Waterloo Tech Digest - January 8, 2008
Compiled and written by
Gary Will
gary@garywill.com
In this issue:
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A D V E R T I S E M E N T S
IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331
ARE YOU CONSISTENTLY MAKING YOUR NUMBERS?
The painful truth: Research proves that 50% of salespeople will always be underachievers. The costs inflicted by sub-par sales performers are huge and vastly underestimated by most companies. For information you can use to build winning sales teams, download our free whitepaper. Peak Sales Recruiting focuses on finding top performing salespeople for technology companies.
RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.
BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact us at 519-783-3210, Tim Sinnott (tsinnott@bereskinparr.com) for more information.
ACCELERATE YOUR TIME-TO-MARKET
Advanced Research Technology (ART) saw a market opportunity in the pharmaceutical market but needed to accelerate product development. By partnering with INO, ART realized a new imaging system product less than six months later (see the complete story). Contact Glenn Smith in Waterloo at 519-502-1305 to explore how you can accelerate your time-to-market by partnering with INO.
////////////////////////////////////////////////////////////
[1]---------------------------------------------------------------
2007: Sandvine, Arise & startups emerge, Geosign rollercoaster
Coming off two years where the biggest local tech story was NTP vs RIM, we had a much more interesting mix of big stories in 2007. We saw Arise and Sandvine become two of the area's most valuable tech companies, RIM in a neck-and-neck race to be Canada's most valuable corporation, the emergence of several exciting startups, and the ups and downs of Geosign.
It was quite a year for Arise, which climbed to a quarter-billion dollar market value and a TSX listing -- all without really having a product on the market. That will change soon, as the company is building a manufacturing facility in Germany that will open in a few months. Arise's 408% gain in its stock price in 2007 was the best calendar year performance since RIM's 551% jump in 1999.
Sandvine recovered from a sluggish first few months on the TSX to see its share price soar over the first half of 2007, with at least 25% gains in four of the first six months of the year. By mid-year, its stock price had tripled and it was closing in on a $1 billion market cap. It's since retreated from those levels but is firmly in third place on the market value list, trailing only RIM and Open Text.
RIM shares had doubled in value in 2006, and the company kept that momentum, adding more than $35 billion to its market value during the year. That starts to make the US$612 million it paid in 2006 to settle the NTP suit look like something it found in its couch cushions. RIM ended the year with over $2 billion in cash.
Another major story through the year -- although one that is harder to back up with publicly available numbers -- is the continued resurgence in startup activity and success in the area. Several startups closed significant rounds of funding, although few of the deals have been disclosed. From working with Communitech, WatStart, BarCamp/StartupCamp, and the Accelerator Centre through the year, it was a fun year to see so many new companies doing so well. By the end of the year, about a half-dozen companies from the area were listed on Techvibes' list of top Toronto [sic] startups.
What seemed in March to be a shoo-in as the good news story of the year -- Geosign closing a monstrous US$160 million round of funding -- turned out to be something quite different by the end of the year.
The deal immediately turned Geosign into a media darling, with founder Tim Nye bombarded with requests -- mostly declined -- to tell the story of what he called his "20 year overnight success."
And then everything started disintegrating -- the company, its deal, and its relationship with the media. First, there was a round of layoffs in May that could have been a one-day news story but which dragged on for weeks when the company was less than forthcoming about just how many jobs had been cut and why. At that point, Geosign seemed to surround itself with a moat and has rarely been heard from since.
LinkedIn users may have been among the first to notice early in the fall that Geosign employees were starting to be listed as working for a company called Moxy Media, with some working for a company called eMedia. Geosign has been split in two. CEO Ted Hastings and other key executives formed Moxy Media, owned by American Capital. Nye headed a group that became eMedia Interactive, which included the local search business TrueLocal, once been one of Geosign's best known sites. Moxy Media says it operates thousands of websites, generating more than 15 million visitors a month.
According to TheStreet.com, American Capital's CEO has said that his company recovered a "substantial" amount of its investment as a result of the split, but declined to say exactly how much. Although American Capital is a public company, its Geosign investment was such a small part of its portfolio that it isn't considered to be material to the company's financial results.
Other disappointing stories in 2007: DiskStream and Handshake both shut down, as did the remnants of what was once Focus Automation. Symbility left town. NCR announced it was cutting 450 jobs in Waterloo and big layoffs were also announced at ATS, which also closed its Spheral Solar business.
Steve Spicer, one of the pioneers of the Waterloo tech community, died in July.
While many funding deals went undisclosed, companies that announced new rounds of funding included RapidMind, MedShare, Software Innovation, Covarity, and Sirific.
