Branham300 - The Year of Stabilization

Written by Lisa Anderson

Introduction

The year 2003 marked a year of stabilization for the IT industry. In the post 9/11 and dot.com boom and bust eras, the Canadian ICT sector has begun to stabilize itself. Similarly, the Branham300 has evolved. In prior years, the Branham300 expanded to include sub lists that endeavored to capture the years’ emerging technologies. This year, the Branham300 has settled itself into one comprehensive listing of the top 250 IT organizations, the top 25 multinationals, and the top 25 up and comers. In addition the Branham300 broadens its scope to include the ICT Hardware and Infrastructure sector. The addition of this sector enables the Branham300 to further reflect the breadth of the IT sector in Canada.

2003 Overview

In April 2003, IDC lowered its IT spending outlook for 2003 citing the war in Iraq and continuing economic uncertainty. IT spending was expected to rise 2.3% to $852 billion in 2003, from $832 billion in 2002. According to Industry Canada, during the third quarter of 2003, and for the first time in the last seven years, setbacks were recorded in the telecommunications services industry and the software and computer services industry at the same time¹. For 2004, IDC forecasts a recovery in the areas of package software, outsourcing and wireless related hardware and software².

1. "Quarterly Monitor of the Canadian ICT Sector: Third Quarter 2003", Industry Canada, December 2003.
2. Dawn Kawamoto, "IDC lowers global IT spending outlook", CNET News.com, April 3, 2003.

Top 250 Organizations

The make up of the top 250 organizations by sector can be seen in Chart 1. Software leads the organizations appearing in the top 250, followed closely by IT Professional Services. A Distnat third is the ICT Hardware and Infrastructure Services followed by xSP's and Security.

On a provincial level, not surprisingly, Ontario ranks first in the top 250 organizations, followed by Québec, BC and Alberta (Figure 2).

This provincial pattern is supported in Chart 3 with Ontario (Waterloo, Toronto, Hamilton and Ottawa) boasting the highest concentration of clusters and spotlights and Québec (Québec City and Montréal), BC and Alberta following.

Top 10 of the Top 250 Organizations in Canada

The top 10 organizations (Top 250 Canadian IT Companies), which appear on the 2003 Branham300, are well-known, well-established porganizations, which focus on everything from hardware, to software, to services.

The ICT Hardware and Infrastructure sector dominates the top 10 with four organizations. These four organizations had combined revenues of $16.7 billion CDN in 2003.

The top ranked organization, and appearing for the first time on the Branham300, is Nortel Networks with estimated 2003 revenues of $13 billion (CDN), a decrease of 12% over 2002. Despite this decrease in revenue for 2003, Nortel Networks is beginning to turn things around.
Frank Dunn, President and CEO stated that:

"With the challenges that we faced in 2003, the Company had a tremendous year, truly marking a turning point for Nortel Networks. I am extremely proud of the dedication, passion and commitment of the entire employee team that delivered the performance not only in the fourth quarter, but throughout the year."⁴

Upon reviewing its Q4-2003 results, it becomes apparent that Nortel has implemented a strategy that is beginning to pay off. The Q4-2003results, as compared to its Q4 2002 results, indicates that Nortel increased its revenues from $2.53 billion (US) to $2.83 billion (US), a 12% increase. Its wireless division grew 33%, Enterprise Networks decreased 2%, Wireline Networks increased 9% and Optical Networks decreased 18%. Nortel plans to continue to experience growth through two segments: Voice over IP and Wireless data solutions. However Nortel does expect its Q1 2004 to experience a seasonal decline as compared to the results reported for its Q4 2003.

Ranked second overall is Toronto based Celestica Inc., an electronic manufacturing services (EMS) company. Celestica's total revenue for 2003, although still impressive at $10 billion (CDN), is a 19% decline from 2002. In 2003, Celestica executed its employee action plan by terminating a total of 6,105 of its employees, 80% in the Americas and 20% in Europe. As well, Celestica continues to lose money in its Asian markets, $230.5 million for 2003⁵. On the same day that it announced its 2003 revenues, Celestica's Chairman and CEO, Eugene V. Polistuk retired stating that:

"I believe the 'tech storm' is over and Celestica is very well positioned to share in the outsourcing trend that is gaining considerable momentum as end markets show positive signs of recovery. At this juncture, I feel it is time for me to pass the leadership of Celestica on to new and very capable hands so that I may re-focus my priorities on family and personal interests."⁶

Vancouver based Telus Corp. rounds out the top three with estimated 2003 revenues of $7.15 billion (CDN) . Telus is considered an XSP as it offers telecommunications products and services as well as data, voice and mobility wireless services.

