Branham300 - 2002-The Year of Perserverance

Written by Lisa Anderson

Introduction

Now in its ninth year, Branham Group's annual ranking of the top 300 Canadian Information Technology (IT) companies reflects the ever-changing, yet ever-present IT Sector. Just as the IT industry continues to evolve, so does the Branham 300. This year the IT Professional Services category and the Web Development category merged to form the Top 100 IT Professional Services Companies category, resulting in the following 8 categories:

100 Top Software Companies
100 Top IT Professional Services Companies
25 Top IT Multinationals
25 Up and Coming Technology Firms
20 Top Wireless Software Companies
10 Top Application Service Providers
10 Top Internet Service Providers
10 Top Wireless Services Providers

The firms are ranked based on their reported worldwide revenue for the last fiscal year (2001), except for the Multinational category and the emerging players of the Up and Comers category. While the Up & Comers exhibit great promise because of their innovation, many have yet to record significant (if any) revenue, while the Multinationals are ranked based upon revenues generated within Canada.

Overall, the companies that make up the Branham 300 are located primarily in Ontario (61%), with Québec ranking a distant second (12%). This distribution is also mirrored in the companies within the Up & Coming Category with 76% located in Ontario, while 8% are from Québec. The reason for the disparity between these two provinces is not clear given both provinces offer many of the same advantages, including large population, access to a skilled work force, as well as similar income tax rates. However, corporations continue to establish their headquarters in Ontario rather than Québec.

100 Top Software Companies

The most enduring category over the last nine years, the Top 100 Software Companies, represents the heart of the Branham 300. In 2001, these companies recorded an average growth rate of 14%, substantially less than the 63% recorded in the prior year. This is not surprising given the slowdown in the economy combined with the maturing state of the software industry. One might characterize the software industry as entering its late teenage years.

In 2001, of the top 5 firms ranked (GEAC Computer Corporation Ltd., Cognos Inc., Hummingbird Ltd., Corel Corp. and Open Text Corporation), Geac and Hummingbird reported reported declines in revenue (-15.75% and –10.47% respectively). This decline, however, did not resulted in substantial declines in stock value, for GEAC, but Hummingbird continues to struggle to regain the confidence of the markets.

Company	Stock Price
Company	Mar 22, 2002	Jan 2, 2001	Change (%)
GEAC	$ 4.87	$ 2.01	142.29%
Cognos	$45.10	$27.00	67.04%
Hummingbird	$35.65	$48.50	-26.49%
Corel	$ 2.32	$ 2.40	- 3.33%
Open Text	$42.21	$32.00	31.91%

Other companies posted substantial increases over the past year:

Company	Rank in
Company	2000	2001
Pivotal Corporation	12^th	7^th
MDR Switchview Global Networks Inc.	43^rd	28^th
Raymark Xpert Business Systems Inc	75^th	44^th
Inea Corporation	92^nd	75^th

Last year, Branham predicted that Pivotal Corporation would be one of the organizations that would experience tremendous growth in 2001. The company was not immune to the challenging times that affected and continue to affect the IT community, however, this year’s results bear out the prediction. In 2001, the CRM market flourished and Pivotal leveraged its position, as the leading Canadian CRM company, to record strong revenue growth of 88%as reported revenues grew to $152.8m from $80.9m in 2000. With this increase in revenues, Pivotal climbed to 7^th overall from 12^th in 2000 on our list of top Canadian software companies.
MDR Switchview, a provider of communications infrastructure management software, formed some strong partnerships in 2001 to provide both Internet security software and Voice over Internet Protocol (VoIP) software. Following the events of September 11^th, the greater emphasis on security has provided opportunities for companies like MDR Switchview to offer solutions to mitigate the concerns of their customers.

Raymark Xpert Business Systems provides an application targeted at the retail sector. It merges head office, point of sale and eCommerce capabilities into one single point of view application. In 2001, Raymark Xpert won a multimillion-dollar contract with LVMH, a luxury products group that employs over 46,000 people worldwide, to deploy its solution for a global POS management system in the group's Fashion and Leather Goods Division.

INEA Corporation is a provider of enterprise analytic application software targeting the financial services industry. INEA achieved success in its target market in 2001, as it gained two high profile Canadian banks, Toronto Dominion and Royal Bank of Canada, as customers.

100 Top IT Professional Services

A broad ranging category, the Professional Services category encompasses organizations that generate over 50% of their revenues from professional IT services. This year, the Professional IT Services category also encompasses web development services.

