April 2001
Compiled and written by
Gary Will
Issue 50 -- May 7, 2001
In this digest:
- Cisco kills PixStream four months after acquisition
- Xign, Metiom lay off developers at local offices
- Open Text's service & support sales make up for licensing slide
- 400 new jobs? "We don't do it that way," says Open Text CEO
- RIM ends year with strong sales, operational profit, writeoff
- STOCK REPORT: Big gains for some big names
- Virtek acquires Mississauga firm with Guelph connection
- Com Dev raises another $30 million
- UW proposes "pre-incubator" to serve faculty, students, staff
- Miscellaneous tidbits from MKS, Switchview, Agile, Spicer, Mitra, Ardesic, Com Dev, NCR
Cisco kills PixStream four months after acquisition
April 24, 2001
After seeing the value of their Cisco shares erode steadily since December, PixStream employees found out in April that their jobs were vanishing as well.
Just four months after paying what was booked as nearly US$400 million for Waterloo's PixStream, Cisco Systems decided in April to shut down operations and lay off the staff. The move was part of Cisco's cost-slashing plan that will see it chop 8,000 jobs company-wide.
Cisco's decision was communicated to PixStream's senior managers mid-month. Other managers at the company were informed late in the afternoon on Tuesday April 24, and 170 PixStream employees were cleaning out their desks on the 25th. Some others -- including founders Brad Siim and Marc Morin -- were kept on as part of a transition team that will wind down the business over the next few months.
Last-ditch efforts to save the company by PixStream's former executives, including proposals for everything from drastic cutbacks to a spinoff or even a buyback, were all rejected by Cisco.
Cisco was offering laid-off employees six months pay and benefits continuation -- a generous package -- for anyone who signed a severance agreement that included a waiver of just about all potential claims against the company. I'm told that some employees received even more than six months' pay. Cisco also made vested underwater options exercisable for the next year, giving former employees the chance to make some money from their options if Cisco's stock price improves.
A career fair for ex-PixStreamers is being held today and many tech firms from the area are scheduled to attend. RIM organized its own recruitment event just days after the layoffs were made.
The announcement of the end of PixStream -- which was formally Cisco Video Networking Canada -- came almost exactly a year after talks began with Cisco. Initially, PixStream management was only looking for an investment, but it quickly became clear that Cisco was more interested in acquiring the entire company.
It's been quite a year for PixStream. It began 2000 with a successful equity offering that attracted investments from institutions and many PixStream employees. There was excitement in the area about the prospects of PixStream going public (ah, those were the days) -- I received several e-mails asking how to get in on the IPO. "The next RIM" was a description heard more than once from people excited about the company's prospects.
And now, a year later, the company is all but gone. Not moved, or absorbed, just boarded up and abandoned. Although PixStream was a significant company within Waterloo, in Cisco's realm it was a piece of lint on a pant-leg. Cisco will keep ownership of the core technology.
When the acquisition was announced at the end of August, PixStream had $31.2 million in cash, so it could have survived on its own for a little longer (it was also burning a lot of cash). There were other offers that the company had considered, but the Cisco deal was considered to be easily the best. An IPO would have extended the company's life, but as a public company PixStream would likely have suffered a fate similar to iMagicTV, a PixStream partner that went public in November at $17.15 a share and has now fallen to $2. Its employees still have jobs, but assuming a six-month lock-up, they may be able to cash in their shares only now ... if you can call that cashing in.
PixStream's shareholders, which included most of its employees, did have the opportunity to sell their Cisco shares at a pretty good price following the acquisition. If they moved quickly, it was possible to get a price in the low US$40s. Some employees sold nearly all their shares in the $35-45 range, but others hardly sold any.
You may remember this quote I included in the December digest:
"Don't be afraid to think big. Don't be afraid of scale. Otherwise we're going to be a land of PixStreams."
Handol Kim, Canada's consul general in Silicon Valley,
National Post, December 7, 2000 (quoted in article by Simon Avery)
I actually ran into it again last month:
"In the years ahead, Canada is going to have to pay more attention to the Silicon Valley way, or risk becoming a land of PixStreams."
Simon Avery, National Post, April 2, 2001
Both these comments were made before PixStream was shut down. I derided Handol Kim in the December digest for that quote. He wrote in March to admit that the chiding was "well-deserved" but that, like Jerri Manthey, it was editing [by Avery] that made him look foolish.