The top IT Professional Organization with 2003 revenues of $2.71 billion (CDN)⁷ ranks fourth and is CGI Group Inc, with an increase of 25% over 2002. The increase can be partially attributed to CGI’s ongoing acquisition strategy. On January 1, 2003 CGI announced that instead of competing head to head with Cognicase, it would offer $4.50 per share for outstanding Cognicase shares. CGI viewed the acquisition of Cognicase as an opportunity that would add strength and stronger expertise to its financial services, oil and gas, government and business process sectors⁸.

The top software organization in the top 10 is Cognos Inc. Ranked fifth; Cognos has increased its revenues 22% over 2002. This increase is largely explained by the implementation of a new strategy to expand the scope of its business intelligence software offerings. Cognos named this strategy "corporate performance management (CPM)" and relied on it to double its corporate revenues: "This is our vision to get the company to US$1 billion in sales within the next couple of years" Rob Rose, Vice President of Corporate Strategy and Business Development, Cognos Inc⁹.

4. Nortel Networks Press Release "Nortel Networks Reports Results for the Fourth Quarter and Year 2003", January 29, 2003, www.nortel.com.
5. "Celestica announces Fourth Quarter and Fiscal Year Financial Results", January 28, 2004, www.celestica.com.
6. "Celestica Inc. announced Eugene Polistuk's decision to retire as Chairman and CEO", January 28, 2003, www.celestica.com
7. Branham estimate.
8. Sutton, Neil, "CGI raises stakes in Cognicase bid: outcourcer enlists rival's largest customer to help secure $330 million deal", Computing Canada, January 17, 2003.
9. "Cognos Embraces new strategy to boost revenue", Ottawa Business Journal, April 22, 2002.

Top 25 Canadian Software Organizations

The landscape of the top five software organizations changed in 2003 (Top 25 Canadian Software Organizations) as Corel was withdrawn from the listing as it was purchased by Vector Capital, an American organization¹⁰ Overall revenues in 2003 for the top 25 software companies decreased by 10% (Figure 4 – columns 1 and 3). The decrease is partially explained by the absence of Corel Corp., which contributed $200 million to last year’s revenue totals. Ignoring the revenue generated by Corel in the previous year, the top software companies show an overall decrease in revenues of 5% (column 2). Geac Computer Corporation, which reported a decline in their overall revenues of 13% effectively, explains the balance of the top software revenue decrease.

The distribution of the top 25 organizations by province (Figure 5) is not surprising with Ontario hosting 80% of the organizations, Québec ranking second with 12% and British Columbia placing third with 8%.

Ranked fifteenth in the software category is Enghouse Systems Limited, which increased its revenues by 244% in 2003. Enghouse was able to achieve this phenomenal growth through the December 12, 2002 acquisition of Syntellect Inc. In its 2003 fiscal year end press release, Stephen Sadler, Chairman and CEO said:

"Our results for the year demonstrate our ability to execute our stated strategy of accretive growth through strategic acquisitions. Enghouse's consistent profitability and positive cash flow have positioned the Company well to leverage its existing operations and to expand both internally and by acquisition.¹¹"

10. On August 28, 2003 Vector Capital, a San Francisco based venture capital and private equity company firm acquired Corel Corp. Although Vector intends for Corel to continue under its current name, Corel Corp. is now an American owned private organization.
11. "Enghouce Yearly Revenue up 244% and Q4 Net Income up 129%", December 11, 2003, www.enghouse.com.

Top 25 Canadian IT Professional Organizations

Ontario dominates the top 25 IT Professional Services organizations with 48%. Ranking second is Québec with 20% and tied for third is Alberta and BC with 12% (Figure 6).

The top three organizations remained unchanged with CGI ranking first, MacDonald Dettwiler and Associates ranking second and BCE Emergis ranking third (Top 25 IT Professional Services Organizations). However with an increase of 54% in revenues over 2002, Accenture Canada climbed two places to rank fourth.