As this year’s list combines both last year’s Top Professional Services and Top Web Development categories into one list, comparative rankings must be examined carefully as a drop in ranking can be attributed to the amalgamation of the two lists and the increased revenue scale on which they are now ranked (i.e. The Top 50 IT Professional Services were previously ranked on revenues that ranged from $7.2m to $1,400m and the Top 50 Web Development and Services Companies revenues ranged from $46,000 to $590m).

The combined revenue gap between the top 5 Software organizations and the top 5 Professional Services organizations is an astounding 64% of the combined software companies’ revenue ($2.2b and $3.6b respectively). The number one ranked services organization was CGI Group Inc., with a revenue of $1.5b, while the number one ranked software organizations was GEAC with revenues of $835m, a difference of 81%. Given the size of their employee base as well, the services providers remain critical players in the health of the IT sector.

Once again as it has done since 1998, CGI ranked as the top Professional Services firm. CGI also boasts the largest number of employees (9,100). Of notable mention, CGI celebrated its 25^th anniversary this year. Since its inception in 1976, CGI has grown to a $1.5 billion multinational, IT consulting business, with offices in North America, Europe and South America and Asia Pacific. CGI opened its first office in Québec City in 1977 and became a publicly traded entity in 1986. The stock currently trades on both Canadian and US stock exchanges.

CGI has made some strategic acquisitions in order to target specific verticals. In 1988 CGI acquired Intellitech Canada Inc. to position itself in the defense sector and in 1989 it acquired OnLine Financial Systems Ltd. to move into the Canadian banks and trust companies sector. CGI also acquired DRT Systems International, the IT services division of Deloitte Consulting in July 1999 that allowed them, not only expand their U.S. team, but also enable them to gain a stronger foothold into the United States. In 2001, CGI's acquisition strategy to gain entrance into specific vertical markets continued. In January 2001, CGI acquired Star Data Systems to target their existing client base in the financial services industry. In addition to its focus on building vertical market expertise, CGI possesses a legacy in the IT outsourcing market and is recognized by Gartner Group as challenger to the incumbents (e.g. EDS, IBM, CSC) in this market. Given the continued trend towards outsourcing of IT services and systems, CGI appears well positioned for continued growth.

Up and Comers

The Up and Comers category reflects newly established organizations with promising technology or innovative approaches to satisfying emerging market opportunities. This year, twice as many companies applied for Up and Comers category as compared to 2000. While this may indicate long-term confidence in the IT sector’s prospects, these start-ups may also be in response to the layoffs that occurred within the IT sector in 2000 and 2001, with past employees deciding to become master of their destiny.

Within the list of the top 25 Up and Comers, six of the listed organizations generate a large portion of their revenues from web design indicating a continued growth in the small business sector for web design and services. As well, the list features companies with very innovative technologies, including an interactive 3D training tools for medical device manufacturers (www.3donthe.net/) that will bring practical training for individuals in the medical field. Another innovative technology comes from Fire Monitoring Technologies International Inc. (www.openaccess.ca) that provides electronic direct to fire department [e-DTF] notification capabilities. This solution can save an average of 84.6 seconds off response times by fire departments to emergency calls. It is a technology, which can ultimately save lives.

Application Service Providers (ASP)

IDC recently reported that "the current ASP market is crowded and undergoing healthy consolidation-while still welcoming new entrants". This latter part of this statement is strongly supported by Branham’s experience, given that we received nearly three times the number of applicants as compared to 2000.

Of note is the fact that only one company, Charon Systems Inc. (previously FutureLink Corp), ranked on both 2001 and 2000 lists, dropping from 1^st position to 5^th. Despite the adjustments due to consolidation, another cause for the change in the make up of the companies ranked is due to the increase in the revenue scope of organizations ranked. Compugen Services Limited, number one this year, reported revenues of $220m, as compared to last year’s number one entry with $127m. . By contrast, Versa Systems Ltd. which ranked 10^th this year reported revenues of $10.8m, while last year’s 10^th placed company reported revenues of $0.25m. While some analysts have questioned the viability of the ASP market, it appears that companies are effectively garnering success with sound business strategies.

Internet Service Providers (ISP)

Large, integrated, telecommunications and cable/media companies populate the ISP category. The companies offer a diverse set of communication and media services, encompassing voice, data, wireline, wireless and media content, as well as hosting and data centre services. This broad range of services arises from the high cost of infrastructure and, also, due to the significant investment in the convergence of media and distribution that has occurred in the past two years. As a result of this variety of business units, it is often difficult to segment ISP revenues from their overall business activities.