"Yet, I cannot help but point out," he continued in his note, "that had Pixstream been based in Silicon Valley, they would have sold for a lot more or been able to raise more private equity funding and perhaps gone-out before the IPO window shut."
If someone can parse this sentence in a way where it doesn't say that Canadian companies should move to Silicon Valley to get a higher valuation, please let me know.
And I doubt there is a piece of property in the Valley or anywhere else that PixStream -- a relatively small, unprofitable company -- could have been sitting on and been sold for more than US$370 million in December 2000. Optivision, a Palo Alto-based PixStream competitor that is now part of Amnis Systems, had a market cap of about US$80 million in December. Even adjusted for its lower revenue, it was trading below the price Cisco paid for PixStream. Interestingly, Amnis announced in March that it was working with Cisco.
Xign, Metiom lay off developers at local offices
April 25, 2001
I don't have as much detail here, since in neither case was an announcement made, but it looks like Xign and Metiom have either shut down or greatly cut back their development activities locally. Xign, the RDM spinoff, removed its Waterloo office from its Web site, although company director Bob Nally told me that it still has staff in Waterloo. How many people that might be, beyond Peter Forde, manager of Waterloo operations, I don't know. Development work has been consolidated in Pleasanton, California.
I was also told that Metiom has shut down its office in Kitchener, although Marc Gingras, manager of the site, hasn't returned a call asking for confirmation. New York-based Metiom shows up 21 times on FuckedCompany.com (in the pay-to-read section only, unfortunately), so it does look like something is going on there.
Metiom took over the Kitchener office from Entrade in November after that company ran out of cash and laid off the employees. Metiom took over Entrade's lease, and kept Marc Gingras as the manager of the site, and Gingras retained many of the staffers he had an Entrade. As someone said to me in e-mail, some people have now been laid off twice by the same person in the same room by two different companies within six months.
With all the recent layoffs, its been a good time for companies who are still hiring. Jeff Fedor, CTO of Ardesic, told me that he had previously been very happy to get 40 good resumes when the company ran a recruitment ad. With their latest ad, they received 200 responses. And 60 people turned out for an Ardesic recruiting open house last week.
Open Text's service and support sales make up for licensing slide
April 26, 2001
For the quarter ended March 31 (Q3 01), Open Text reported strong service and support revenues that boosted total sales to US$39.3 million -- an increase of 38% from a year ago and 4% sequentially. Improved margins and cost controls enabled the company to grow its operating income 20% from the previous quarter to US$4.6 million with net income (including some one-time expenses) of US$2.0 million.
Cash position at quarter-end was US$86.2 million, up US$4.4 million. CFO Alan Hoverd said that operations provided a positive cash flow of US$8.5 million for the quarter. Working capital was US$78.6 million.
But even with the generally strong results, you didn't have to scratch too hard at the surface to see signs of the general weakening in corporate IT spending. Licensing sales, which tend to be the main driver of revenue for software companies, declined US$1.8 million or 9% from the previous quarter. In the conference call, Jenkins attributed this to an "absence of large deals," which is typically an effect of tighter IT budgets at client companies.
Open Text had said in December that it was comfortable with forecasts of 40% revenue growth this year. That fell to "35 to 40%" in a February conference call, and then to "30 to 40%" in March. Now its going with 30% -- cutting about US$8 million in sales off its estimates for this year. And it managed to do all this without once saying that it was lowering its guidance (Jenkins told analysts that results would "be on the conservative side of our guidance").
In this quarter a year ago, Open Text made a killing -- US$12.5 million -- through its investments in early-stage dot-coms, but in another sign of the times the company wrote off the value of all of its remaining dot-com investments this year, creating a loss during the quarter of US$2.9 million. Excluding that loss, amortization charges, and other non-recurring items, Open Text reported an adjusted net income of US$5.3 million (US$0.25/share).
ASP revenues and b2bScene accounted for about US$2 million in licensing sales in Q3.
About 150 new employees were added worldwide over the quarter, bringing the total to 1,150.
Open Text held its analyst day in New York last week (two hours' worth of presentations are archived at q1234.com) and reiterated its guidance of 30% revenue growth this year (ending June 30), and 30% in fiscal 2002.
It is about to launch an aggressive advertising campaign for Livelink that will include ads in several major U.S. business publications, including The Industry Standard, Red Herring, Business 2.0, Wired, Business Week, Forbes, and The Wall Street Journal. President John Shackelton told the audience that "marketing has not necessarily been Open Text's forté" in the past.
