July 2004

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 89 -- August 3, 2004
In this digest:

1. Dalsa forecasts strong revenue growth after record quarter
   
2. RDM sets all-time quarterly revenue record

3. STOCK REPORT: A rough month for tech stocks
   
4. Miscellaneous tidbits from EMJ, GBG, Golden Triangle Online, Covarity, Descartes, ClearFrame, Bannister Lake, Reqwireless, Sybase, RIM

Dalsa forecasts strong revenue growth after record quarter
July 29, 2004

Strong sales in its semiconductor business led Dalsa to revenue of $39.8 million in the quarter ended June 30 (Q2 04), in-line with the company's forecast of $39-41 million. It's the highest quarterly revenue the company has ever reported, but Dalsa doesn't expect the record will last long, as it is forecasting sales of $42-44 million in the current quarter and close to $50 million in Q4.

Dalsa now expects revenue for the fiscal year to fall in the $167-172 million range, an increase of about $10 million from its previous forecast.

Sales in Q2 were up 8% from the previous quarter and 22% from last year. All of the sequential gains came from Dalsa's semiconductor business, which saw revenue jump 35% from Q1. Semiconductors contributed 60% of the company's quarterly profit of $4.1 million ($0.24/share).

Digital imaging sales of $22.3 million were below expectations and down 7% from the previous quarter. Delays in start dates for application-specific contracts were blamed for the shortfall, along with inadequate supply of some raw materials.

While margins improved in the semiconductor business, overall gross margins were down from Q1, and the company's gross profits and net income were flat sequentially.

Operations generated $7.8 million in cash and have now provided $29 million over the last 12 months. Dalsa spent $3.3 million on property and capital assets, including $0.9 million to exercise an option on industrial land in Waterloo. Another $1.0 million was spent to increase Dalsa's stake in California-based Rad-icon Imaging Corp. from 59% to 77%. Dalsa ended the quarter with $8.8 million in cash, up $3.1 million from the end of Q1.

The company says it has signed a letter of intent with a Hollywood-based rental firm that will make Dalsa's Origin digital movie camera available to filmmakers. The camera is scheduled for commercial launch in November.

In June, construction began on a 12,000 sq ft addition to Dalsa's semiconductor facility in Quebec. It is scheduled to be finished by the spring and is expected to cost $6-7 million. Dalsa's Tucson office was closed in July (see March digest). Hugh Garvey, who oversaw operations in Arizona, has decided to leave the company. In March, Dalsa had announced that he was staying on as business development VP for image sensor products. Costs of closing the Tucson facility increased 11% from previous estimates to US$720,000 or a little under CDN$1 million.

RDM sets all-time quarterly revenue record
July 30, 2004

RDM also set new records -- as forecast -- in its quarter ended June 30 (Q3 04). The company reported sales of $5.4 million, up 21% from the previous quarter and 18% from a year ago. Net income of $405,000 ($0.02) was enough to erase the losses from the first six months of the year and give RDM year-to-date profits of $23,000.

All of the gains came from RDM's electronic payments segment, which logged breakthrough sales of $2.0 million, nearly tripling results from the previous quarter. Sales from RDM's other segments -- digital imaging and its traditional cheque quality assurance segment -- were down sequentially and year-over-year. There were delays in the development of RDM's Synergy payment terminal, which is now not expected to ship until late in the fiscal year. Because of the delays, RDM expects digital imaging revenue in the current quarter will be similar to Q3 levels.

Combined, electronic payments and digital imaging provided 90% of revenue in the quarter and net income of $286,000.

RDM ended the quarter with $4.6 million in cash, up $500,000 from the end of Q2. Operations provided $819,000 in cash and $332,000 was spent on capital assets.

STOCK REPORT: A rough month for tech stocks
July 2004

You know it's not a good month when the only gainers are two companies whose shares each went up by four cents. That's what Navtech and Descartes stock did in July. It was a rough month for software in general, as several companies across North America reported soft sales.

For the month of July:

Navtech [OTCBB: NAVH] +4%
Descartes [TSX: DSG] +3%
===============================
--S&P TSX COMPOSITE INDEX -1%
RDM [TSX: RC] -2%
--S&P TSX VENTURE INDEX -4%
RIM [TSX: RIM] -10%
Dalsa [TSX: DSA] -11%
Turbosonic [OTCBB: TSTA] -12%
ClearFrame [TSXV: CLF] -12%
Com Dev [TSX: CDV] -13%
Virtek [TSX: VRK] -18%
Open Text [TSX: OTC] -21%
MKS [TSX: MKX] -25%
ARISE [TSXV: APV] -40%
Newlook Industries [TSXV: NLI] -45%

The company didn't make any announcements in July, but MKS shares lost a quarter of their value and finished the month under $1 -- the first time that's happened since November 2002. MKS now trades at the lowest multiple of gross profits among all local companies tracked here.

Dalsa increased its sales and profit forecasts, but that didn't stop its stock from suffering its biggest one-month decline in over two years. Dalsa shares had set or matched all-time highs in each of the previous five months.

On paper, RIM investors lost a collective $2 billion in July, which may be the most painless $2 billion loss ever recorded (unless you bought in at the end of June). The company's market value now stands at a mere $15.4 billion.

ARISE shares fell to their lowest monthly close since the company's IPO a year ago, ending July two cents above their all-time low from November. Navtech stock traded above US$1 for the entire month -- the first time that's happened in years. On the other hand, Virtek shares finished the month under $1 for the first time this year.

