downloaded a song are putting their music on Napster.

Now, I don't actually play all my music through Napster -- I'm still an eMusic conoisseur-level subscriber and have bought albums from many other online stores (although never from iTunes or anyone else that sells DRM-laden music) -- but I've been averaging more than one album a day, which is worth more than the 33 cents I'm paying.

New music gets added very quickly. For example, the top three albums on the current Billboard chart, from Bruce Springsteen, Rascal Flatts, and Matchbox Twenty, were all available almost immediately on Napster. And they have a lot of older albums too (e.g. Neil Young albums back to his 1969 debut).

The other point in Napster's favour is that it serves Canada. Rhapsody -- a similar service -- has never made an effort to come here. Pandora was never as good as Napster and abandoned Canada in a heartbeat.

The downside is that the sound quality through Napster isn't the best. It's pretty good, but it doesn't match what you'd get through eMusic or other file download services. And you don't actually get to keep a copy of the songs, at least not if you're honoring the user agreement (technologically, there's nothing to stop someone from using audio capture software). Unsubscribe, and you're left with nothing. Or if record companies start to pull their music from the service, some songs that you've listened to in the past may no longer be available. The other negative is that, with some albums (not most, but not an insignificant number either) there are tracks that can't be streamed and are only available through a paid download at $1.19 each. I'd never buy a song through Napster, so I'd either have to get them through eMusic (at 25 cents each) or other sources, or do without.

Overall, though, it's been a boon. I've listened to songs I would never pay to download, played albums that I couldn't find anywhere else -- including eMusic and even BitTorrent -- and found new releases that I hadn't yet seen reviewed anywhere ... all for less than the price of one CD.

But Mexicans do thumb BlackBerrys

Andrea Mandel-Campbell, author of Why Mexicans Don't Drink Molson, gave the first talk of Laurier's Innovation & Entrepreneurship speaker series tonight at the Schlegel Centre for Entrepreneurship.

Mandel-Campbell paints a depressing picture of Canadian business from a global perspective, pointing out that Canada has never produced one of the world's top 100 brands -- something that Switzerland has done a few times, even with population about three-fifths of Ontario's. We're not home to any "globally-relevant" multinational companies, generally show little entrepreneurial spirit, and are much better at coming up with ideas than in making money off them.

There's no disputing that Canada has a pretty sad track record. Run through the list of Canada's largest corporations and there are very few which have products well-known outside of this country. That's certainly not a new observation, and Mandel-Campbell seemed to be more interested in using it to promote a cardboard-conservative ideology than in offering suggestions about what can be done to make things better. It came as no surprise to learn that she used to work at the National Post or that The Fraser Institute was quick to have her as a featured speaker.

Mandel-Campbell didn't say anything about lowering taxes during her one-hour talk, but she managed to hit most of the other standard talking points: Canadian businesses are mollycoddled by government protectionism, we need fewer regulations on foreign ownership, our country suffers from dysfunctional attitudes toward money where people are more interested in dividing up wealth created by others than generating it themselves (she was not pleased that Tommy Douglas came out on top on the CBC's The Greatest Canadian competition a few years ago). She even said that almost all of Canada's great companies were "built, funded, and managed" by Americans that we bribed to come here. You've heard most of this many times before (and I'd want to look into that claim about Americans -- it sounded far too universal; I can think of iconic Canadian businesses that had no American involvement).

She made several references to Molson, Noranda, and Dofasco, but, surprisingly, never mentioned RIM, even though she was giving her speech about a three minute drive from RIM's headquarters. The BlackBerry just missed making the list of world's top 100 brands this year, which -- if Mandel-Campbell is correct -- would have been a first for Canada. Now, RIM is not a rebuttal to Mandel-Campbell. It's an anomaly in Canada (as is/was Nortel) and really is the exception that proves the rule. But it's one that needed to be acknowledged in Waterloo, especially when one of your key messages is that Canada has never produced a top global brand. It would probably be more helpful for the next generation -- which Mandel-Campbell said is the her primary target -- to celebrate RIM and try to understand how it became a global success without being acquired. It's certainly too late for Molson, Noranda, Dofasco -- or any companies in their industries -- to be our flag bearer and inspiration.

Canada's record in building global brands can be embarrassing, infuriating, and depressing. Mandel-Campbell gave a pleasant enough talk, even if it seemed heavier on ideology than information or insight. She certainly came across much better than her two would-be debaters who asked the first two "questions" during the Q&A. A thumbs-up to Benson Honig for moving things along.

Overall, it was a successful event and was certainly worth attending. Up next in the series is NuComm International CEO Réal Bergevin on November 7.

