Company Logo Thursday, October 24, 2002

Weathering the storm; Waterloo Region's tech sector thrives despite industry's global downturn

Kevin Crowley, RECORD STAFF

Waterloo Region's technology sector continues to make steady progress despite the economic storm that has rocked the global high-tech industry for nearly three years.

"We've had many shining moments and no calamities," says Greg Barratt, president of Communitech Technology Association.

"This area has kept its head down and nose to the grindstone and has really paced right through what I think everyone agrees in North America is a difficult time."

Many local tech companies are making use of the downturn to quietly build market share and position themselves for an industry rebound.

A long list of businesses -- Dalsa, Mitra, ATS Automation Tooling Systems, DSPfactory, Open Text, RDM, and Research In Motion, to name just a few -- continue to grow.

Studies also suggest that the local technology sector as whole is getting larger.

There were 411 technology-based companies in Waterloo Region and Guelph at the start of the year, according to the latest Techmap research spearheaded by consulting firm PricewaterhouseCoopers.

That's up from 300 companies identified in a similar map nearly three years ago.

While the region's new-economy sector is based largely on information technology and advanced manufacturing, nearby Guelph continues to enhance its reputation for biotechnology.

To be sure, the local technology industry has suffered some setbacks in the past 12 months.

A few companies, including Ardesic Corp. and Switchview, were sold and folded into operations elsewhere. At least one firm, Cyberplex, closed its local office to consolidate in Toronto. Others have slashed spending, shelved expansion plans and laid off staff.

As well, financing is as tight here as it is elsewhere, throwing a wet blanket on startup and spinoff creation.

But the setbacks in Waterloo Region are nothing like the reversals in other tech communities, such as Ottawa, Vancouver and California's Silicon Valley.

"There is growth going on in this area," says Suzanne Hubbard, a partner at PricewaterhouseCoopers who returned to Kitchener-Waterloo in 2001 after three years in Silicon Valley.

"You are seeing some restructuring," she says, "but people aren't closing down and leaving the area."

It's often said the tech industry in Waterloo Region is weathering the storm better than other communities because it was never dependent on telecom and dot-com companies.

While valid, Hubbard says that argument tends to overlook the stabilizing influence of the area's post-secondary institutions -- the University of Waterloo, Wilfrid Laurier University and Conestoga College.

The University of Waterloo in particular -- with its renowned computer-science and engineering programs, as well as its liberal policy on intellectual property -- continues to be a strong foundation for the local tech industry.

"I think people forget how important the university is," says Hubbard. "There are a lot of professors working on some very exciting things. When things are going well again, they can take that sabbatical and come out."

Meanwhile, Conestoga College continues to increase its contribution to the local tech industry.

In March, the college received permission to offer two degree programs, starting in 2003. One of the programs will train students in telecommunications-based engineering; the other involves engineering in advanced manufacturing. Both will include a business-management component.

Another source of strength is the tight network of supportive organizations in the Waterloo area.

"We've always been blessed in this community with really good technology infrastructure," says
Andrew Abouchar, a partner at Waterloo-based Tech Capital Partners.

Perhaps the biggest infrastructure news was the announcement that the long-awaited University of Waterloo Research and Technology Park was finally moving ahead.

The $214-million project, which is being funded by several levels of government, is expected to create 1.2 million square feet of office and research space on UW's north campus.

Grading began on the 40-hectare site in June. One tenant, Sybase's iAnywhere Solutions, has confirmed its plans to build a 100,000-square-foot building on the site, and there are reports of several other potential tenants actively scouting the park.

Organizations like Canada's Technology Triangle, the economic development agency that promotes Waterloo Region abroad, have high hopes that the park will attract large international companies.

"The new University of Waterloo Research and Technology Park will be an important lead card to lay on the table in our global marketing of Canada's Technology Triangle," says John Tennant, chief executive of the economic development corporation.

UW and its neighbour, Wilfrid Laurier University, have also introduced programs and facilities to bolster the local entrepreneurial talent pool.

WLU's Schlegel Centre for Entrepreneurship opened recently with a broad mandate to link students and university faculty with owners and executives from the local tech industry.

UW has launched a Centre for Business, Entrepreneurship and Technology, which will begin offering a masters degree next spring.

Such programs should help satisfy the growing need for well-rounded tech executives, say Barratt and Hubbard.