There were new CEOs at Dalsa, Virtek, Sirific, MedShare, Biorem, Spicer, and ATS -- where dissatisfied shareholders removed the company's board of directors and brought in a new chief executive.
NDI and the Waterloo operations of LSI Logic were both acquired by U.S. buyers. Sandvine, Descartes, and Open Text all disclosed that they had made acquisitions.
Stock performance for 2007:
Arise [TSXV: APV] +408%
RIM [TSX: RIM] +127%
Sandvine [TSX: SVC] +101%
Open Text [TSX: OTC] +31%
--S&P TSX COMPOSITE INDEX +7%
===============================
Descartes [TSX: DSG] -3%
--S&P TSX VENTURE INDEX -5%
TurboSonic [OTCBB: TSTA] -6%
MKS [TSX: MKX] -28%
Biorem [TSXV: BRM] -29%
Dalsa [TSX: DSA] -34%
RDM [TSX: RC] -36%
Com Dev [TSX: CDV] -44%
ATS [TSX: ATA] -53%
Virtek [TSX: VRK] -60%
The bottom two performers, ATS and Virtek, both replaced their CEOs. The next two from the bottom, RDM and Com Dev, had been the top two performers in 2006. The three companies that recorded a declining stock price in 2006 -- Biorem, MKS, and ATS -- all declined again in 2007
It was another good year for Open Text shares, which followed their 45% gain in 2006 with another 31% increase in 2007.
Year-end market capitalization
in millions, using outstanding shares
(year-over-year change in parentheses):
1. RIM ----- $63,146 (+$35,616)
2. Open Text ----- 1,595 (+422)
3. Sandvine ----- 523 (+290)
4. ATS ----- 399 (-262)
5. Arise ----- 252 (+236)
6. Com Dev ----- 247 (-188)
7. Descartes ----- 220 (+21)
8. Dalsa ----- 159 (-83)
9. MKS ----- 69 (-34)
10. RDM ----- 56 (-28)
11. Virtek ----- 14 (-16)
12. TurboSonic ----- 12 (-6)
13. Biorem ----- 12 (-5)
[2]---------------------------------------------------------------
NDI acquired by Boston firm
December 21, 2007
Audax Group, an investment firm in Boston, has acquired Northern Digital for an undisclosed amount. CEO David Crouch plans to leave the company over the next few months, along with COO Jim Kearns. He said that there would otherwise be little change in day-to-day operations.
NDI was founded in 1981 by Jerry Krist who retired in 1998 after selling the company to a group of NDI executives. Krist died in 2003. Crouch and Kearns, along with Paul Clausen and Terry Fisher, were the NDI owners at the time of the sale to Audax.
In the announcement, the co-CEO of Audax said he looked forward to making "strategic add-on acquisitions" for NDI. Crouch said the company will be recruiting a new CEO and COO.
Audax manages US$3.7 billion in equity and debt funds and was founded in 1999.
[3]---------------------------------------------------------------
AMI agrees to acquisition by Arizona's ON Semiconductor
December 13, 2007
AMI Semiconductor, the Idaho-based company that came to Waterloo three years ago with its acquisition of Dspfactory, is itself being acquired. The buyer is Arizona's ON Semiconductor, which has agreed to acquire AMI for US$915 million. The deal must sill be approved by the shareholders of both companies and is expected to close before the end of June.
Under the terms of the deal, AMI shareholders would receive 1.15 ON shares for each AMI share they hold. As of the end of the day on Friday, that translated into US$9.07 a share, which is below the level that AMI shares had been trading until the fall. They had dipped to the US$7-8 level before the deal with ON was announced.
The Dspfactory acquisition in 2004 (with subsequent additional earn-out payments) was mostly paid with shares in AMI. At the time the deal was approved by Dspfactory shareholders, AMI stock was trading around US$15 and never got to that level again.
In the announcement, ON said it anticipates that there will be significant cost savings through integration and "rationalization," which is to say job cuts, but nothing was said about the possible impact on the Waterloo office. The medical devices that are at the core of the Waterloo site will be a new market for ON, which has traditionally specialized in automotive and industrial products. ON has a semiconductor fabrication facility in Oregon which it bought from LSI Logic, the company that acquired Waterloo's VideoLocus in 2002.
ON currently has a US$2.3 billion market value, although it had been higher until the announcement a couple of months ago of the company's most recent quarterly results. The deal with AMI has so far received a lukewarm response from investors as well.