The ISP market continues to show consolidation, as it is a high volume, low margin business, which requires significant infrastructure investment. In the last year, numerous small players in the Canadian market have quietly exited the market. However, there exists a regional market of ISPs that continues to see its constituents succeed through diversified, value-added service offerings. According to Daryl Schoolar, a senior analyst with InStat/MDR, when referring to the US ISP market, stated, "ISPs, with a few well-known exceptions, are not national players, they are regional …and only operate in a few cities." This appears generally true in Canada, as well.

The growth prognosis for ISP in 2002 is poor as the market is expected to remain flat, with little or no growth, as the absorption at the consumer level market has slowed considerably and ISPs that expanded too quickly and have been forced to retrench (i.e. PSInet declared bankruptcy in 2001 and its Canadian operations were acquired by Telus). In addition, future growth in the ISP market is contingent upon continued deployment of high-speed connections, including cable and digital subscriber lines (DSL). These high speed subscriber bases are not growing as quickly as initially expected due to their high price and lack of need for such access speed by most consumers (today, most users with simple dial-up connectivity find this adequate for the majority of their Internet needs). Additionally, DSL is considered to be difficult and expensive to deploy. Once high-speed bandwidth becomes cost effective for mass-market absorption (i.e. the cost becomes reasonable in respect to the available uses of high speed Internet), growth may resume again.

Wireless Software Companies

AMI Partners, providers of venture capital resources, estimates that in 2001, worldwide small to medium sized business spending on mobile wireless was $94.7 billion, or 9.8% of their total IT, Internet and Telecommunications Spending. Since 2000, the revenues generated within this category have increased 67%, a significant increase despite the uncertainty of 2001. This year Research in Motion climbed to the top, largely as a result of the merger of Psion and Teklogix International Inc, last year’s number one company.

The main challenge facing the mobile software market is that it is waiting for a delivery platform. The real potential and growth of the mobile market lies in the widespread upgrades to 3G services. Currently, the cost of system wide 3G upgrades lag far behind short term forecasted wireless revenues, thus providing poor return on investment. In fact, European telecom firms have spent billions for 3G licenses that were needed to access government-controlled spectrum. The purchase of the 3G licenses represented an enormous investment and left many organizations tight for cash. As a result, service providers are slow in making the transition to 3G. The adoption of an intermediate step, 2.5G, will allow the mobile software market to gain a stronger foothold, penetrate more markets and may lead to increased demand for full 3G services. John Sims, CEO of 724 Solutions Inc. predicts that in 2002 there will be a "continuing momentum throughout the year as more innovative applications and mobile devices come to market as 2.5G technology is rolled out globally."

<>The category of Wireless Software Companies is comprised of companies offering a broad range of technologies. Examples include Zi Corporation, which provides intelligent interface solutions and additionally provides services in voice over IP, bluetooth and man-machine interface design. Bitmovers Communications Inc. provides three key products; The Bitmovers Maui platform, a platform for development and deployment of network applications; The Bitmovers poCore, an entry level application logic server; and finally Bitmovers WHAP! Solutions, a suite of solutions for a WAP enabling business.

This year 25% of the listed organizations reported a decline in revenue over 2000’s reported results, the average decline in 2001 was 31%. In 2000, all of the organizations reported an increase, some as large at 1,689% (724 Solutions Inc.). As noted by many analysts, the wireless software market has not matured as quickly as anticipated. However, longer term, many continue to hold promise for wireless applications as the wireless infrastructure improves. Despite these factors, 2001 success stories include Research-in-Motion and 724 Solutions.

Research in Motion Limited, provider in the mobile communications market, ranked #1 on our list, with an increase in revenues of 160%. RIM attributes this increase in revenues due to a larger demand for their wireless handheld shipments and an overall increase in their BlackBerry subscribers.

A leader in the wireless software arena, 724 Solutions delivers an Internet infrastructure software solution targeted towards financial institutions. Similar to Pivotal, 724 Solutions faced a challenging market in 2001. None-the-less, its strong positioning in the financial services allowed the firm to climb to #3 from #6 in 2000, with a revenue increase of 43%. The firm has strongly established itself with high profile customers, such as Bank of America and Citibank, and through strong partnerships with such organizations as Bank of Montreal and Bell Mobility.

