Canada's ICT Industry: A Work in Progress

Written by Darren Anderson

Optimism and progress mark this year's Branham300, but at a pace that can only described as modest

Branham300 Logo2010 brought cautious optimism and expected relief from the worst storm to hit the Canadian economy since the Great Depression, but the reality is still that Canada's ICT industry encountered many of the same challenges in 2010as it did the previous two years. The events of the past 24-plus months have continued to reshape Canada's ICT industry. A number of former ICT industry players succumbed to the economic environment, while many others hunkered down just to make it through. While this year's Branham300 data does reveal some positive trends, it also indicates that the recovery of Canada's innovative ICT industry is still a work in progress.

Canada's ICT industry realized modest growth in 2010, as cumulative revenues for the Top 250 Canadian ICT Companies increased by 3.66 per cent to $73.93 billion, up from $71.32 billion in 2009 but still trailing the $75.97 billion generated in 2008. At a high level, this growth seems positive for Canada's ICT industry, but after digging a little deeper into this year's data, it becomes apparent that the cumulative revenue growth the industry experienced in 2010 is largely due to strong growth by Canada's number-one ranked ICT company: Research In Motion (RIM). Netting RIM's revenues from the past two years' data illustrates that without the BlackBerry maker, Canada's ICT industry would have experienced a 1.14 per cent decline in 2010 overall.

Branham300 Cumulative Revenues

Breaking this year's Top 250 listing into five equal quintiles illustrates that, while the industry as a whole endured a challenging year in 2010, the SMB segment was hit particularly hard. Companies ranking 151 through 200 and 201 through 250 on this year's Top 250 experienced cumulative revenue decreases of 6.95 per cent and 11.52 per cent compared to 2009 figures, respectively. Comparatively, the three quintiles comprising the top 150 on this year's listing experienced slight declines or modest cumulative revenue gains in 2010.

Although it is clear 2010 was not a banner year for Canada's ICT industry, there are some positives to take away. Three of the four sectors that comprise Canada's ICT industry experienced positive growth in 2010. Each of the sectors is headlined by globally recognized leaders, with the likes of RIM, Open Text and CGI Group positioned as world-class technology companies in their respective areas of expertise. Further, Canada's ICT industry boasts an innovative group of up-and-coming ICT companies, as the firms that comprise this year's The Next 50 listing produced an average of 27.36 per cent year-over-year growth in 2010.

These findings are encouraging despite the overall 2010 economic climate and indicate that while it was a tough year for Canada's ICT elite, there are some uplifting indicators of things to come. One must remember that not quite 10 years ago Canada's ICT industry was pushed to the brink, only to emerge stronger and more innovative than ever before. The industry has overcome adversity in years past, and now it must come together and do it again.

For in-depth analysis and commentary on the current state of Canada's ICT industry, look for the third edition of Branham's report—Canada's ICT Industry: A National Perspective— to be released in Spring/Summer 2011.

Results by region

While Canada's ICT industry stretches from coast to coast, the overwhelming majority of its activity takes place in four of Canada's 10 provinces. These four provinces—Alberta, British Columbia, Ontario and Quebec—represented more than 97 per cent of total revenues on this year's Top 250, up slightly from 2009 figures.

Ontario-based companies generated approximately $41.10 billion in revenues, up 1.01 per cent compared to 2009, while listed companies headquartered in Quebec increased revenues by 2.25 per cent to $16.77 billion in 2010. British Columbia-based ICT companies experienced strong growth in 2010, boosting revenues by 6.34 per cent compared to 2009 figures to $9.87 billion. Picking up where it left off last year, Alberta continued its emergence as a hotbed for leading ICT activity as the province realized a 46.31 per cent increase in provincial revenues to $4.12 billion.

Performance by category

The Top 250 is comprised of four major categories: Software, ICT Professional Services, ICT Hardware and Infrastructure and x Service Providers (xSP). The ICT Professional Services category now represents the highest percentage of companies (34.4 per cent) on this year's listing, overtaking the Software category, which accounted for 32.8 per cent of Top 250 companies listed this year, down from 34 per cent in 2009. The ICT Hardware and Infrastructure and xSP categories also experienced declining representation, falling from 24.4 and 12.8 per cent in 2009 to 21.2 and 11.6 per cent in 2010, respectively.