In a one on one interview with Bill Morris, Country Manager for Canada at Accenture¹², Mr. Morris attributed its success to two major lines of business: Consulting and Outsourcing:

Outsourcing - Within Canada, over the past year, Accenture has focused on billing contracts within the utilities market through major utility accounts: Enbridge, Direct Energy, enMax, BC Hydro and Terasin in BC. As well, Accenture obtained its first US deal with a utilities company. These new customers have spawned a new sub sector for Accenture: "Accenture Services Business for Utilities" which will lead to the hiring of 3,000 people that deal with the maintenance of long-term contracts.
Over the past year, Accenture's consulting division grew by 45% due in part to changes to the management. According to Mr. Morris, its financial services division is made up of a knowledgeable team that was able to grow this sector by 50-60%.

In addition, its Microsoft alliance, Avanade Canada Inc. which employees over 130 people focused solely on Microsoft's .NET strategy, contributed to its success. According to Mr. Morris, two other factors are worth mentioning in contributing it Accenture's increase in revenue:

They have hired skilled employees thereby reducing the cost for training and overhead.
Geography has also been key, with tremendous success in western Canada.

The combination of these two factors has reduced its cost per contract and increased its presence in the market.

Mr. Morris does however recognize its product sector experienced a slowdown. In response to this slowdown, it was split in half and they have now created a health and life sciences division.

Revenues in 2003 for the top 25 IT Professional Services organizations increased by close to 15% (Figure 7) over 2002. One of the main contributors for this increase is of course CGI Group Inc., based out of Montréal. CGI Group increased its revenues in 2003 by 25%. Two other organizations, which also experienced notable increases in revenues, were Accenture and Eagle Professional Resources Inc.

Ottawa based Eagle Professional Resources achieved year over year growth of 45% through organic measures. As a high-tech staffing company with offices across Canada, Eagle continues to grow and win awards for its corporate achievements Ranked as one of the 50 Best Managed organizations and Janis Grantham, President and COO of Eagle Professional Resources (Eagle) was named one of "Canada's Most Powerful Women: Top 100."

Descartes Systems Group Inc. experienced an 11% decrease in revenues as it implemented an entire shift in focus from a business software firm to a company that makes money helping companies track and deliver their shipments.¹³ Analysts were expressing concern that Descartes did not have a concrete business model and they have been hurt by massive competition. The combination of both factors caused Descartes to cut its workforce by 25% during its second quarter.

Xwave fell one position with a reduction in revenues of 9%. In January 2003, Aliant, the parent company of xwave, announced that it was going to seek a buyer for xwave that would be willing to pay full value for xwave, hire on all 2500 of xwave's employees and provide for its IT requirements.¹⁴ In June of 2003, Aliant announced that it was ending its plan to find a buyer as no buyers had emerged that were able to meet its outlined criteria. As xwave was to remain within Aliant, Aliant initiated "a strategy which will take xwave to higher levels of customer service, operational effectiveness and profitability". Based on this strategy, it is hopeful that 2004 may see xwave return to profitability.

12. Interview with Mr. Morris took place on Wednesday February 11, 2004 - Contact: Sarah Thompson sarah.thompson@accenture.com.
13. Restivo, Kevin, "Descartes new direction full of potholes", Financial Post, September 5, 2003.
14. "Aliant kills plan to sell off xwave", Ontario Business Journal, June 20, 2003.

Top 10 Canadian Wireless Organizations

According to The Canadian Wireless Telecommunications Association, in September 2003, 32 million Canadians sent person-to-person text messages, a tripling in monthly usage in 18 months¹⁵. Total wireless subscribers in Canada in 2003 were 13 million, about 43% of Canada's population. By 2005, more than half of all Canadians will be mobile phone customers¹⁵. Despite this prediction and all indications that the Wireless market for software, hardware and its related services is going to be hot, our top 10 Wireless organizations decreased in revenues by 12%. However, it should be noted that all but 2 organizations increased revenues while SR Telecom and Certicom Corp. decreased their revenues. This year, Rogers Wireless Communications ranks first with annual revenues of over $2 billion CDN. Tumbling one position is Waterloo based Research in Motion with 2003 revenues of $429 million (CDN) and Sierra Wireless Inc., with an increase in revenues in 2003 of 27%, rounds out the top three organizations (Top 10 Canadian Wireless Organizations).

Top 10 Canadian XSP Organizations

The worldwide xSP market is expected to increase from US$106 billion in 2000 to more than US$392 billion by 2005, an annual growth rate of 30%. The xSP market in Canada is expected to grow at a rate of 17.9% between 2000-200516. The top 10 XSP organizations grew by 6% from 2002-2003 (Figure 10). One of the top growing organizations was Cogeco Cable Inc. that increased its revenues for its Internet service by 124%. Cogeco attributes this substantial increase in revenues to "Effective marketing and customer service combined with the popularity of bundling which resulted in revenue generating units rising by 5.7% in fiscal 2003."¹⁷

15. Choma, Marc, "Canadiands Send More than One million Wireless Text Messages Pre Day", CWTA, November 12, 2003.
16. "Redefining IT Services May Be a C$9.3 Billion Opportunity in Canada", IDC, January 24, 2002.
17. Cogeco-FYE 2003 Press Release, October 20, 2003, www.cogeco.com.