Mobile Wireless Service Provider

The year 2001 was a more difficult year for wireless service providers. The most notable development in this category was Telus Mobility moving from #3 to #1 in this category with an increase in revenues of 51%. Telus attributes this success to a combination of organic growth and growth through acquisitions. Although stronger in Western Canada, Telus is beginning to be a dominant force in Quebec and Ontario. Looking forward to 2002, Telus Mobility anticipates that regulatory procedures will have an impact on the organization, but expects to lessen this impact by continuing to grow through organic activities as well as implementing operating efficiencies.

Dropping two spots this year was Rogers AT&T Wireless. This however, was not due to a dramatic decrease in their revenues (in fact they increased in revenues by 10%), but rather was a result of a substantial increase in Telus Mobility and Bell Canada Wireless (Bell Mobility) revenues (52% and 45% respectively).

Multinationals

Multinational firms constitute major players in the Canadian market as they employ up to 48,000 people. Revenues for this category total over $18.3 billion.

In 2000, the top four vendors were all hardware vendors IBM Canada Ltd., Hewlett-Packard (Canada) Ltd., Compaq Canada Inc. and Xerox. This year EDS Canada Inc. climbed from number five to number two . Now the top four multinationals focus on services and software installation, as well as hardware installations.

2001 saw EDS Canada leapfrog ahead of Xerox and Compaq to place 3^rd compared to its 5^th place standing in 2000. EDS Canada reported Canadian revenues of $1.4 billion, and global profits of US$21.5 billion fro 2001. Although not recession proof, EDS Canada performs well in the best of times and in the worst of times. Demand for its services hasn't suffered; in fact the firm booked more than $1 billion in new business by the end of October 2001. EDS was bathing in analysts praise in October 2001 with such comments as: "'Our Confidence has never been stronger!' That is not what one might normally hear in a recession, particularly one that has been rather punishing to technology companies". Part of its continued growth may be its initiative to focus on five primary lines of business: Information Solutions, eSolutions, Business Process Management, Product Lifecycle Management and Management Solutions. This focus has enabled EDS to provide the complete lifecycle of a product from concept and development to distribution and delivery.

Once again, IBM Canada Ltd. is ranked number one. However the battle for 2^nd, 3^rd and 4^th spots is becoming more heated. In 2000, the margin separating 2^nd, 3^rd, and 4^th placed organizations (Hewlett-Packard, Compaq and Xerox respectively) was $345m. This year however, 2^nd, 3^rd and 4^th placed organizations revenues (EDS Canada, Hewlett Packard and Xerox) are separated by $100m.

In September 2001, Hewlett-Packard and Compaq announced an agreement to merge in order to co-create an $87 billion global organizations, operating in 160 countries and employing over 145,000 people. Through the agreement, HP was aiming to provide its clients with a complete IT cycle from products to services, and as a result would position them as the #1 worldwide revenue generator in servers, access drivers, PCs, handhelds, and imaging and printing products. However, since this announcement there has been ample controversy surrounding the acquisition as many, including the William and Flora Hewlett Foundation, felt that HP was paying too much for Compaq. Despite the strong opposition by some, in March 2002, Compaq’s shareholders voted in support of the merger while it remains too close to call in respect to HP’s shareholders, it appears that they deal will go through. For 2002, it should be interesting to see how this merger will affect the Branham 300. If one was to combine HP and Compaq's revenues for 2001 revenue, the combined entity would have been $3.1b, or would have occupied the number two spot, with revenue of $3.1b

Conclusion

The 2001 Branham 300 lists companies that have what it takes to persevere in the best of times and in times of uncertainty. Revenues per employee increased from 1999 to 2001 in the categories of Services, Software and Multinational. In fact, for the multinational category, revenue per employee returned to 1999 levels. In particular, the Wireless Mobile Service Providers, ASP and ISP categories reported a sharp increase in revenues per employee. Whereas only a slight increase was reported in Wireless Software indicating that the adoption of next generation delivery platforms has not yet reached a point where wireless applications become sound business investments.

Overall, these Branham 300 companies succeeded in facing the challenging market by being more productive, generating overall revenue growth per employee of 42%. Although substantially less striking than in prior years, these numbers still bear witness to the strong and important influence the IT sector has on the overall Canadian economy.

Craig MacFarlane (who was blinded in a childhood accident at the age of 3), a Canadian gold medallist in wrestling, travels the world to deliver his message of PRIDE.

P Perseverance
R Respect
I Individuality
D Desire
E Enthusiasm

All of these attributes, although largely viewed as personal goals, can and should be aspects that companies strive to adopt. Despite a less than lack luster economy it is possible to grow and achieve, just ask Craig MacFarlane continues to win in spite of huge odds. PRIDE – a good message as we persist through 2002.

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