Year on a slide
from the Ottawa Citizen, January 2, 2008, by Bert Hill
Most Ottawa technology and related stocks lost ground in 2007 - but a few made huge gains
Ottawa technology and related stocks had a rough year in 2007, with just a few gems mixed among a lot of duds.
Most stocks had a strong first quarter as a 2006 technology stock boom rolled into the new year. But the wheels fell off during the summer as technology equipment spending cooled, a private equity buyout boom suddenly died and the U.S.generated credit crunch surfaced with a vengeance.
Indeed, savvy investors would have done better putting money into savings bonds or index funds rather than taking a chance on stocks that, as a group, lost money.
A basket of 50 Ottawa technology stocks lost an average of five per cent during the year, compared to gains of five to 10 per cent for most North American stock market indices.
The biggest gains came to those who invested in the oldschool Timminco, a specialty metals market company with operations in Renfrew County that was the star of the year.
It rang up a huge gain of more than 7,200 per cent during the year, soaring from a low of 30 cents in January to $21.95 at year's end.
Unfortunately, it was not the Renfrew magnesium mining and manufacturing operation that drove the results. Timminco was forced to shut down most of the Renfrew operations in the face of a rising dollar and offshore competition.
On the other hand, a new silicon production operation near Trois-Rivières, Que., won big orders that attracted investors and yielded the spectacular gains.
The high-grade silicon is used to make solar panels and the material is in short supply. With clean technology and green investing at the top of public opinion and private investment sentiments, the stock took off.
A surge of investor interest in satellite technology helped drive results of two Ottawa satellite stocks, International Datacasting and the satellite communication division of EMS Technologies. They rose 308 per cent and 47 per cent respectively.
But ComDev International, which is developing space station telescope technology here, plunged 47 per cent when results disappointed investors.
Enablence Technologies, a small Ottawa optical networking startup, jumped 285 per cent during the year with the strongest growth in the closing months of the year. Although its revenues are still modest and losses doubled in the latest quarter, Enablence had no trouble selling $57.5 million in stock to drive development of markets for its fibre-to-the-home lineup.
Two stars of the mobile communication world were big performers. Research in Motion soared 125 per cent as demand for BlackBerry devices grew despite the challenge from Apple's new iPhone.
Nokia, which develops security technology in Ottawa, was one of the few communication networking companies to have a good year in the market. The stock rose 86 per cent during the year.
While Nortel, Alcatel-Lucent and Motorola lost ground to stronger rivals, Nokia proved that it is possible to compete in the booming markets of China and India and not lose your shirt on deals with razor-thin margins.
Ericsson, which looked like it had the winning formula, discovered late in the year that it lost its touch, at least briefly.
Allen-Vanguard posted a 55-per-cent gain. By any standard that was a great year, even for a company that has been stand-out for some time.
But the Ottawa maker of bomb-jamming gear was on track to triple the value of the stock until early winter when it lost a development contact with the U.S. military. Investors didn't stick around to see if the company is able to overcome that challenge like it has in the past.
In the honourable mention category, takeover deals for Cognos and BCE helped lift those stocks during the year by 36 per cent and 51 per cent respectively. But low-profile operators like Curtiss-Wright, Open Text and Thermo-Fisher Scientific all generated above 30 per cent without any takeover hoopla.
On the negative side, there was plenty of evidence of what happens when major phone and cable companies slow purchasing to absorb an equipment glut and industry consolidation left over from the previous year.
Nortel and Alcatel-Lucent, had terrible years, losing more market share to Cisco, Ericsson and Huawei.
Their suppliers, including Tundra, Zarlink, AMCC and LSI and others, paid a heavy price.
Tundra had two rounds of layoffs as it struggled with weak demand for communication gear and the rich Canadian dollar. The stock fell 48 per cent.
Nortel chief executive Mike Zafirovski made a $1-million bet on his company, buying Nortel stock on the open market in August as investors reacted negatively to weak results in the June quarter. It looked like he had made a shrewd move in early November as Nortel surprised investors with an unexpected September quarterly profit.
But the combination of weak Nortel sales and deepening economic troubles sent Nortel shares into a new and deeper swoon. On paper, Mr. Zafirovski is down about $200,000 on his bet.
Nortel investors did even worse, their stock fell 40 per cent during the year.
Alcatel-Lucent botched the consolidation of the two equipment makers, issuing a string of sales and profit warnings. Worse still for the Ottawa workforce of about 2,000, the equipment company jacked up planned layoffs to 12,000.
For once, investors were not warmed by the prospects of more people losing jobs, the stock dropped 53 per cent.
But even this paled in comparison to the 72-per-cent stock decline at Zarlink Semiconductor, the worst performer of the year.
Chief executive Kirk Mandy bet that the purchase of Legerity Holdings of Texas would give him ammunition for the future and use cash reserves on the books that had made Zarlink a takeover target. But the turnaround strategy stretched into another year without results and investors left in droves.
VeriChip was the second weakest performer of the year, losing 65 per cent of the value of a February initial public offering of stock.
The problem wasn't the Ottawa-developed health-care security bracelets that protect infants and seniors. Sales results were healthy.
But an implantable chip that allows people with high-risk health conditions to communicate in emergency wards never got past the U.S. talkshow and analyst buzz stage. VeriChip is hopping that the device will turn into a big seller this year in key U.S. markets where many hospitals are now equipped to read the chips.
Chronic underperformers, Entrust and Workstream, had another bad year in the security and human resource software markets. They were punished by shareholders.
But Workstream escaped the worstperformer list with this week's announcement that an unidentified U.S. payroll company has made a takeover bid. Still the stock fell 29 per cent.
March Networks, a high-flyer of the past, had a terrible start to the year when Wal-Mart turned to another supplier for digital security recording gear. Wal-Mart came back with more orders later in the year and the stock had a brief recovery in the fall, but fell hard again as the year came to a close. The stock fell 51 per cent.
Wi-LAN, another star of the past, got its patent licensing business under full steam early in the year. But when the technology train lost momentum in August, Wi-LAN was left standing on the platform.
A huge lawsuit directed at 22 technology makers and related retailers couldn't stop a further sharp decline in November that took the stock down
48 per cent during the year. Wi-LAN tied with ComDev, which had trouble hitting sales targets for satellite communication equipment.
There were several other stocks that came close to make the Worst of the Year list including Mosaid, LSI, Nortel, AMCC and Corel.