[4]---------------------------------------------------------------
Com Dev margins plummet with weak U.S. dollar
December 13, 2007
Com Dev's results for the quarter ended October 31 (Q4 07) were even a little worse than what the company warned they would be (see last digest). Revenue was $43.4 million, which was up 4% from last year and 1% from Q3. Until now, that would have been a strong number, but Com Dev had been expecting sales of at least $48.2 million in the quarter, and reaffirmed that forecast nearly halfway into the quarter on September 13.
At that time, the Canadian dollar had been averaging a value of US$0.95 in the quarter, but it took off from there and was up to nearly US$1.04 over the final two weeks of Q4. If two-thirds of revenue in the quarter was recorded in those the last two weeks, and assuming all sales were in U.S. dollars, that by itself would account for a $2.7 million reduction in revenue and gross profit.
With the falling U.S. dollar, Com Dev took a huge hit in gross margins, which plummeted to just 11.1% in Q4, down from 26.2% in the previous quarter. Gross profits declined 59% sequentially to just $4.8 million, which wasn't even enough to cover SG&A costs. Fortunately for Com Dev, it received funding to cover 87% of R&D expenses in the quarter and its net R&D costs were just 1% of revenue.
Operating loss in the quarter was $1.1 million, $4.1 million below the operating income of $3.0 million recorded in Q3. An income tax recovery of $5.1 million enabled the company to report earnings of $4.1 million in Q4.
For the year, sales were up 7% to $164.3 million, below the company's forecast of 10% growth as well as the $166 million it forecast in its warning on November 29. Gross profit fell 23% from 2006, while SG&A and R&D expenses (excluding cost recovery) were up 33%. Net income was $10.9 million, about half of what it was in 2006.
Cash flow was strong in the quarter, with operations providing $19.0 million in cash, raising the company's cash balance at the end of the quarter to $31.7 million, an increase of $12.0 million from the end of Q3. Inventory levels fell by $8.8 million, which made a significant contribution to cash flow.
The good news for Com Dev is that its order backlog at year-end stood at a record $146 million and it says it is "well positioned" to achieve 10-15% revenue growth in 2008. It received $207 million in new orders during 2007, with the commercial segment accounting for nearly two-thirds of that. Commercial orders were slightly more than double what the company recorded in 2006. There was a slight decline in orders from the civil segment, and military orders were cut in half.
The company also announced that Dan White has been appointed president of Com Dev USA. Until last year, he was engineering VP at Georgia-based DataPath and previous spent 16 years with Hughes Space and Communications. There are now 20 employees at the Com Dev site in El Segundo, Calif. White had joined Com Dev earlier in 2007.
[5]---------------------------------------------------------------
Virtek looks to Europe, Asia-Pacific for growth
December 13, 2007
In what turned out to be the last quarter under CEO Bob Sandness, Virtek reported earnings of $3.0 million on sales of $15.0 million in the period ended October 31 (Q3 08). All of the net income came from the sale of Virtek's Intelligent Laser Systems business. Sales were 2% above last year and 27% higher than what the company reported in Q2, although gross profits were only up 8% sequentially due to a decline in margins.
Virtek received $6.2 million in cash for its iLS business (see August digest), with an additional $1.2 million to be paid into escrow this year and given to Virtek in two payments, one in August and the other in August 2009. It recorded a net gain on the sale of $3.9 million.
Loss from continuing operations in Q3 was $1.0 million, compared to a loss of $1.5 million in the previous quarter. Marking & engraving sales were down slightly from a year ago and accounted for 60% of all revenue. The marking & engraving segment -- of which marking accounts for 89% of revenue -- reported a 44% sequential increase in sales, but gross profits were flat from Q2. Sales from Virtek's imaging & templating business were up 5% from last year and 7% from the previous quarter.
Sales to Europe and Asia-Pacific accounted for 63% of revenue, up from 50% in Q3 and 53% last year.
With the iLS sale, Virtek's net cash balance grew to $6.1 million, up $4.4 million from the end of Q2. Operations consumed $1.4 million in cash, while the discontinued iLS business brought in a net $5.7 million in cash.
[6]---------------------------------------------------------------
Sandvine's expected 50% growth not good enough for investors
December 20, 2007
Shares of Sandvine have fallen 30% since the company announced before Christmas that it is forecasting revenue growth of nearly 50% in 2008, with an expected $100-110 million in sales. Most companies would love to have that kind of growth, but it was a big disappointment to investors, who apparently were expecting that Sandvine would keep doubling its sales indefinitely. Sandvine shares fell 23% the day the announcement was made.