400 new jobs? "We don't do it that way," says Open Text CEO
April 26, 2001
There have been several reports lately that Open Text planned to hire 400 people, but CEO Tom Jenkins has now implied that the company never said any such thing. "That's been reported in the press, but we don't do it that way," he said to an analyst who asked about the progress on those 400 new hires.
Maybe it was just a coincidence that at least three different reporters gave the exact same figure of 400 new jobs -- two of them after hearing or speaking to Jenkins himself. In January, Mark McNeil wrote in the Hamilton Spectator that Jenkins told the audience at the 2001 McMaster World Conference that Open Text was looking to hire 400 people. A column by Susan Chilton in The Record early in March following an interview with Jenkins gave the same 400 number. A week later, a report in the Globe that was picked up by other papers through Canadian Press began with the sentence "Open Text Corp. said yesterday that it plans to hire an additional 400 employees."
But they don't do things that way.
Open Text also announced in April that it has lost its auditor but gained a potential business partner in PricewaterhouseCoopers. PwC resigned as Open Text's auditor to explore the possibility of teaming with b2bScene. KPMG has taken over Open Text's auditing duties.
Livelink Wireless was unveiled at the AIIM (Association for Information and Image Management) 2001 Conference in New York, where Tom Jenkins delivered one of the three keynote addresses.
RIM ends year with strong sales, operational profit, huge writeoff
April 11, 2001
For the quarter ended February 28 (Q4 01), RIM reported sales of US$90.1 million -- much stronger than expected, due largely to a large order for handheld devices by AOL that added more than US$10 million to revenue. Sales jumped 46% from the previous quarter and 249% from a year ago, with device sales climbing 88% sequentially.
It enabled RIM to report its first operating profit in the fiscal year, with operating income of US$1.9 million.
Detracting from the good news was a massive US$14.75 million write-down of RIM's investments, which suffered what the company described as "significant non-temporary declines in their value." I'll say. Market conditions and the economic environment were blamed.
The write-down erased all of RIM's profits for the quarter and the year, giving it a net loss in Q4 of US$6.5 million (US$0.08/share). For fiscal 2001, it lost US$6.2 million. Ignoring the investment write-down -- a behaviour eagerly encouraged by RIM, the company reported a net income of US$8.3 million or US$0.10/share, easily beating average estimates of US$0.07/share.
CFO Dennis Kavelman said in the conference call that we shouldn't expect to see these sales levels again over the next two quarters, but that sales would pick up in the second half of fiscal 2002. The company is sticking to its 2002 sales estimates of US$370-$390 million, but putting more emphasis on the lower end of the range.
RIM had cash and investments at the end of the quarter of US$721.9 million -- down US$12.0 million over the quarter. The balance sheet shows the addition of US$22.7 million in capital assets over the period. With all that cash, RIM reported interest income in Q4 of US$11.2 million.
For the full fiscal year 2001, RIM's revenue grew 160% to US$221.3 million. At year-end, there were 165,000 BlackBerry subscribers in 7,800 companies. RIM ended the year with 1,250 employees, an increase of 700 over the year.
STOCK REPORT: Big gains for some big names
April 2001
Following two disastrous months, April was a much smoother ride for local tech companies, with some of the area's big guns -- RIM, Descartes, and Open Text -- showing the largest gains and only two companies recording the kind of losses that we saw almost across the board in the winter.
For the month of April:
RIM [TSE: RIM] +56%
CME Telemetrix [CDNX: YME] +53%
Descartes [TSE: DSG] +41%
Navtech [OTCBB: NAVH] +27%
Open Text [TSE: OTC] +24%
RDM [CDNX: RC] +14%
MKS [TSE: MKX] +5%
=================================
Dalsa [TSE: DSA] -5%
Virtek [TSE: VRK] -5%
RecycleNet [OTC: GARM] -7%
Com Dev [TSE: CDV] -9%
GUARD [CDNX: GUA] -10%
Turbosonic [OTCBB: TSTA] -15%
Finline [CDNX: FIN] -33%
Treasury Int'l [OTCBB: TREY] -69%
RIM and Open Text both reported quarterly results that were well-received by investors. RIM's $52.50 price at the end of April was still its second-lowest monthly close in the last year, but we won't be seeing the $150-200 levels it was trading at last fall again any time soon.