Revenues by Province

Despite its low level of representation, the xSP category realized impressive growth in 2010 and now accounts for the highest percentage (40.42) of Top 250 revenues. The 29 xSP companies appearing on this year's Top 250 combined to generate $29.89 billion in sales, up 7.6 per cent from $27.78 billion in 2009, with 26 of the category's companies experiencing growth in 2010. The ICT Professional Services and ICT Hardware and Infrastructure categories also experienced growth in 2010, although at a lower rate, boosting cumulative revenues by 3.26 per cent and 1.31 per cent to $10.65 billion and $29.12 billion in 2010, respectively. The lone major category that experienced a decline in 2010 was Software, with total revenues falling 4.65 per cent to $4.27 billion.

The top performers

For the second consecutive year, RIM was Canada's undisputed ICT industry leader and Canada's largest ICT Hardware and Infrastructure Company. The wireless solutions pioneer continued its rapid growth in 2010, albeit at a lesser clip than previous years, increasing revenues by 35.14 per cent to $14.87 billion in 2010 from $11.01 billion in 2009. The next 12 months will give market watchers a good indication of whether or not RIM has what it takes to remain an elite player in the global wireless arena. RIM's BlackBerry PlayBook is slated to launch in the U.S. in early 2011, with a worldwide rollout planned for the second quarter of 2011. RIM has also announced that, moving forward, its wireless suite of smartphones will boast the same robust operating system that supports the BlackBerry PlayBook, a solution obtained as part of RIM's acquisition of Ottawa-based QNX Software. These significant product announcements indicate that RIM has heard the message loud and clear: in order to stay on top it must continue to innovate and deliver leading-edge technologies that offer the ultimate user experience.

Revenue by Category

The Big Three Canadian telecommunications firms (BCE, Rogers Communications and TELUS) maintained their leading positions on the Top 250 in 2010. Although each experienced modest single-digit growth and led the Top 10 xSP companies listing in 2010, there is no telling what the future may hold as competition in Canada's wireless sector continues to heat up.

Long-time ICT Professional Services category leader CGI Group also experienced an eventful 2010 fiscal year. Although revenues fell 2.43 per cent compared to 2009 figures, CGI Group finalized the Canadian ICT Industry's largest acquisition in 2010, acquiring U.S.-based Stanley for $923.15 million. Although integration efforts are only partially complete, early indications are positive as first quarter 2011 sales for CGI Group increased 22.75 per cent year-over-year to $1.12 billion.

Open Text cemented its status as Canada's leading software player in 2010, as the global enterprise content management specialist boosted revenues by 16.08 per cent to $907.10 million in 2010 from $781.42 million in 2009. Adding to its artillery of solutions, the Waterloo, Ont.-based company acquired Burntsand and Nstein Technologies, both former Branham300 companies, for a combined purchase price of US$44.70 million in mid 2010.

Top 25 ICT Multinationals (Link to listing)

Although their roots are not inherently Canadian, foreign ICT multinationals play an integral role in the health of Canada's ICT industry. Annually, Branham strives to assemble a ranking of the Top 25 ICT Multinationals with operations in Canada. The companies comprising this year's Top 25 listing put together an impressive campaign in 2010, as 19 of the listed firms experienced positive growth in their Canadian operations. Comparatively, only 11 of the multinationals landing on last year's listing experienced revenue increases, most of which were modest gains.

Once again, IBM Canada ranks as the largest multinational with operations in Canada, as the IT products and services provider rebounded from a 13.80 per cent decline in 2009 to increase sales by 12.23 per cent in 2010 to an estimated $5.2 billion. HP Canada followed closely in the second spot boosting sales by 10.04 per cent in 2010 to an estimated $4.5 billion. Rounding out this year's top three is consumer electronics juggernaut Apple Canada, which increased revenues in Canada by approximately 52.02 per cent to an estimated $2.22 billion, largely due to the continued success of the iPhone and the well-received launch of its tablet offering, the iPad.

Four other multinationals experienced notable growth in Canada in 2010. Ericsson Canada leads the group with a 62.36 per cent increase in sales to an estimated $1 billion, largely due to the acquisition of many of Nortel's assets over the past two years. SAP Canada followed, boosting sales by 22.1 per cent year over year to $788.17 million, while Oracle Canada experienced a 20.49 per cent increase in annual sales in Canada to $883.21 million in 2010.

