Who will survive in 2009? Smaller telecom/wireless firms brace for the worst

The next 12 months could prove critical for a number of smaller Canadian wireless and telecommunications companies with some surviving and others getting swallowed or disappearing altogether. Industry analysts share their predictions for Canada's most vulnerable. At the end of 2008 a number of smaller companies in the wireless and telco space took defensive postures - cancelling stock options and implementing repurchase plans, cutting operational expenses, and fighting off hostile takeover bids - to survive the downturn. Some companies aren't likely to make it. "EQO Communications, a Vancouver company, just announced layoffs," independent telecom analyst Jon Arnold told Tech Media Reports, by way of example. "They focus on Skype and downloading buddy lists. I don't know if they're going to make it at this point." The list of those companies assuming defensive postures is long. To name a few developments in the past two months: mobile and embedded software solutions provider Intrinsyc Software International announced a comprehensive cost reduction plan; communications networking products company Aastra Communications will repurchase up to $25 million of its common shares; WebTech Wireless, a provider of location-based and fleet telematics services, and Call Genie, a provider of local mobile search and advertising solutions, have completed voluntary stock option cancellation programs. And as sign of the broad acceptance of the tough economic times and market conditions, companies are being very public about their operational cutbacks as an indication that they're serious about surviving the downturn. "We are focused on meeting our customers' needs, driving improved financial performance and achieving our cash preservation goals," said Tracy Rees, interim CEO, Intrinsyc, in a note to analysts. The company is planning to reduce operating expenses by about $10 million down to approximately $24 million. This is an aggressive move - it will reduce the breakeven point, but is tough to achieve. Part of the plan is to leverage "improvements in labour efficiency provided by the company's low cost development center in Beijing, China." However, there will be opportunity for those companies that have cash in the bank, like Research in Motion (RIM) and Cisco Systems. In the case of RIM - which had $2.49 billion in cash, cash equivalents, short-term and long-term investments as of November 28, 2008 - uncertain times made mobile content provider Chalk Media happy to accept a takeover offer. However, security vendor Certicom, which is in the midst of a pitched battle with RIM to stop a hostile takeover, is fighting to stay independent. Smaller companies with promise will get targeted, and others will be allowed to struggle - no matter their size. Expect the big players to use this time to expand capabilities and not market share. This strategy was made evident during an interview with Marthin De Beer, senior VP and GM for the emerging technologies group at Cisco Systems. "We never make an acquisition for market share," he told Tech Media Reports. What Cisco will do - and RIM seems to be on the same page with the Certicom takeover bid - is buy technological capabilities. Recent research suggests that hot takeover areas could be security and mobile content in browser-based mobile environments. ABI Research's study, The Mobile Browser Market, concluded that "while growth of web usage is up across all mobile device classes, one of the biggest areas of growth has been smartphones." The company anticipates that growth will continue over the next five years, with "highly capable" browsers on smartphones expanding from 130 million in 2008 to 530 million by 2013. Specific to Canada, the Conference Board of Canada came out in December with a prediction that telecommunications' industry profit will remain flat in the next five years, despite year-over-year growth in wireless in the 8% range. Michael Burt, the Conference Board's associate director, industrial outlook, said that this will be due to "fierce price competition, and a slowdown in demand growth due to the economic slowdown." This will put added pressure on smaller companies to survive. And what small players will survive and stay independent? Perhaps those successful niche players that, nonetheless, don't provide technological or competitive advantage to a possible suitor. Whereas Certicom has encryption technology that RIM and its competitors use, and Chalk Media was tied into the BlackBerry platform, a small company like DDS Wireless (DDS) will likely be left alone to explore its niche. DDS provides wireless devices and communications infrastructure for four business areas dedicated to transit, taxi, limousines and "work truck", and business is good: the company's revenue grew 72% to $22.9 million for the nine months ended September 30, 2008.

Who will survive in 2009? Smaller telecom/wireless firms brace for the worst

News | 01/09/2009 12:17 pm EST

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