A look back at Entrepreneur Week

The fourth annual Entrepreneur Week wrapped up Friday with a talk by Jim Estill. I missed Doug Hall, the guy from the first season of American Inventor, but attended all the other "Startup Camp" sessions, as well as BarCampWaterloo. Larry Borsato provided some terrific summaries in his blog entries, and there will be video (edited) of all the presentations available online soon, so I won't review the content.

There were early-stage entrepreneurs from a wide age range -- which I was glad to see, since it's been a peeve of mine when entrepreneurs are segregated by age. You can start a company at any age, and there were entrepreneurs born in the 1950s, 60s, 70s, and 80s all sitting together (maybe some older than that, and it won't be long until the 1990s are represented). The speakers also covered the same age range, from their 20s to their 50s.

Almost all of the sessions addressed a key topic for startups. There were sessions on life as an entrepreneur (that's what it was supposed to be, anyway), financing, marketing, and business strategy, which are all essential. I'm sure some people would have liked to see other topics covered too -- Web 2.0 or n.0 is always popular -- but you can only shoehorn so many events into one week and this was as full as I'd want it to be (and Web 2.0 was a major topic of this year's Tech Leadership Conference).

The two Thursday sessions were notable for presenting viewpoints that were about 180 degrees removed from each other: Tim Jackson in the morning and Bill Tatham in the afternoon. Guess which one didn't have a very high regard for VCs.

Tim's term sheet session was interesting, and one I'd recommend that everybody watch once it's online. You may not agree with all his conclusions, but it's useful for entrepreneurs to understand why investors ask for -- or demand -- certain terms.

Using the label "Startup Camp" might not have been the best choice, since that name is becoming strongly associated with unconference-style events, which Entrepreneur Week wasn't. Initially, it was being called "Startup Bootcamp" and that was shortened. In the end, Entrepreneur Week wasn't a bootcamp (maybe the Doug Hall event was, amd Tim Jackson's session was very interactive) and it wasn't an unconference (although BarCampWaterloo was, and it was part of EWeek), and maybe more elements of each could be integrated into next year's events.

It was unfortunate that Ray Simonson's "life an an entrepreneur" event got turned into a session on structured interviews. It was okay, but Ray has great stories to tell, tells them well, and isn't shy about giving his opinions. The audience only got a taste of that near the end. There are few people more enjoyable to listen to than Ray.

Overall, the turnout was very good, and the people who came -- with very few exceptions (other than sponsors) -- were real entrepreneurs and not people looking to sell services to startups. The "Chapter" event had been the anchor of the first three Entrepreneur Weeks, and we saw that you could give it a year off and still have a successful week.

Waterloo Tech Digest - October 2, 2007

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

1. ARISE raising another $30M
2. ATS shareholders vote for new board and CEO
3. Com Dev expects a big finish to 2007
4. Virtek reviews options after another rough quarter
5. Navtech quarter ends slightly in the red
6. STOCK REPORT: Sandvine value approaches $1B
7. Miscellaneous tidbits from LSI, Google, Tungle, TurboSonic, LiveHive, Labtronics, SlipStream.

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[1]---------------------------------------------------------------
ARISE raising another $30M
September 24, 2007

ARISE announced a $30 million bought deal that it expects will close around October 15. It plans to sell 21.4 million new shares at $1.40 each.

The underwriters, led by Canaccord Adams and Clarus Securities, also have an over-allotment option for an additional 3.2 million shares, which would take the gross size of the offering to $34.5 million.

ARISE also announced in September that it has begun construction on its facility in Bischofswerda, Germany. Attendees at the cornerstone laying ceremony included Canada's ambassador to Germany. The plant is expected to be completed in the spring.

[2]---------------------------------------------------------------
ATS shareholders vote for new board and CEO
September 13, 2007

After 20 years as the right-hand-man of ATS founder and CEO Klaus Woerner, it took Ron Jutras two-and-a-half years as Woerner's successor before he was chased out by his own shareholders. The expected high-drama AGM never materialized, as Jutras and the entire ATS board resigned before the meeting started, once it was clear that they didn't have the support of shareholders.

You don't have to feel sorry for Jutras, who had a base salary of $550,000 and a target bonus of $412,500 for this year. He was paid over $60,000 a month in 2005 and 2006 and was entitled to three years' salary and bonus upon the change of control. He also owns about $3 million in ATS shares with, even at today's low value.

Gerry Beard, who succeeded Jutras as CFO in 2005, also resigned and is entitled to two years' salary and bonus. His annual compensation over the last two years, excluding options, averaged $340,000.