Expect Oracle Canada's revenues to continue to surge in 2011, as it will benefit from a full year of the acquisition of Sun Microsystems' operations, which produced historical revenues in excess of $300 million in Canada. Cisco Systems Canada rounds out this year's group of high-growth multinationals, increasing revenues by approximately 17.03 per cent in 2010 to $1.33 billion.

Top 25 ICT Up and Comers (Link to listing)

While many struggled to acquire the necessary financing to get off the ground, and others fell victim to the perils of the economic conditions that were present for the past two-plus years, several Canadian technology start-ups moved onward and upward in Canada's ICT industry in 2010. The companies recognized on this year's Top 25 Up and Comers have a few things in common: they are disruptive, they are creative and they possess a lot of promise.

Top 25 Up and Comers Provincial Breakdown

Although all areas of Canada are represented on this year's listing, several cities have emerged as hotbeds for start-up activity. Three cities housed the majority of the firms listed with Toronto, Vancouver and Montreal accounting for 32 per cent, 16 per cent and 12 per cent of this year's Up and Comers, respectively.

Top 25 Software Companies (Link to listing)

The Canadian Software category was the lone group on this year's Top 250 that realized a decline, as cumulative revenues fell 4.65 per cent to $4.27 billion in 2010 from $4.48 billion in 2009. The leading software companies appearing on this year's Top 250 faired slightly better, as the Top 25 firms combined to increase revenues by 1.11 per cent to $3.55 billion in 2010.

Software Companies: Revenue Comparison

The overall category decline is somewhat misleading when it comes to analyzing the Canadian Software category's performance over the past year. The year-over-year decline in revenues in 2010 is largely due to declining representation on the Top 250. In fact, 17 of Canada's top 25 software players realized positive growth in 2010, with seven of the 17 firms experiencing revenue increases of at least 20 per cent. Forty nine of the 82 software companies on the Top 250 realized positive growth in 2010, with 27 experiencing revenue increases of at least 10 per cent year over year. As such the software category did not have as challenging a year as the cumulative data indicates.

For the second consecutive year, ECM software specialist Open Text ranks as Canada's premier software company. The Waterloo, Ont.-based company increased revenues by 16.08 per cent to $907.1 million in 2010, up from $781.42 million in 2009.

Ottawa-based Mitel ranks as Canada's second largest software player. The company, which successfully completed an IPO in early 2010, endured a challenging year that saw its revenues fall 11.86 per cent to $644.4 million in 2010. Rounding out this year's top three is Toronto-based Constellation Software. It finalized 19 acquisitions during its fiscal year, which contributed to the company's 44.86 per cent revenue increase as it generated an estimated $630.96 million in 2010.

Top 25 ICT Hardware and Infrastructure Companies (Link to listing)

The ICT Hardware and Infrastructure category, which experienced a 21.48 per cent decline in 2009, rebounded slightly in 2010 as cumulative revenues rose 1.31 per cent to $29.12 billion. Softening the steep decline the sector experienced in 2009 and bringing the segment back into positive growth in 2010 was Canada's technology star, RIM. The wireless solutions company increased revenues to $14.87 billion in 2010 from $11.01 billion in 2009, an increase of 35.14 per cent. Without the wireless pioneer's contribution to cumulative revenues over the past two years, the ICT Hardware and Infrastructure category would have realized another year of significant declines (-16.99 per cent) in 2010.

ICT Hardware and Infrastructure Companies: Revenue Comparison

Several category leaders struggled in 2010, as CAE, Aastra Technologies, Evertz Microsystems, COM DEV International and March Networks experienced declining sales. In addition, the slow decline of former number-one ranked Nortel Networks was a key factor in the ICT Hardware and Infrastructure category's decline in 2009 and the relatively stagnant 2010. With estimated revenues of $765.84 million in 2010, the former communications and infrastructure technology specialist is a faint shadow of its former self. Throughout 2010, Nortel continued to sell off its remaining business units to foreign players for the benefit of its creditors, while also preserving employment for a significant percentage of its former employees. After completing the sale of its flagship Ottawa Campus to the Canadian government for $208 million in late 2010, the farewell tour for one of Canada's most storied technology companies is soon to be complete.