Top 25 IT Multinational Organizations in Canada

Out of the top 25 multinational organizations only one organization (Stratos Global Corporation) is headquartered outside of Ontario. The revenues for the multinationals remained relatively the same with a 2.3% increase over 2002 (Figure 11).

The trend amongst global organizations this year was consolidation. In June 2003, PeopleSoft Inc. announced that it would acquire J.D. Edwards & Company in a stock deal worth $1.7 billion USD¹⁸. This acquisition was undertaken in order to give PeopleSoft a stronger footing in the market and increase its strength to sell to the manufacturing industry. In response to this acquisition, Oracle looked to PeopleSoft for a hostile takeover, which was set at $9.4 billion US. In recent events occurring Feb 26, 2004, the Department of Justice stated, "We believe this transaction is anticompetitive, pure and simple. Under any transactional merger analysis this deal substantially lessens competition in an important market. Blocking this deal protects competition that benefits major businesses, as well as government agencies that depend on competition to get the best value for taxpayers' dollars."¹⁹

Top 25 Canadian ICT Hardware and Infrastructure Organizations

There is no doubt that the hardware and infrastructure organizations generate an enormous amount of revenue for the Canadian ICT sector. In fact, IT Infrastructure companies generate $365,601 per employee whereas Multinational organizations generated $306,262, a 19% difference in revenue per employee. For the past few years Nortel Networks has fallen on hard times with massive global layoffs and a plummeting of its stock. In recent months though, it appears that Frank Dunn, President and CEO of Nortel is starting to turn things around by focusing on growing its global presence and expertise in the areas of: packet, optical, wireless, and voice technologies.

Revenues in this sector are so high that of the top 25 organizations in the 250 listing, 36% are ICT Hardware and infrastructure organizations.

Top 25 Up and Comer Organizations

In 2002 almost $19.4 billion went into venture backed companies, a very large number, but nonetheless 44% less than in 2001 and 66% less than what was being invested during the 2000 peak²⁰. These numbers would lead most people to conclude that the era of innovation in the IT industry is over. However, we found 25 Canadian start-up organizations that beg to differ. Of particular interest is that nine of the organizations provide services that enable corporations to operate more efficiently. These Up and Coming organizations are positioning themselves to become the answer to managers’ problems - too much time spent on processes, and not enough on marketing and sales.

If the new organizations of today don't have a viable business plan, they will not be able to thrive in the marketplace. The organizations in Top 25 Up and Comers demonstrate promising technology or services, and appear to have overcome many of the largest hurdles facing start-ups, attracting investors, customers and partners.

Top 10 Security Organizations

The top 10 Security organizations has not seen any changes in the top 3 rankings with Qunara, Boomerang Tracking and Certicom maintaining their positions.
Over the next year we anticipate the make up of this list will expand to include organizations that operate within the biometrics security arena and others who focus on the wireless industry. It is our intention to expand this sub category to reflect the ongoing concerns of IT users regarding security.

18. Flynn, Laurie, "PeopleSoft Acquire Rival in $1.7 Billion stock deal", The New York Times, June 3, 2003.
19. Boulton, Clint, "DoJ to Block Oracle's PeopleSoft Bid", Enterprise, February 26, 2004.
20. Foley, John and Murphy, Chris, "Six Myths-IT is a commodity", Information Week.com, June 30, 2003.

Return

Tech Now

Every Sunday, as part of its 6pm EST newscast, CJOH News airs its TECH NOW technology segment that features a look at the technology industry and how technolgy influences our lives and shapes the way we work, play and learn.

Wayne Gudbranson, Branham Group's President and CEO makes a regular appearance as an industry analyst. Watch the latest interview.

You will need RealPlayer to view these interviews. It can be downloaded free from www.real.com

Branham300 - Available Online

Comments and suggestions webmaster@branhamgroup.com
Copyright © 2000-2010, Branham Group Inc. All rights reserved. Permission is granted to reproduce or cite portions herein, if proper attribution is given to the Branham Group Inc.