Former Polymer Technologies CEO John Bell -- who had some interesting experiences with shareholders himself at his previous company -- is now interim CEO of ATS, as well as a member of its board of directors (see previous digest).

[3]---------------------------------------------------------------
Com Dev expects a big finish to 2007
September 13, 2007

Com Dev bounced back from a weak quarter to report earnings of $2.5 million ($0.04/share) on sales of $42.9 million in the quarter ended July 31 (Q3 07). Sales were up 11% from the previous quarter and 4% from last year. Earnings were down from $6.4 million a year ago.

Gross margins started to rebound from the technical problem that cost the company $5 million in Q2 and were back up to 26.2% from 18.8% in the previous quarter. Gross profits climbed 55% sequentially, but were down 7% from a year ago. Com Dev expects to see a further increase in margins this quarter, now that has nearly completed the rework activities caused by the technical problem. The rising Canadian dollar also cut into margins, reducing earnings by $2.2 million, according to the company.

At the end of the quarter, Com Dev's order backlog stood at $135.2 million, an all-time high. New orders in the quarter were almost all from the commercial sector -- 94%.

Com Dev borrowed $11.2 million in the quarter to go toward its new facility in El Segundo, Calif. It spent $15.5 million on capital expenses in the quarter and ended Q3 with $19.7 million in cash.

R&D spending continued at the accelerated level established in Q2, up 65% ($1.7 million) from 2006. The company says it is pursuing opportunities to grow through "customer and product offering expansions." R&D spending in Q4 is forecast to be at similar levels.

It expects a strong Q4, with sales of at least $48.2 million. That's what it needs to make its 10% annual growth target -- which Com Dev says it is confident it will achieve. That will require 12% sequential revenue growth from Q3, which should be a good test of the company's expanded production capacity.

Com Dev also announced that Terry Reidel, COO of Kuntz Electroplating, will be joining its board of directors. Reidel spent 39 years at Ernst & Young and is also a director of Linamar and Economical Mutual Insurance.

[4]---------------------------------------------------------------
Virtek reviews options after another rough quarter
September 11, 2007

Virtek had said that its fiscal 2008 would be a challenge, and that's been the case over the first half of the year, especially with the rising value of the dollar. The company now says it is reviewing its options and direction after losing $2.1 million on sales from continuing operations of $11.8 million in the period ended July 31 (Q2 08). Sales were down 14% from last year and 11% from the previous quarter -- that jumps to a 19% decline if results from Virtek's now-divested iLS business are included.

Even Virtek's marking & engraving business, which it now sees as its main hope for growth, showed a 14% sequential decline in sales. The only bright spot was that this was still 7% above last year's numbers. The segment reported a loss of $1.2 million. Marking & engraving accounted for over half of Virtek's revenue in the quarter. It also provides 91% of Virtek's order backlog of $7.7 million at the end of Q2.

Sales from the imaging & templating segment were down 29% from last year and 9% from the previous quarter. The iLS business, which Virtek sold after the end of the quarter, showed a big sequential drop in sales, to $454,000 from $1.8 million in Q1. Virtek sold the business in August for $6.2 million in cash and a $1.3 million promissory note. Sales from the iLS business were not included in Virtek's revenue line for Q2.

European revenue was up 78% compared to last year, although sales to Europe and Asia/Pacific were both down sharply from the previous quarter.

Virtek ended the quarter with net cash of $1.8 million, down $1.3 million from the end of Q1. Operations provided $1.1 million in cash and Virtek spent $1.3 million on acquisition costs, as it bought the remaining 25% of FOBA Technology & Services GmbH in the quarter. It also reduced its bank indebtedness by $1.0 million in Q2.

[5]---------------------------------------------------------------
Navtech quarter ends slightly in the red
September 13, 2007

Navtech lost US$67,000 ($0.03/share) on sales of US$10.6 million in the quarter ended July 31 (Q3 07). Sales were up 7.5% from last year and 1.5% from the previous quarter.

The company cut operational expenses by 11% from Q2, with R&D costs falling below 4% of revenue. Operations provided US$1.6 million in cash and Navtech ended the period with US$3.4 million in cash.

Three-quarters of company sales in the quarter came from Europe, with North America accounting for 19%.

[6]---------------------------------------------------------------
STOCK REPORT: Sandvine value approaches $1B
September 2007

A big month for ARISE shares, as the company reached a major milestone in its plans with the start of the construction of its German facility. ARISE stock is up 236% over the first nine months of the year and has completely recovered from its slide in the spring.