Sandvine's revenue in the quarter ended November 30 (Q4 07) will be about $17 million, the company reported. That would be about 11% below Q3 sales, but an 84% jump from last year. That would give Sandvine sales of $73.6 million in 2007, in line with its forecast of $70-75 million.
[7]---------------------------------------------------------------
RIM rides growth in consumer market to another record quarter
December 20, 2007
Some of RIM's competitors and partners may be experiencing sluggishness in their sales, but there was no sign of a slowdown at RIM, which reported earnings of US$370.5 million on sales of US$1.7 billion in the quarter ended December 1 (Q3 08). Sales were in line with the upper end of the company's forecast and were up 22% from the previous quarter and 100% from last year. Net income included US$10.7 million from what RIM described as "the resolution of a tax matter" involving investment tax credits.
There were a net 1.65 million new BlackBerry subscribers in the quarter -- exactly what RIM predicted -- bringing the total to 12 million. RIM has seen significant growth in the consumer market, with a record level of BlackBerry subscribers added on the day after U.S. Thanksgiving, traditionally the biggest consumer spending day of the year in that country.
RIM is expecting sales of US$1.80-1.87 billion in the current quarter, with 1.82 million new BlackBerry subscribers.
RIM ended the quarter with US$2.1 billion in cash, up US$405 million from the end of Q2.
Other RIM news:
STOCK REPORT: ATS bounces, Sandvine drops
December 2007
Not a particularly notable month for local tech companies on the stock market. As mentioned above, Sandvine shares took a dive after the company announced growth forecasts that were less ambitious than investors wanted to hear. Shares in the company fell to their lowest month-end price since March.
ATS stock showed some sign of life after a brutal November. The shares are still trading below their levels at any time before November.
For the month of December:
ATS [TSX: ATA] +20%
Com Dev [TSX: CDV] +7%
Arise [TSX: APV] +6%
--S&P TSX VENTURE INDEX +4%
--S&P TSX COMPOSITE INDEX +1%
===============================
Descartes [TSX: DSG] -1%
RIM [TSX: RIM] -1%
MKS [TSX: MKX] -1%
Dalsa [TSX: DSA] -2%
Open Text [TSX: OTC] -3%
Virtek [TSX: VRK] -8%
RDM [TSX: RC] -9%
TurboSonic [OTCBB: TSTA] -10%
Biorem [TSXV: BRM] -23%
Sandvine [TSX: SVC] -28%
Arise is now listed on the TSX, moving up from the Venture Exchange. ATS has been dropped from the S&P/TSX Composite Index after dropping below the market capitalization requirements.
Falling to yearly lows in December were Virtek, MKS, RDM, Biorem, and TurboSonic. Dalsa shares had their lowest month-end price of the year, while Descartes shares had their second lowest month-end.
At the other end, Open Text stock hit its highest level of the year and Arise shares had their best month-end ever.
Companies with core operations outside the area:
Agfa-Gevaert [Brussels: AGFA] +39%
AMIS [Nasdaq: AMIS] +31%
Oracle [Nasdaq: ORCL] +12%
Ansys [Nasdaq: ANSS] +7%
NCR [NYSE: NCR] +5%
Sybase [NYSE: SY] +2%
Adobe [Nasdaq: ADBE] +1%
===================================
Google [Nasdaq: GOOG] -0%
McAfee [NYSE: MFE] -4%
Blue Coat [Nasdaq: BCSI] -9%
[9]---------------------------------------------------------------
Miscellaneous Tidbits
Gary Will
gary@garywill.com
In this issue:
- 2007: Sandvine, Arise & startups emerge, Geosign roller coaster
- NDI acquired by Boston firm
- AMI agrees to acquisition by Arizona's ON Semiconductor
- Com Dev margins plummet with weak U.S. dollar
- Virtek looks to Europe, Asia-Pacific for growth
- Sandvine's expected 50% growth not good enough for investors
- RIM rides growth in consumer market to another record quarter
- STOCK REPORT: ATS bounces, Sandvine drops
- Miscellaneous tidbits from ProductWiki, Descartes, TurboSonic, Athena, Electrohome
////////////////////////////////////////////////////////////
A D V E R T I S E M E N T S
IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331
ARE YOU CONSISTENTLY MAKING YOUR NUMBERS?
The painful truth: Research proves that 50% of salespeople will always be underachievers. The costs inflicted by sub-par sales performers are huge and vastly underestimated by most companies. For information you can use to build winning sales teams, download our free whitepaper. Peak Sales Recruiting focuses on finding top performing salespeople for technology companies.
RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.
BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact us at 519-783-3210, Tim Sinnott (tsinnott@bereskinparr.com) for more information.