It isn't all doom and gloom for the ICT Hardware and Infrastructure category, as several emerging players experienced strong growth in 2010. Leading this group was Ottawa-based DragonWave, which increased revenues by 294.85 per cent to $171.10 million in 2010.

Top 25 ICT Professional Services Companies (Link to listing)

Comprised of companies ranging from system integrators and technical consultants to value-added resellers and ICT staffing specialists, the ICT Professional Services category now represents 34.4 per cent of the companies listed on the Top 250. Throughout the past five years, the ICT Professional Services category has continually increased its representation on the Top 250, rising from the 62 companies listed in 2005 to the 86 firms that appear on this year's ranking.

ICT Professional Services Companies: Revenue Comparison

Recognized as last year's fastest growing Branham300 category, the ICT Professional Services category realized modest gains in 2010, increasing revenues to $10.65 billion in 2010 from $10.32 billion in 2009, an increase of 3.26 per cent. Cumulative growth among the Top 25 ICT Professional Services companies slowed considerably in 2010, as the category's leaders increased sales by a combined 0.45 per cent compared to the 20.35 per cent increase experienced in 2009.

CGI Group once again headlines the ICT Professional Services category in 2010, generating $3.73 billion in revenues, down slightly from 2009 figures. After reports surfaced in mid-2009 that CGI Group was a potential M&A target, the company stated publicly that it would be a consolidator and would not be acquired. Staying true to its word, the Montreal-based company finalized a major acquisition near the end of its 2010 fiscal year, as it acquired U.S.-based Stanley for approximately $923.15 million in mid-August 2010. Given the timing of the acquisition, less than two months of Stanley's operations were included in CGI Group's 2010 financials.

Softchoice leapfrogged its way into the second position on this year's Top 25 ICT Professional Services listing, increasing sales by 16.07 per cent to an estimated $1.16 billion in 2010. Third was Richmond, B.C., based MacDonald, Dettwiler and Associates (MDA), which increased revenues by 2.61 per cent to $1.03 billion in 2010.

Top 10 xSP Companies (Link to listing)

The Canadian x Service Provider (xSP) category consists of application, managed, wireless and Internet service provider companies. With 29 xSP companies listed this year, the Canadian xSP category represents just 11.60 per cent of listed Top 250 companies. This group realized strong cumulative growth, increasing revenues by 7.6 per cent to $29.89 billion in 2010. With this revenue increase, the xSP category now represents the highest percentage of Top 250 revenues compared to the other three major Branham300 categories.

xSP Companies: Revenue Comparison

The top 10 xSP companies appearing on this year's Branham300 all realized positive growth in 2010, increasing cumulative revenues by 7.88 per cent to $29.38 billion.

The Big Three—Bell, Rogers Communications and TELUS—once again take the top three positions on the Top 10 xSP companies listing, with all realizing single-digit growth in 2010. The Big Three endured a turbulent 2010 as wireless upstarts Mobilicity, Wind Mobile and Public Mobile entered the market and challenged the incumbents in several metropolitan cities. With more established players having already entered the market (Vidéotron) and others planning to do so over the next year (Shaw Communications), combined with the fact that Industry Canada has already made announcements that it plans to hold another wireless spectrum auction in the not-so-distant future, the Canadian wireless market is set to become a lot more competitive.

Top 10 Wireless Solutions Companies (Link to listing)

Eight of the companies that landed on last year's Top 10 Wireless Solutions Companies listing return again this year, with the usual suspects leading the way. The Top 10 companies that appear on this year's listing experienced significant growth in 2010, as cumulative revenues increased 28.51 per cent from $12.57 billion in 2009 to $16.15 billion in 2010. Cumulative revenues for all wireless solutions companies appearing on this year's Top 250 also increased, rising from $12.86 billion in 2009 to $16.49 billion in 2010, a one-year boost of 28.26 per cent.

Wireless Solutions Companies: Revenue Comparison

While the majority of the wireless solutions category's growth is related to RIM's 35.14 per cent year-over-year increase to $14.87 billion in 2010, the remaining companies on this year's Top 10 Wireless Solutions companies listing also propelled the category forward. Without RIM's contribution to the wireless solutions category's revenues over the past two years, cumulative revenues would still have increased 26.77 per cent to $1.62 billion in 2010 from $1.28 billion in 2009. This is a good indication that while RIM plays an integral role in Canada's wireless solutions sector, several other players are key contributors to its overall growth.