Sandvine shares also reached new highs in the month, taking the company just under the $1 billion mark in market capitalization. The shares soared mid-month but then took a nosedive on September 26, following reports that a Scotia Capital analyst had downgraded the stock. They bounced back over the last couple of days in September to finish the month up 18%.

For the month of September:

ARISE [TSXV: APV] +87%
TurboSonic [OTCBB: TSTA] +24%
Descartes [TSX: DSG] +24%
Sandvine [TSX: SVC] +18%
ATS [TSX: ATA] +11%
--S&P TSX VENTURE INDEX +9%
Biorem [TSXV: BRM] +8%
RIM [TSX: RIM] +8%
--S&P TSX COMPOSITE INDEX +3%
Dalsa [TSX: DSA] +1%
===============================
MKS [TSX: MKX] -1%
Open Text [TSX: OTC] -1%
Com Dev [TSX: CDV] -6%
RDM [TSX: RC] -9%
Virtek [TSX: VRK] -11%
Navtech [OTCBB: NAVH] -21%

RIM shares also hit another all-time high, while at the other end of the scale, Navtech's market value is now less than its quarterly revenue. Virtek is now valued at less than half of its annual sales.

MKS has just overtaken RDM for market capitalization, and TurboSonic finished September just slightly ahead of Virtek, although those positions have already reversed after one day of trading in October.

Market capitalization at September 30
in millions, using outstanding shares
(Year-to-date change in parentheses):

1. RIM ----- $54,722 (+$14,839)
2. Open Text ----- 1,303 (+137)
3. Sandvine ----- 914 (+182)
4. ATS ----- 535 (+14)
5. Com Dev ----- 346 (-89)
6. Descartes ----- 249 (+20)
7. Dalsa ----- 193 (-39)
8. ARISE ----- 121 (+58) **
9. MKS ----- 78 (unch)
10. RDM ----- 72 (-21)
11. TurboSonic ----- 21 (+3)
12. Virtek ----- 21 (-4)
12. Biorem ----- 17 (-2)
14. Navtech ----- 7 (-5) **

** Navtech and ARISE have significant numbers of warrants outstanding, which are not included in these calculations. All-in, ARISE has a market value of about $155 million, which should climb another $30 million or more when its share offering closes. That will place it at about the same market cap as Dalsa.

September figures for companies with core operations outside the area:

Google [Nasdaq: GOOG] +10%
Oracle [Nasdaq: ORCL] +7%
Ansys [Nasdaq: ANSS] +3%
Adobe [Nasdaq: ADBE] +2%
Sybase [NYSE: SY] +0%
NCR [NYSE: NCR] +0%
===================================
McAfee [NYSE: MFE] -2%
Blue Coat [Nasdaq: BCSI] -6%
AMIS [Nasdaq: AMIS] -6%
Agfa-Gevaert [Brussels: AGFA] -12%

[7]---------------------------------------------------------------
Miscellaneous Tidbits

• Missed this story when it happened: at the end of July, Magnum Semiconductor acquired the consumer products group of LSI Logic, which included its Waterloo operation. LSI received US$22.6 million in cash plus a US$18 million promissory, as well as warrants to purchase preferred shares in Magnum. LSI came to Waterloo with its acquisition of VideoLocus in 2002. Magnum is a venture-backed spinout from Cirrus Logic founded two years ago and based in Milpitas, Calif.

• Google has moved its Waterloo office into the TechTown building at the UW Research & Technology Park.
  
  
• Tungle was one of nine recipients of the DEMOgod award at the DEMOfall 07 conference in San Diego. The semi-annual conference focuses on emerging technologies and new products.
  
  
• For fiscal year 2007, ended June 30, TurboSonic reported earnings of US$1.3 million on sales of US$22.9 million. Sales were up 43% from the previous year. The company also announced that it has opened a new sales office in Milan, Italy. It is TurboSonic's first European office.
  
  
• Bobbi Holte is the new CFO of LiveHive Systems. She was previously at the Accelerator Centre and was formerly finance VP at Dspfactory.
  
  
• Mark Lukowski is the new COO at Labtronics. He is a UW grad recently with Wentworth Technologies and previously with Platform Computing in Markham.
  
  
• SlipStream co-founder and UW professor En-hui Yang received the 2007 Manning Award of Distinction. It comes with a $25,000 cash prize. The awards are presented annually by the Ernest C. Manning Awards Foundation.
  
  
• Sandvine took top spot on the Deloitte Technology Fast 50 list of the fastest growing companies in Canada. It reported five-year revenue growth of 42,120%. Desire2Learn ranked 12th with 1,929% growth. RIM still made the list, at #41 with 436% growth over five years. RapidMind was named one of the 10 "companies to watch."