Other projects that enhance the regional tech community include the Perimeter Institute for Theoretical Physics, which is operating from temporary digs until its new building is completed next year. As well, plans were unveiled in July for the Centre for International Governance Innovation, a think-tank that will attempt to explain and anticipate changes in global government, economics and finance.

Meanwhile, many local companies are taking advantage of the slowdown to reorganize and position themselves for when the market bounces back.

Com Dev International is a prime example. The Cambridge-based company has cut itself loose from an expensive foray into the wireless communications sector. The new strategy is to refocus on the company's traditional expertise: space satellite components.

"People are getting back to basics," says Hubbard. "They've focused on controlling expenses, generating revenue and supporting themselves."

Abouchar agrees.

"I like to say the summer is over and the tourists are gone in the tech business," he says. "The folks who are still in the tech business were in the tech business before it was trendy (and) will be in the tech business after it's trendy."

Abouchar points to the likes of Research In Motion and Open Text as examples of the kind of local stalwarts that are chugging through the adverse market conditions.

The RIM story, however, is no longer the fairy tale it once was. Three years after launching the BlackBerry e-mail device, RIM is at a crossroads: Several competitors have emerged, patent lawsuits are flying back and forth, and analysts are asking whether RIM's first-mover advantage is enough to keep it at the head of the wireless pack.

But this region continues to have its share of exceptionally bright stories, including Dalsa Corp. and ATS Automation Tooling Systems.

Waterloo-based Dalsa, which makes digital cameras and other imaging technology, continues to report strong revenue growth and operating profits.

In Cambridge, ATS Automation Tooling Systems unveiled an $85-million plan to build a new plant on Royal Oak Road. The 120,000-square-foot facility will house a new solar-energy subsidiary called Spheral Solar Power Inc. The project will add 175 new workers to the 2,000 people that ATS already employs in Cambridge and Kitchener.

Other companies that are making steady progress include RDM Corp., DSPfactory and Meikle Automation.

As well, the acquisition of Mitra Imaging by Agfa-Gevaert NV of Belgium appears to be going well. Mitra, which makes photo and electronic imaging systems for the health-care field, continues to grow and is preparing to spinoff one of its partnerships into a local entity called Medicalis.

Despite all the good news, however, Waterloo Region's tech industry continues to face challenges.

Like elsewhere, financing remains a real challenge for new and expanding companies.

There have been some successes: Meikle Automation raised $10 million in September; SlipStream Data raised $1.5 million in April; and Arise Technologies is preparing for an initial public offering.

But by and large, venture capitalists are putting money only into companies that they've previously funded.

"The mainstream venture folks . . . are saying, 'We've got to support the deals that are on the books and we've got to make sure we have enough money if they need support," says

Another challenge for the community is passenger air service.

The area lost its only passenger carrier in June when Trillium Air pulled the plug on daily flights between Ottawa and Waterloo Regional Airport.

Waterloo's regional government is proceeding with a $27-million improvement to the local airport that should make the facility even more attractive to a passenger airline when the tech industry bounces back, says Barratt.

On another front, some industry leaders are pushing to strengthen the community's "brand" for the national and international markets.

A major part of the branding drive is to emphasize the word "Waterloo" -- a strategy that piggybacks on the University of Waterloo's well-known reputation in the United States and abroad.

The strategy, however, raises hackles in Kitchener and Cambridge where municipal politicians worry that their communities will lose out.

Communitech's Greg Barratt is trying to assuage those fears.

"We have a wonderful opportunity now, when the overall noise in North America is a little bit lower and when our story has fundamentally remained very positive, to agree on what the brand is," he says. "And when the rest of the markets all turn -- one, two, three years from now -- we will be well on our way to establishing our brand."

Meanwhile, many observers say Waterloo Region has made some big strides in increasing its profile.

In May, Industry Minister Allan Rock chose Waterloo for the first of a series of national innovation-strategy summits. Prime Minister Jean Chrétien visited Waterloo in June to announce $25 million in federal funding for the Perimeter Institute for Theoretical Physics. And the Ontario Task Force on Competitiveness, Productivity and Economic Progress chose the University of Waterloo to release a key research paper in August.

"It's a recognition that the Waterloo area is getting on the map," says Barratt. "We've made some great strides over the last two or three years to really be the 'go-to place' in Canada."


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