ACCELERATE YOUR TIME-TO-MARKET
Advanced Research Technology (ART) saw a market opportunity in the pharmaceutical market but needed to accelerate product development. By partnering with INO, ART realized a new imaging system product less than six months later (see the complete story). Contact Glenn Smith in Waterloo at 519-502-1305 to explore how you can accelerate your time-to-market by partnering with INO.
////////////////////////////////////////////////////////////
[1]---------------------------------------------------------------
2007: Sandvine, Arise & startups emerge, Geosign rollercoaster
Coming off two years where the biggest local tech story was NTP vs RIM, we had a much more interesting mix of big stories in 2007. We saw Arise and Sandvine become two of the area's most valuable tech companies, RIM in a neck-and-neck race to be Canada's most valuable corporation, the emergence of several exciting startups, and the ups and downs of Geosign.
It was quite a year for Arise, which climbed to a quarter-billion dollar market value and a TSX listing -- all without really having a product on the market. That will change soon, as the company is building a manufacturing facility in Germany that will open in a few months. Arise's 408% gain in its stock price in 2007 was the best calendar year performance since RIM's 551% jump in 1999.
Sandvine recovered from a sluggish first few months on the TSX to see its share price soar over the first half of 2007, with at least 25% gains in four of the first six months of the year. By mid-year, its stock price had tripled and it was closing in on a $1 billion market cap. It's since retreated from those levels but is firmly in third place on the market value list, trailing only RIM and Open Text.
RIM shares had doubled in value in 2006, and the company kept that momentum, adding more than $35 billion to its market value during the year. That starts to make the US$612 million it paid in 2006 to settle the NTP suit look like something it found in its couch cushions. RIM ended the year with over $2 billion in cash.
Another major story through the year -- although one that is harder to back up with publicly available numbers -- is the continued resurgence in startup activity and success in the area. Several startups closed significant rounds of funding, although few of the deals have been disclosed. From working with Communitech, WatStart, BarCamp/StartupCamp, and the Accelerator Centre through the year, it was a fun year to see so many new companies doing so well. By the end of the year, about a half-dozen companies from the area were listed on Techvibes' list of top Toronto [sic] startups.
What seemed in March to be a shoo-in as the good news story of the year -- Geosign closing a monstrous US$160 million round of funding -- turned out to be something quite different by the end of the year.
The deal immediately turned Geosign into a media darling, with founder Tim Nye bombarded with requests -- mostly declined -- to tell the story of what he called his "20 year overnight success."
And then everything started disintegrating -- the company, its deal, and its relationship with the media. First, there was a round of layoffs in May that could have been a one-day news story but which dragged on for weeks when the company was less than forthcoming about just how many jobs had been cut and why. At that point, Geosign seemed to surround itself with a moat and has rarely been heard from since.
LinkedIn users may have been among the first to notice early in the fall that Geosign employees were starting to be listed as working for a company called Moxy Media, with some working for a company called eMedia. Geosign has been split in two. CEO Ted Hastings and other key executives formed Moxy Media, owned by American Capital. Nye headed a group that became eMedia Interactive, which included the local search business TrueLocal, once been one of Geosign's best known sites. Moxy Media says it operates thousands of websites, generating more than 15 million visitors a month.
According to TheStreet.com, American Capital's CEO has said that his company recovered a "substantial" amount of its investment as a result of the split, but declined to say exactly how much. Although American Capital is a public company, its Geosign investment was such a small part of its portfolio that it isn't considered to be material to the company's financial results.
Other disappointing stories in 2007: DiskStream and Handshake both shut down, as did the remnants of what was once Focus Automation. Symbility left town. NCR announced it was cutting 450 jobs in Waterloo and big layoffs were also announced at ATS, which also closed its Spheral Solar business.
Steve Spicer, one of the pioneers of the Waterloo tech community, died in July.
While many funding deals went undisclosed, companies that announced new rounds of funding included RapidMind, MedShare, Software Innovation, Covarity, and Sirific.
There were new CEOs at Dalsa, Virtek, Sirific, MedShare, Biorem, Spicer, and ATS -- where dissatisfied shareholders removed the company's board of directors and brought in a new chief executive.
NDI and the Waterloo operations of LSI Logic were both acquired by U.S. buyers. Sandvine, Descartes, and Open Text all disclosed that they had made acquisitions.
