Canadian ICT firms among select few prospering in tough times

As economic woes continue to affect many industrial sectors, little attention has been paid to those information and communications technology (ICT) companies that are bucking the trend. How are they doing it? For the first quarter ended December 31, 2008, Canadian technology services firm Calian had revenues of $55.1 million, an increase of 20% over the previous year – all while having to account for Nortel’s filing for creditor protection, which resulted in a substantial write-off. Calian’s president and CEO Ray Basler says the solid results were helped by the fact that the company’s manufacturing group “continues to grow, and unprecedented staff utilization levels have bolstered the bottom line results.” Given the example of Calian’s focus on worker utilization, it’s no surprise that another winner is privately-held business intelligence firm SAS Institute Inc. In 2008 SAS Canada, a division of its US parent, recorded 11% growth in new software sales. "This growth is a direct result of being a stable privately held company,” says CEO Jim Goodnight, “which allows us to invest in long-term relationships with employees and customers." He adds that "In tough times, companies focus on optimizing their businesses." IBM has a similar story. The company had a robust fourth quarter profit, and was even optimistic in its forecast for its 2009 software and service business. The recession’s pressure on core operating expenses means that IT and business outsourcing is getting a lift – IBM had a 20% increase in outsourcing related work in its last quarter. Result: at press time the company was rumoured to be in takeover talks with Sun Microsystems. Expect more takeovers from cash-rich ICT firms. “Cisco and Microsoft are sitting on billions in cash,” Neil MacDonald, VP and Gartner Fellow for Gartner Research, tells Tech Media Reports. “And valuations are extremely attractive – I expect further consolidation.” Managed services a bright spot for telecom “Mobile operators had a pretty good 2008; most are trimming, but are confident,” says Jake Saunders, a VP of forecasting at ABI Research. There is, however, an impact. “ARPUs are also trimming,” he adds, “and we expect them to slide further.” That said, by and large Saunders thinks that there will still be good cash flow for the carriers in Canada, and that as a result they will not experience a substantial credit crunch. “They’ll gear up for recovery,” he says. “It will start in 2010, and build in 2011.” Lawrence Surtees, VP and principal analyst, communications research for IDC Canada, agrees. “Historically the Canadian carriers do okay during a slowdown,” he say, adding that growth rates may slow, but negative growth is unlikely. That won’t stop firms like Ericsson, which currently leads worldwide in network-related managed services, and the likes of Nokia Siemens, Alcatel-Lucent, and IBM from pushing managed ICT services for mobile operators. IBM in particular stands to benefit from the larger outsourcing trend. May the best niche win In those areas where ICT is not commoditized, the challenge is going to be to win the high demand, yet limited, niche markets that are driven by strict regulatory requirements. An additional boost will come from capital injections for infrastructure. And which areas are these? The best picks are healthcare, ‘eco’ or regulated energy – in which spending is tagged to specific projects – and construction. “Healthcare needs dispatch, GPS, and of course compliance is big – the technology has to ensure regulatory compliance,” says Jeff Lowe, VP of marketing communications for Telus Business Solutions. “In healthcare another area that is trending quite high is workload preparedness, remote worker access, and how to ensure safety and productivity.” Healthcare isn’t the only area that is driven by regulatory concerns. Toronto-headquartered wireless communication company Active Control Technology has evolved from a focus on remote control garage openers – a saturated, commodity-based market – to Wi-Fi mesh networks in newly-regulated coal mines. “Based on US legislation we created a new technology called ActiveMine,” says Steve Barrett, the company’s CEO. “The tricky part is to make Wi-Fi work in a mine. But when you look at these mines, the tunnels are at perpendiculars and cross-cuts. We saw that and said, ‘Gee, that looks a lot like a mesh network’." And it looks like a good market, too: the US will be investing in clean coal, the Chinese coal mining industry is in serious need of an upgrade, and present radio communication systems are reliant on old walkie-talkie technology. Meanwhile, hi-tech competitor Level 3 Communications looks like it will be another casualty of the downturn as it nears default on its US$1.867 billion in debt.

Canadian ICT firms among select few prospering in tough times

News | March 19, 2009

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