Open Text ended April 2001 at $38.00 -- almost exactly where it was at the end of April 2000 ($37). The only other company on these lists that can say that is Com Dev (2001-$7.30; 2000-$7.40).
The gains by CME and Descartes weren't generated by any announcement. In fact, CME had no news over the month and hasn't announced that it has met the accuracy targets it set for itself to achieve by the end of last year (see March digest). Descartes did announce that Apple Computer has licensed the Descartes DeliveryNet product, but that news came after most of the April stock gains had already been made.
Navtech and RDM have already given back all their April gains. Both stocks are currently in or near penny-stock territory where large percentage gains and losses can come with every trade. RDM has been the worst performing local tech stock in 2001, other than the moribund Treasury International. If there's anything going on at the company they're keeping it a secret. Other than quarterly results, there's only been one news release from RDM over the last six months (excluding releases from Xign, which is a separate company), and that was just a follow-on purchase from an existing customer.
Finline continued its recent slide, falling to 40 cents at the end of April. It has nearly a million outstanding warrants priced at $1.85 that will expire in three weeks, so there's almost no chance they will be exercised. Finline announced last week that it raised $400,000 through a share offering priced at 40 cents a share.
I said in the last digest that things weren't looking good for Treasury International, and obviously the outlook hasn't improved any over the last month. Its 69% decline in April eclipses MKS' 67% drop in November as the worst one month performance in the 3+ years I've been tracking local tech stocks. It had nearly tied the record in March with a 66.6% fall. Treasury shares have now fallen 90% in calendar 2001.
There were some impresive gains among companies with R&D offices or divisions in the Waterloo area:
Siebel [Nasdaq: SEBL] +68%
CheckFree [Nasdaq: CKFR] +35%
Network Assoc [Nasdaq: NETA] +34%
CacheFlow [Nasdaq: CFLO] +23%
CVF Technologies [Amex: CNV] +19%
Cisco [Nasdaq: CSCO] +7%
Sybase [Nasdaq: SYBS] +2%
Gensel Biotech [CDNX: GSB] 0%
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MDR Switchview [CDNX: MSW] -3%
VoiceIQ [CDNX: VIQ] -6%
Cyberplex [TSE: CX] -47%
Siebel shares took off after the company announced better than expected quarterly results. The bounce partly reflects how badly the shares had fallen in February and March -- even with the huge gains in April, Siebel stock is still off 31% over the last three months.
Cyberplex shares got hammered again and have now declined for eight consecutive months. This time, they fell all the way to penny stock status, ending the month at 77 cents. Cyberplex is now off 96% over the last year, making it the second-worst performer over that period among the stocks tracked here, trailing only Treasury International.
Network Associates is challenging MKS as the stock turnaround story of 2001. Both companies had their shares left in the dumpster by investors last December, but as of Friday's close, Network Associates shares were up 204% in calendar 2001, compared to MKS' 202%.
Cisco shares had their first monthly gains since the company announced it was acquiring PixStream last August. Whoo-hoo. I think every ambulance-chasing law firm in the U.S. filed a class action suit against the company in April over its recent performance. Cisco shares have fallen 69% over the last year.
Virtek acquires Mississauga firm with Guelph connection
April 25, 2001
Virtek has acquired Mississauga-based FONA Technologies, the holder of an exclusive license for a fibre-optic nucleic acid (FONA) biosensor technology developed at the University of Toronto.
Virtek will pay FONA's shareholders 500,000 Virtek shares, valued at $1.85 million at the end of April, and pay a 6% royalty on sales for a period of five years, up to a maximum of $7.5 million. Virtek also assumes $500,000 of FONA's debts.
Although Virtek described FONA as a start-up, it's been around at least since 1998 and has ties to a University of Guelph spinoff called AGF Biosensors Inc., founded by professor (and former Cambridge-based chicken farmer) Dave Sparling. Sparling had been president of both FONA and AGF. AGF was pursuing agrifood applications of the technology while FONA concentrated on medical uses.
In The Record's 1999 Tech Spotlight, Mike Strathdee wrote that Guelph's Agri-Food Quality Cluster was considering making an investment in AGF and that Jim Stewart, president of AFQC, was a minority shareholder in FONA through his company, Eco-House.
FONA's core technology was developed at the University of Toronto by Ulli Krull and Paul Piunno. Virtek says it will sell the FONA biosensor as a disposable genetic test that will use technology similar to what is used in Virtek's ChipReader.