Stock performance for 2007:
Arise [TSXV: APV] +408%
RIM [TSX: RIM] +127%
Sandvine [TSX: SVC] +101%
Open Text [TSX: OTC] +31%
--S&P TSX COMPOSITE INDEX +7%
===============================
Descartes [TSX: DSG] -3%
--S&P TSX VENTURE INDEX -5%
TurboSonic [OTCBB: TSTA] -6%
MKS [TSX: MKX] -28%
Biorem [TSXV: BRM] -29%
Dalsa [TSX: DSA] -34%
RDM [TSX: RC] -36%
Com Dev [TSX: CDV] -44%
ATS [TSX: ATA] -53%
Virtek [TSX: VRK] -60%
The bottom two performers, ATS and Virtek, both replaced their CEOs. The next two from the bottom, RDM and Com Dev, had been the top two performers in 2006. The three companies that recorded a declining stock price in 2006 -- Biorem, MKS, and ATS -- all declined again in 2007
It was another good year for Open Text shares, which followed their 45% gain in 2006 with another 31% increase in 2007.
Year-end market capitalization
in millions, using outstanding shares
(year-over-year change in parentheses):
1. RIM ----- $63,146 (+$35,616)
2. Open Text ----- 1,595 (+422)
3. Sandvine ----- 523 (+290)
4. ATS ----- 399 (-262)
5. Arise ----- 252 (+236)
6. Com Dev ----- 247 (-188)
7. Descartes ----- 220 (+21)
8. Dalsa ----- 159 (-83)
9. MKS ----- 69 (-34)
10. RDM ----- 56 (-28)
11. Virtek ----- 14 (-16)
12. TurboSonic ----- 12 (-6)
13. Biorem ----- 12 (-5)
[2]---------------------------------------------------------------
NDI acquired by Boston firm
December 21, 2007
Audax Group, an investment firm in Boston, has acquired Northern Digital for an undisclosed amount. CEO David Crouch plans to leave the company over the next few months, along with COO Jim Kearns. He said that there would otherwise be little change in day-to-day operations.
NDI was founded in 1981 by Jerry Krist who retired in 1998 after selling the company to a group of NDI executives. Krist died in 2003. Crouch and Kearns, along with Paul Clausen and Terry Fisher, were the NDI owners at the time of the sale to Audax.
In the announcement, the co-CEO of Audax said he looked forward to making "strategic add-on acquisitions" for NDI. Crouch said the company will be recruiting a new CEO and COO.
Audax manages US$3.7 billion in equity and debt funds and was founded in 1999.
[3]---------------------------------------------------------------
AMI agrees to acquisition by Arizona's ON Semiconductor
December 13, 2007
AMI Semiconductor, the Idaho-based company that came to Waterloo three years ago with its acquisition of Dspfactory, is itself being acquired. The buyer is Arizona's ON Semiconductor, which has agreed to acquire AMI for US$915 million. The deal must sill be approved by the shareholders of both companies and is expected to close before the end of June.
Under the terms of the deal, AMI shareholders would receive 1.15 ON shares for each AMI share they hold. As of the end of the day on Friday, that translated into US$9.07 a share, which is below the level that AMI shares had been trading until the fall. They had dipped to the US$7-8 level before the deal with ON was announced.
The Dspfactory acquisition in 2004 (with subsequent additional earn-out payments) was mostly paid with shares in AMI. At the time the deal was approved by Dspfactory shareholders, AMI stock was trading around US$15 and never got to that level again.
In the announcement, ON said it anticipates that there will be significant cost savings through integration and "rationalization," which is to say job cuts, but nothing was said about the possible impact on the Waterloo office. The medical devices that are at the core of the Waterloo site will be a new market for ON, which has traditionally specialized in automotive and industrial products. ON has a semiconductor fabrication facility in Oregon which it bought from LSI Logic, the company that acquired Waterloo's VideoLocus in 2002.
ON currently has a US$2.3 billion market value, although it had been higher until the announcement a couple of months ago of the company's most recent quarterly results. The deal with AMI has so far received a lukewarm response from investors as well.
[4]---------------------------------------------------------------
Com Dev margins plummet with weak U.S. dollar
December 13, 2007
Com Dev's results for the quarter ended October 31 (Q4 07) were even a little worse than what the company warned they would be (see last digest). Revenue was $43.4 million, which was up 4% from last year and 1% from Q3. Until now, that would have been a strong number, but Com Dev had been expecting sales of at least $48.2 million in the quarter, and reaffirmed that forecast nearly halfway into the quarter on September 13.
At that time, the Canadian dollar had been averaging a value of US$0.95 in the quarter, but it took off from there and was up to nearly US$1.04 over the final two weeks of Q4. If two-thirds of revenue in the quarter was recorded in those the last two weeks, and assuming all sales were in U.S. dollars, that by itself would account for a $2.7 million reduction in revenue and gross profit.