Richmond, B.C.-based Sierra Wireless rebounded from a 7.38 per cent decline in sales in 2009 by increasing revenues by 24.56 per cent to an estimated $652.12 million in 2010. Third ranked DragonWave jumped four positions on this year's Top 10.

Top 10 ICT Security Companies (Link to listing)

ICT security companies appearing on this year's Top 250 experienced yet another year of positive growth, increasing cumulative revenues to $444.98 million in 2010 from $426.58 million in 2009, an increase of 4.31 per cent. The category's leaders fared even better in 2010, as the Top 10 ICT Security Companies appearing on this year's Top 250 combined to generate $409.58 million in sales, up 9.75 per cent from $373.18 million in 2009.

ICT Security Companies: Revenue Comparison

The race for top spot on this year's Top 10 ICT Security Companies listing was closer than ever, as $2 million in revenues separated the top three players. With a 20 per cent year-over-year increase in revenues to $72 million in 2010 from $60 million in 2009, Montreal-based MXI Security lands in the top spot as Canada's leading ICT Security Company in 2010.

Last year's leading company, ESI Information Technologies, slipped into the second position on this year's listing, experiencing a slight increase (0.57 per cent) in revenues to $71 million in 2010. Rounding out the top three Canadian ICT security players is Victoria-B.C.-based ParetoLogic, a PC security and utility software provider, which generated approximately $70 million in revenues in 2010.

Toronto-based The Herjavec Group continued to increase its presence in Canada's ICT security landscape in 2010, increasing revenues by 77.80 per cent to $63.45 million, placing it in the number five position.

Top Healthcare ICT Companies

The overall importance of technology in healthcare is becoming increasingly apparent, as reports continue to surface that healthcare systems around the world are under increasing pressure to reduce overall costs while also improving patient care.

The top three companies appearing on last year's Top 5 Mixed-Play healthcare ICT companies listing maintained their positions this year, with TELUS taking the top spot again in 2010. Second-ranked CGI Group continued to increase its presence in the healthcare field in 2010, landing a $46 million deal with eHealth Ontario to design, build and manage its Diabetes Registry and Portal solution. Rounding out this year's top three mixed-play companies is recently acquired xwave, which boasts a staff of nearly 200 healthcare specialists focused on helping healthcare providers and their patients achieve the highest level of care.

Montreal-based Logibec Groupe Informatique maintained its position as Canada's top ranked Pure-Play Healthcare ICT Company in 2010, despite experiencing a 4.81 per cent decline in revenues. Making its first appearance on the Top 250 this year, Winnipeg-based IMRIS ranked as Canada's second largest pure-play company in 2010. It increased revenues by an impressive 51 per cent to an estimated $66.95 million in 2010. Third-ranked PointClickCare and fourth-ranked QHR Technologies also produced rapid growth in 2010, increasing sales by 43.71 per cent and 41.07 per cent to $32.41 million and $19.50 million in 2010, respectively. Rounding out this year's listing is Intelerad Medical Systems, which increased revenues by 5.12 per cent to $19.45 million in 2010.

Top 20 Movers & Shakers and Top 10 Growth Companies (Link to listing)

While some of Canada's leading technology companies struggled to maintain pace as a result of the challenging market conditions that continued in 2010, several organizations on this year's Top 250 experienced impressive growth, leading to tremendous upward movement on this year's listing. This year's Movers and Shakers listing is comprised of small niche players that realized significant revenue growth in 2010, allowing them to make the transition from The Next 50 to The Top 250 listing, as well as medium-sized ICT players that built on previous successes to continue to climb the ranks of Canada's ICT elite in 2010.

Novadaq Technologies, a developer of medical imaging technologies for use in the operating room, led all listed companies this year by rising 65 spots from the 230th position in 2009 to 165 in 2010. The estimated 84.42 per cent growth that the Mississauga, Ont.-based company experienced in 2010 is largely due to a significant licensing and development contract it landed in early 2009. Maplesoft Group, a high-flying systems integrator headquartered in Ottawa, continued its upward movement on the Branham300 this year, surging 53 positions to land in the number 65 position. Two other firms appearing on this year's Branham300 climbed more than 50 positions in 2010, as QA Consultants moved up 52 spots to the number 117 position, and Atlantis Systems ascended 51 positions to the 146 spot on this year's Top 250.