A commercial product for an industrial application is scheduled for next year. Virtek says it will increase its R&D spending to complete development of the product.
Virtek also said this month that Markham's Carsen Group will distribute the ChipReader in Canada.
Com Dev raises another $30 million
April 10, 2001
Com Dev raised net proceeds of $30.4 million through a bought deal led by TD Securities. A syndicate of investment dealers bought four million Com Dev shares at $8.00 a share. The net amount raised could climb to $35.0 million if the underwriters' over-allotment option is exercised in full.
It's the second $30 million injection for Com Dev in the last six months. Sprott Securities led another bought deal for Com Dev last October, priced at $12.25 a share. Sprott participated in the latest deal, along with National Bank Financial, Yorkton, and Harris Partners.
Com Dev also announced that it has appointed Com Dev Space president John Keating to the new position of COO. Keating will oversee all company operations, in both the space and wireless segments, with the exception of R&D, communications, and finance, which will continue under CEO Keith Ainsworth.
UW proposes "pre-incubator" to serve faculty, students, staff
March 26, 2001
Paul Guild, UW's VP of university research has proposed the creation of Innovate Inc., which would serve as a "pre-incubation program" to help commercialize ideas developed by university faculty, students, and staff.
From the description, it sounds like the old CTTAN, except focused solely on UW-based ideas. Innovate Inc. would help budding university entrepreneurs get their ideas developed to the point where they could meet with potential investors.
Chris Redmond wrote in UW's Daily Bulletin that Innovate could assist with business plan development and host events where ideas could be pitched to potential investors.
In other UW news, construction has begun on the university's $31.2 million, 170,000 square-foot Centre for Environmental and Information Technology (CEIT). The building is scheduled to open in 2003. A new co-op and career services building is also now under construction.
Miscellaneous Tidbits
- I mentioned in the January digest that the ex-MKS team of Gary Collins and Mike Hubbert had reunited at Markham's Sangoma.com. In November, Collins became Sangoma's CEO (he had been president for about nine months by then) and brought in Hubbert as a director. Apparently it wasn't any sweeter the second time around, as both were let go after just four months.
- As has happened with other Yorkton clients, MKS was required to include in its latest prospectus a notice about the OSC's investigation of Yorkton. Yorkton was one of the underwriters of MKS' recent warrant offering (see February digest).
- The City of Waterloo's 500-acre, $57 million Millenium Recreation Park has been renamed RIM Park in recognition of a $2 million donation from the employees of RIM. It was the largest donation made to the park. There has been some negative response to the new name -- as there usually is when corporate names go on public facilities -- and a Record columnist suggested that "BlackBerry Park" might have been more palatable. An 18-hole golf course and a rec complex with two hockey rinks are among the facilities scheduled to open in September.
- Alan McNamara, Switchview's CFO who played a key role in the negotiations that led to the creation of MDR Switchview, has left the merged company to become CFO of Agile Systems.
- Steve Coutts, who had been sales & marketing VP at Spicer, has moved to Mitra.
- Steve Traplin has stepped down as CEO of Ardesic and was
succeeded by Bob Ford, previously Ardesic's COO. Before joining
Ardesic, Ford had worked with Vancouver's ecmarket.com which
provides software and services for Internet marketplaces. Traplin had worked out of Ardesic's Kanata office, as Ford continues to do.
- Com Dev is hoping for big things from its new M/ERGY product, first announced last September. But it doesn't own the mergy.com or m-ergy.com domains. They were snapped up, along with m-ergy.net, earlier last year by Ivor Sunman of Britain's 3GNames.com, who is offering to sell those domains and many others on his Web site. "Perfect for an energetic high-growth mobile commerce business," he says of m-ergy.com.
- NCR held a ceremony in Waterloo to celebrate production of the facility's 50,000th ATM. It took six years to hit that figure, but the company says it expects to complete the next 50,000 units in just three years.
- This isn't a Waterloo story, but it does remind me of some of the lobbying efforts we've seen locally: In Ottawa, the city and the area's technology association pestered Air Canada for years to offer flights from Ottawa to San Jose. They finally got their wish in March when the airline started running daily direct flights. Ottawa's mayor put the barf bags to immediate use, saying something about how this would connect the two Silicon Valleys. But it turns out that the Senators weren't the only Ottawa no-show this spring. After just six weeks, Air Canada announced it was cancelling the flights because of a lack of passengers.