Why Is This Man Smiling?
Ian McKinnon has a tough job ahead of him: squeezing profits out of software developer Certicom Corp. That will be no easy feat for the company’s new president and CEO, considering Certicom makes wireless encryption software—an industry that is, well, so 1999. About the only way investors have made money in this sector in the past year has been by shorting stocks like RSA Security (Nasdaq: RSAS), VeriSign (Nasdaq: VRSN) and Certicom (TSE: CIC), a Canadian company headquartered in Silicon Valley that specializes in securing data transferred to and from wireless devices. Certicom and its competitors have watched their profits—and stocks—tumble since the tech bust. Certicom is trading in the $2.80 range, down from about $17 less than a year ago—and off an all-time high of $250 in March 2000, before a two-for-one split. But McKinnon isn’t deterred by an industry slowdown, even if the investment community is. “What had been disappointing over the past two years is that corporations in general were not moving rapidly to put PDAs into the hands of their mobile workforce,” he says from his office in Toronto, home to Certicom’s software development unit. “The trends now are very positive in terms of rapid proliferation of PDAs.”
Well, maybe. According to IT research firm Gartner, there will still be significant decreases in IT spending, specifically in government—a sector Certicom plans to comb for new licensees. However, Gartner predicts that health care and financial services—which McKinnon says are “areas that lend themselves favorably to our product offering”—will grow by 3.6% and 5% respectively. Still, there may not be enough money for new wireless devices—ergo, no need for wireless encryption software. And Certicom has already bagged big boys like Qualcomm, Motorola, RIM, Nortel and Palm. The only thing left to sell to those players are tool kits that allow them to customize its software. “Certicom has already sold to most of the biggest potential clients,” says one industry analyst, “so it’s tough to get some value-added services in there.”
Even in good times, Certicom has racked up losses: it lost US$15 million in fiscal 1999, US$18 million in 2000, US$41 million in 2001 and US$64 million in the first three quarters of 2002. Last summer, it took action, cutting half its staff. (It has since cut another 30%, leaving it with 150 employees.) In October, CEO Rick Dalmazzi resigned, leaving a collective of senior managers in charge while the board searched for a replacement. Last month, it appointed McKinnon, who’s best known to industry types for turning around Toronto semiconductor software developer Promis Systems Corp., which was bought for US$32 million by Massachusetts-based PRI Automation in 1999. When McKinnon took over Promis in 1995, it had a net loss of more than US$11.4 million; two years later, it had a before-tax profit of US$3.8 million.
McKinnon hopes to do the same with Certicom—although this time he won’t have a tech boom to help him along. But he’s hoping to cash in on recent security worries. “There’s a huge emphasis now—more so than ever—on securing the data transmitted between various government agencies and their mobile workforce,” he says. In late March, weeks after McKinnon took over, Certicom licensed its encryption technology to the US Federal Aviation Administration to protect voice communication between air traffic control and pilots. That same month, the company released new encryption software for PC handhelds and inked a deal with beleaguered telecom equipment maker Lucent Technologies (whose long-term debt was downgraded two notches by Moody’s just days later).
The trouble with Certicom isn’t its product—it’s considered one of the best and fastest on the market. That doesn’t matter if no one’s buying. Besides, even if it can bring in new licensees and cut its losses, will it be able to grow? “It’s a tough company to turn around,” says the analyst. “The best-case scenario is that it will become a tool kit company. That’s relatively low-margin, not a high-growth business. The worst-case scenario is that it runs out of cash.” McKinnon says the company has US$20.5 million in the bank and plans to be in the black by October. How? He won’t say. But there must be some reason for that grin on his face.
technology
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Going with the work flow (2002/04/01)
Squeeze play (2002/03/04)
Reduce, reuse, recycle (2002/02/18)
Use the force, Lucas (2002/02/04)
To hell and back (2002/02/04)
Why Is This Man Smiling?
Ian McKinnon has a tough job ahead of him: squeezing profits out of software developer Certicom Corp. That will be no easy feat for the company’s new president and CEO, considering Certicom makes wireless encryption software—an industry that is, well, so 1999. About the only way investors have made money in this sector in the past year has been by shorting stocks like RSA Security (Nasdaq: RSAS), VeriSign (Nasdaq: VRSN) and Certicom (TSE: CIC), a Canadian company headquartered in Silicon Valley that specializes in securing data transferred to and from wireless devices. Certicom and its competitors have watched their profits—and stocks—tumble since the tech bust. Certicom is trading in the $2.80 range, down from about $17 less than a year ago—and off an all-time high of $250 in March 2000, before a two-for-one split. But McKinnon isn’t deterred by an industry slowdown, even if the investment community is. “What had been disappointing over the past two years is that corporations in general were not moving rapidly to put PDAs into the hands of their mobile workforce,” he says from his office in Toronto, home to Certicom’s software development unit. “The trends now are very positive in terms of rapid proliferation of PDAs.”
Well, maybe. According to IT research firm Gartner, there will still be significant decreases in IT spending, specifically in government—a sector Certicom plans to comb for new licensees. However, Gartner predicts that health care and financial services—which McKinnon says are “areas that lend themselves favorably to our product offering”—will grow by 3.6% and 5% respectively. Still, there may not be enough money for new wireless devices—ergo, no need for wireless encryption software. And Certicom has already bagged big boys like Qualcomm, Motorola, RIM, Nortel and Palm. The only thing left to sell to those players are tool kits that allow them to customize its software. “Certicom has already sold to most of the biggest potential clients,” says one industry analyst, “so it’s tough to get some value-added services in there.”
Even in good times, Certicom has racked up losses: it lost US$15 million in fiscal 1999, US$18 million in 2000, US$41 million in 2001 and US$64 million in the first three quarters of 2002. Last summer, it took action, cutting half its staff. (It has since cut another 30%, leaving it with 150 employees.) In October, CEO Rick Dalmazzi resigned, leaving a collective of senior managers in charge while the board searched for a replacement. Last month, it appointed McKinnon, who’s best known to industry types for turning around Toronto semiconductor software developer Promis Systems Corp., which was bought for US$32 million by Massachusetts-based PRI Automation in 1999. When McKinnon took over Promis in 1995, it had a net loss of more than US$11.4 million; two years later, it had a before-tax profit of US$3.8 million.
McKinnon hopes to do the same with Certicom—although this time he won’t have a tech boom to help him along. But he’s hoping to cash in on recent security worries. “There’s a huge emphasis now—more so than ever—on securing the data transmitted between various government agencies and their mobile workforce,” he says. In late March, weeks after McKinnon took over, Certicom licensed its encryption technology to the US Federal Aviation Administration to protect voice communication between air traffic control and pilots. That same month, the company released new encryption software for PC handhelds and inked a deal with beleaguered telecom equipment maker Lucent Technologies (whose long-term debt was downgraded two notches by Moody’s just days later).
The trouble with Certicom isn’t its product—it’s considered one of the best and fastest on the market. That doesn’t matter if no one’s buying. Besides, even if it can bring in new licensees and cut its losses, will it be able to grow? “It’s a tough company to turn around,” says the analyst. “The best-case scenario is that it will become a tool kit company. That’s relatively low-margin, not a high-growth business. The worst-case scenario is that it runs out of cash.” McKinnon says the company has US$20.5 million in the bank and plans to be in the black by October. How? He won’t say. But there must be some reason for that grin on his face.
technology
Related Stories:
Going with the work flow (2002/04/01)
Squeeze play (2002/03/04)
Reduce, reuse, recycle (2002/02/18)
Use the force, Lucas (2002/02/04)
To hell and back (2002/02/04)
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