With the falling U.S. dollar, Com Dev took a huge hit in gross margins, which plummeted to just 11.1% in Q4, down from 26.2% in the previous quarter. Gross profits declined 59% sequentially to just $4.8 million, which wasn't even enough to cover SG&A costs. Fortunately for Com Dev, it received funding to cover 87% of R&D expenses in the quarter and its net R&D costs were just 1% of revenue.
Operating loss in the quarter was $1.1 million, $4.1 million below the operating income of $3.0 million recorded in Q3. An income tax recovery of $5.1 million enabled the company to report earnings of $4.1 million in Q4.
For the year, sales were up 7% to $164.3 million, below the company's forecast of 10% growth as well as the $166 million it forecast in its warning on November 29. Gross profit fell 23% from 2006, while SG&A and R&D expenses (excluding cost recovery) were up 33%. Net income was $10.9 million, about half of what it was in 2006.
Cash flow was strong in the quarter, with operations providing $19.0 million in cash, raising the company's cash balance at the end of the quarter to $31.7 million, an increase of $12.0 million from the end of Q3. Inventory levels fell by $8.8 million, which made a significant contribution to cash flow.
The good news for Com Dev is that its order backlog at year-end stood at a record $146 million and it says it is "well positioned" to achieve 10-15% revenue growth in 2008. It received $207 million in new orders during 2007, with the commercial segment accounting for nearly two-thirds of that. Commercial orders were slightly more than double what the company recorded in 2006. There was a slight decline in orders from the civil segment, and military orders were cut in half.
The company also announced that Dan White has been appointed president of Com Dev USA. Until last year, he was engineering VP at Georgia-based DataPath and previous spent 16 years with Hughes Space and Communications. There are now 20 employees at the Com Dev site in El Segundo, Calif. White had joined Com Dev earlier in 2007.
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Virtek looks to Europe, Asia-Pacific for growth
December 13, 2007
In what turned out to be the last quarter under CEO Bob Sandness, Virtek reported earnings of $3.0 million on sales of $15.0 million in the period ended October 31 (Q3 08). All of the net income came from the sale of Virtek's Intelligent Laser Systems business. Sales were 2% above last year and 27% higher than what the company reported in Q2, although gross profits were only up 8% sequentially due to a decline in margins.
Virtek received $6.2 million in cash for its iLS business (see August digest), with an additional $1.2 million to be paid into escrow this year and given to Virtek in two payments, one in August and the other in August 2009. It recorded a net gain on the sale of $3.9 million.
Loss from continuing operations in Q3 was $1.0 million, compared to a loss of $1.5 million in the previous quarter. Marking & engraving sales were down slightly from a year ago and accounted for 60% of all revenue. The marking & engraving segment -- of which marking accounts for 89% of revenue -- reported a 44% sequential increase in sales, but gross profits were flat from Q2. Sales from Virtek's imaging & templating business were up 5% from last year and 7% from the previous quarter.
Sales to Europe and Asia-Pacific accounted for 63% of revenue, up from 50% in Q3 and 53% last year.
With the iLS sale, Virtek's net cash balance grew to $6.1 million, up $4.4 million from the end of Q2. Operations consumed $1.4 million in cash, while the discontinued iLS business brought in a net $5.7 million in cash.
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Sandvine's expected 50% growth not good enough for investors
December 20, 2007
Shares of Sandvine have fallen 30% since the company announced before Christmas that it is forecasting revenue growth of nearly 50% in 2008, with an expected $100-110 million in sales. Most companies would love to have that kind of growth, but it was a big disappointment to investors, who apparently were expecting that Sandvine would keep doubling its sales indefinitely. Sandvine shares fell 23% the day the announcement was made.
Sandvine's revenue in the quarter ended November 30 (Q4 07) will be about $17 million, the company reported. That would be about 11% below Q3 sales, but an 84% jump from last year. That would give Sandvine sales of $73.6 million in 2007, in line with its forecast of $70-75 million.
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RIM rides growth in consumer market to another record quarter
December 20, 2007
Some of RIM's competitors and partners may be experiencing sluggishness in their sales, but there was no sign of a slowdown at RIM, which reported earnings of US$370.5 million on sales of US$1.7 billion in the quarter ended December 1 (Q3 08). Sales were in line with the upper end of the company's forecast and were up 22% from the previous quarter and 100% from last year. Net income included US$10.7 million from what RIM described as "the resolution of a tax matter" involving investment tax credits.