Several companies making their first appearance on the Branham300 experienced exemplary growth in 2010, allowing them to land on this year's Top 10 Growth Companies listing. Headlining this year's list of Canada's fastest growing ICT companies is Active Control Systems, an advanced wireless productivity and safety systems provider, which increased revenues by an astounding 324.54 per cent to $5.31 million in 2010 from $1.25 million in 2009. The main driver of growth for the Burlington, Ont.- based company was its newly launched two-way wireless voice communications, tracking and data system, which contributed approximately $4.7 million or 89 per cent of Active Control Systems' sales in 2010. CANTRONIC Systems, an infrared imaging and video security surveillance technologies specialist, also debuted on this year's Branham300 with impressive growth, increasing revenues by 319.64 per cent from $3.74 million in 2009 to $15.71 million in 2010. Landing in the 160th position on this year's Branham300, the company's rapid year-over-year expansion is due to strong growth for its video surveillance, thermal imaging and infrared detection products in both North American and Chinese markets.

2010 Trends and Developments

M&A deals aplenty

Canada's ICT industry experienced yet another year filled with major merger and acquisition activity. A number of industry leaders acquired companies ranging from established players to emerging start-ups in an effort to complement existing technologies and enter new markets, while several small- to medium-sized Canadian technology companies were acquired by foreign players. Notable absences on this year's Branham300 include BreconRidge, Brainhunter, Coretec, Protus, Clarity Systems and Fusepoint Managed Systems, which were all acquired in 2010. Throughout the downturn, many large Canadian and foreign ICT multinationals opted to hoard cash, with uncertainty at an all-time high. With many firms still undervalued or under resourced, it is likely that M&A activity in Canada's ICT industry will increase in 2011, or at least remain on par with 2010 levels.

All remains quiet on the IPO front

IPO markets remained quiet in 2010, as only two prominent Canadian technology companies went public, with both Ottawa-based Mitel and Calgary-based SMART Technologies completing their public offerings in early- to mid-2010. As a result of the events of the past two years, many of Canada's leading technology companies put their IPO plans on hold. With the markets continuing to improve, expect to see increased IPO activity in 2011 as leading Canadian technology companies once again look at going public as a viable route to obtaining additional resources to finance their activities or fuel their expansion.

The Canadian dollar is loony

The Canadian dollar closed above the U.S. dollar at the end of 2010, for only the second time in 30 years. With more than 40 per cent of this year's Top 250 generating in excess of 50 per cent of their sales outside Canadian borders, and more than 30 per cent of the listed companies producing more than 50 per cent of their revenues in the U.S., the significant increase in the value of the Canadian dollar relative to the U.S. dollar played an important role in Canada's ICT industry in 2010. Should this trend persist in 2011 and beyond, ICT companies doing business outside Canada will face increased competition due to the higher product costs, and Canadian companies trying to position themselves as effective near-shore options compared to traditional outsourcing destinations will have to rely on other core strengths, such as innovation and leadership, rather than overall labour cost savings.

R&D still below historical levels

Over the past year, Canada's leading technology companies increased the overall percentage of revenues they invest in research and development (R&D) activities from 14.78 per cent in 2009 to 15.44 per cent in 2010. Although this level of investment still trails 2008 levels (15.88 per cent), it is a strong indicator that Canadian ICT companies recognize they must invest in their core technologies and the products and services they bring to market in order to remain competitive in an increasingly global playing field.

Closing thoughts

Although Canada's ICT industry endured another challenging year in 2010, it has a lot to look forward to in 2011 and beyond. It is led by a world-class technology juggernaut that continues to churn out double-digit growth on an annual basis. Each of the industry's sectors is headlined by a globally recognized leader, something that is absolutely necessary for Canada to be recognized as a technology leader on a global stage. And the modest cumulative growth the industry experienced in 2010 is a building block for Canada's ICT industry as it recovers from the challenging economic climate of the past two-plus years. As economic indicators in Canada continue to improve and markets further stabilize, Branham expects Canada's ICT industry to experience high single-digit cumulative growth in 2011.

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