Since I started listing Newlook/Onlinetel, its shares have fallen 22% in April, 18% in May, 28% in June, and now 45% in July. The amazing thing is, it's still the most overvalued stock listed here.

Companies with core operations outside the area:

Ansys [Nasdaq: ANSS] +1%
CheckFree [Nasdaq: CKFR] +0%
==================================
McAfee [NYSE: MFE] -1%
Agfa-Gevaert [Brussels: AGFA] -2%
Adobe [Nasdaq: ADBE] -9%
CVF Technologies [Amex: CNV] -13%
Senesco [Amex: SNT] -17%
Sybase [NYSE: SY] -19%
SBS Technologies [Nasdaq: SBSE] -20%
Siebel [Nasdaq: SEBL] -24%
LSI Logic [NYSE: LSI] -33%
Blue Coat [Nasdaq: BCSI] -45%

CVF, which is a shareholder in Biorem and SRE Controls, has been told that it no longer meets the listing requirements of the American Stock Exchange. It will get to plead its case before the Amex Listing Qualifications Panel in a few weeks, but could be quickly delisted after that meeting. CVF says it's looking at getting listed on a Canadian exchange.

Miscellaneous Tidbits

• EMJ is being acquired by Synnex in an all-cash deal valued at about $56 million. EMJ founder Jim Estill, who holds 45% of EMJ's common shares and 35% of its preference shares, will become CEO of Toronto-based Synnex Canada in what he described as "a long-term commitment." Synnex Canada was formed three years ago when Synnex acquired the Canadian distribution operations of Merisel. Over the first half of the 2004 fiscal year, Synnex Canada reported sales of US$299 million, and the combined company will have annual sales over CDN$1 billion.

• EMJ's impending acquisition makes it the latest in a lengthening list of vanishing locally-based public companies. Over the last couple of years, the public companies that had operations in the Waterloo/Guelph area that were acquired, left town, shut down, or were suspended from public trading include CME Telemetrix, Gensel, GUARD, Control Advancements/Betacom, Finline, MDR Switchview, Cisco, Cyberplex, VoiceIQ, and Engineering.com. In the last six years, the only Waterloo-based tech company that has gone public is ARISE, which has had a rocky life as a public company over the last year.

• Global Beverage Group (GBG) has made another acquisition -- its second this year and eighth since January 2002. This time it is acquiring competitor Beverage Solutions Inc. (BSI) of San Diego. That gives GBG a presence from coast-to-coast in the U.S. BSI has been working with beverage distributors since 1976 and has about 20 employees. GBG says the acquisition will bring 100 new beer and soft drink customers to the company.

• Golden Triangle Online, which was the dominant Internet service provider in Waterloo Region in the late 1990s, was sold to Woodstock's Execulink, a long-time competitor. Golden was founded by Tim Kutt, who remained president until the end, although he had not been the majority owner of the company since late 1998. The new owners told The Record that Golden still has about 20,000 subscribers.

• Covarity announced that five more credit unions are using its loan review and credit risk management product through the licensing agreement the company negotiated with Credit Union Central of Canada. Now using Covarity Dashboard are: Kenora District Credit Union, Northern Lights Credit Union, Superior Credit Union, and West Fort William Credit Union, all from Northern Ontario, and Rideau/St. Lawrence Community Credit Union of Brockville.

• The Globe used Descartes as an example of companies implementing "corporate snitch lines." It reported that in February, Descartes added to its intranet instructions on how to report co-workers suspected of committing fraud. "It's not that Descartes has a history of nefarious goings-on," wrote Globe reporter Beppi Crosariol. No word on whether he's been reassigned to Your Morning Smile.

• The new CFO for ClearFrame Solutions is B.C.-based Randall Yip, which seems to signal that the company is going to keep its administrative headquarters in Vancouver. What evolved into ClearFrame used to be a Waterloo-based company which started being run from B.C. when it merged with Vancouver's Knexa Solutions. The pairing was not fruitful and the two companies were un-merged in November. The company said then that it was looking for a new CEO, but none has been named yet.

• Bannister Lake's software was used by Rogers in Ontario and CPAC to display real-time elections results from the Federal election on June 28.

• Reqwireless has licenced a customized version of its EmailViewer application to the University of North Carolina at Chapel Hill. As part of its Carolina Wireless Initiative, the university -- in partnership with Cingular Wireless -- will make the software available on Nokia, Sony Ericsson, and Motorola handsets.

• Sybase's iAnywhere Solutions, which is scheduled to move into the UW Research and Technology Park this fall, reported operating income of US$1.6 million on sales of US$29.0 million in the quarter ended June 30. That would include some results from XcelleNet, which Sybase acquired and merged with iAnywhere in the spring. Financial Fusion, another Sybase subsidiary with operations in Waterloo, reported an operating loss of US$1.1 million on revenue of US$7.4 million.

• The Hamilton Spectator, which suggested in April that RIM co-CEO Jim Balsillie might be the man behind doomed efforts to bring an NHL team to Hamilton, is now speculating that he might be offering to take over Copps Coliseum from the City of Hamilton.

• At the RIM AGM, the shareholder's motion from Vancouver's Real Assets Investment Management Inc. asking the company to prepare a report outlining the efforts it's making to encourage gender diversity was, as expected, easily defeated (see last month's digest). But it was supported by 26% of shareholders (weighted by shares) who cast a vote on the proposal. That's a significant number for a motion that goes against the wishes of the board.

• SlipSteam co-founder and EVP -- and UW professor -- En-hui Yang was listed as the inventor on a U.S. patent for lossless data compression issued in July to California-based DirecTV. It had been filed in November 2000.