There were a net 1.65 million new BlackBerry subscribers in the quarter -- exactly what RIM predicted -- bringing the total to 12 million. RIM has seen significant growth in the consumer market, with a record level of BlackBerry subscribers added on the day after U.S. Thanksgiving, traditionally the biggest consumer spending day of the year in that country.
RIM is expecting sales of US$1.80-1.87 billion in the current quarter, with 1.82 million new BlackBerry subscribers.
RIM ended the quarter with US$2.1 billion in cash, up US$405 million from the end of Q2.
Other RIM news:
- RIM has selected Irving, Texas as the site of its U.S. headquarters. It plans to grow the site to 1,000 people over the next few years. It will occupy more than 100,000 square feet of office space in Irving.
- TeleCommunication Systems, based in the Baltimore area, is the latest company to file a patent infringement suit against RIM. According to the National Post, RIM is now defending 35 patent infringement suits. TeleCommunication Systems trades on Nasdaq with a market value of about $150 million and has 150 employees. The suit has been filed in the U.S. District Court in Virginia, the location of the NTP suit. In May, TeleCommunication Systems was awarded US$12.1 million and an injunction against Sybase in a separate patent suit (initially brought against Mobile 365, which was acquired by Sybase).
- With the support of RIM, Wireless Giant has opened the BlackBerry store, the first carrier-independent BlackBerry retail outlet. The store is located in Farmington Hills, Mich., near Detroit.
STOCK REPORT: ATS bounces, Sandvine drops
December 2007
Not a particularly notable month for local tech companies on the stock market. As mentioned above, Sandvine shares took a dive after the company announced growth forecasts that were less ambitious than investors wanted to hear. Shares in the company fell to their lowest month-end price since March.
ATS stock showed some sign of life after a brutal November. The shares are still trading below their levels at any time before November.
For the month of December:
ATS [TSX: ATA] +20%
Com Dev [TSX: CDV] +7%
Arise [TSX: APV] +6%
--S&P TSX VENTURE INDEX +4%
--S&P TSX COMPOSITE INDEX +1%
===============================
Descartes [TSX: DSG] -1%
RIM [TSX: RIM] -1%
MKS [TSX: MKX] -1%
Dalsa [TSX: DSA] -2%
Open Text [TSX: OTC] -3%
Virtek [TSX: VRK] -8%
RDM [TSX: RC] -9%
TurboSonic [OTCBB: TSTA] -10%
Biorem [TSXV: BRM] -23%
Sandvine [TSX: SVC] -28%
Arise is now listed on the TSX, moving up from the Venture Exchange. ATS has been dropped from the S&P/TSX Composite Index after dropping below the market capitalization requirements.
Falling to yearly lows in December were Virtek, MKS, RDM, Biorem, and TurboSonic. Dalsa shares had their lowest month-end price of the year, while Descartes shares had their second lowest month-end.
At the other end, Open Text stock hit its highest level of the year and Arise shares had their best month-end ever.
Companies with core operations outside the area:
Agfa-Gevaert [Brussels: AGFA] +39%
AMIS [Nasdaq: AMIS] +31%
Oracle [Nasdaq: ORCL] +12%
Ansys [Nasdaq: ANSS] +7%
NCR [NYSE: NCR] +5%
Sybase [NYSE: SY] +2%
Adobe [Nasdaq: ADBE] +1%
===================================
Google [Nasdaq: GOOG] -0%
McAfee [NYSE: MFE] -4%
Blue Coat [Nasdaq: BCSI] -9%
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Miscellaneous Tidbits
- ProductWiki was one of five nominees for "best bootstrapped startup" at the 2007 Crunchies, sponsored by TechCrunch along with GigaOm, VentureBeat, and Read/Write Web. The awards will be presented on January 18 in San Francisco.
- Descartes has acquired RouteView Technologies of Burnsville, Minn. (near Minneapolis) for US$3.0 million in cash with up to an additional US$0.5 payable if certain sales targets are met. The company develops routing and GPS software for delivery management applications.
- Andrew Meikle is the new chairman of TurboSonic. He succeeds Ed Spink, who remains a director and CEO. Meikle, the CEO of Meikle Automation, has been on TurboSonic's board for two years.
- Athena Software's case management software will be used by 37 agencies across the province reporting to the Ontario HIV Treatment Network.
- Electrohome completed the sale of its Electrohome trademarks to Synnex Canada. Synnex paid $1.5 million. Mississauga's Redmond Group had agreed to buy the Electrohome trademarks, and then it was acquired by Synnex. Electrohome will no longer receive any royalties from the use of the Electrohome trademark.
posted by Gary Will at 12:41 AM
