High-tech on a roll
Demand for Internet-related wares and
biotechnologies gives Ottawa-Carleton
companies a leg up. Karyn Standen
reports.
Karyn Standen
The Ottawa Citizen
Demand for
Internet-related wares
and biotechnologies gives
Ottawa-Carleton
companies a leg up.
Karyn Standen reports.
The mania for all things
relating to the Internet
that continues to grow
unabated and an imminent
breakthrough in lifesaving
technology promise to
make 1999 a successful
year among
Ottawa-Carleton
technology companies.
Five local firms in
particular stand out. With
the global networking
industry in the first stage
of what will be a 15- to
20-year roll-out of new technologies, analysts say Northern Telecom
Ltd. and Newbridge Networks are poised to benefit from the increased
demand for telecommunications and networking tools.
Software giant Cognos Corp. is also gearing up to take advantage of the
explosion in demand for Internet-related technology. It's developing
Web-based applications for its core product, business intelligence
software.
Corel Corp., perhaps the most surprising local company last year as its
stock surged to record the best result for 1998 of any stock trading on
the Toronto Stock Exchange, will release new versions of its two core
products.
The company, which recorded a net loss of $182.4 million U.S. for the
nine months ended Aug. 31, is looking to the releases to boost sales and
help restore credibility among analysts.
Finally, World Heart will accelerate its transition from research to
commercial production of its artificial heart assist device, HeartSaver.
Here's what analysts and company executives think 1999 holds in store
for the five companies:
World Heart Corp. is expected to begin human trials of HeartSaver by
the end of this year. HeartSaver, which is currently undergoing animal
testing, is a left-ventricular assist device that can be implanted in a
patient's chest cavity for permanent use or temporarily until a transplant
organ becomes available. World Heart plans to begin production of
HeartSaver in 2000 and is projecting its first profit, of about $13 million
U.S., in 2001.
Heart failure is the leading cause of death in North America and Europe.
Only a few thousand organs are available for transplant each year, so
artificial heart-assist devices are often patients' only alternative to death.
Scotia Capital Markets, which late last year released a report on World
Heart, estimates the international market for ventricular assist devices
(VADs) "to be $5 billion annually."
While there are eight other medical devices organizations world wide
developing artificial heart assist technology, World Heart's product is
considered by several analysts to be ahead of its competition. As
examples, HeartSaver can be completely embedded in the chest, thus
limiting the risk of infection from skin perforations for wires and tubes,
and can be remotely monitored and powered.
However, analysts warn that World Heart's technological edge will likely
soon be challenged by much larger U.S. competitors, such as
ThermoCardiosystems, Inc.
ThermoCardiosystems is considered a leader in the field of VAD
development.
In his November report on World Heart, Scotia Capital Markets analyst
Michael Lorimer said: "While we believe that the HeartSaver system
offers distinct technical and clinical advantages over current and
developmental VAD products, we expect the future VAD market to be
characterized by rapid and significant technological change."
That means key World Heart activities this year will include extensive
efforts to increase awareness and support of World Heart among
potential investors and analysts to raise the financing required to continue
technological innovation.
"I would anticipate a lot of U.S. travel in 1999," said Ian Malone, World
Heart's chief financial officer, adding that U.S. institutional investors
"tend to be more knowledgeable about medical devices and artificial
heart technology."
World Heart will also continue its search for potential clinical trial sites.
The company has identified 12 possible locations in Canada, and several
in Europe and the U.S. Mr. Malone said the company is looking "for
hospitals that have teaching capabilities and that have cardio units."
Finally, World Heart will begin laying the ground work for the
distribution of its commercial product.
"We're starting to look at the whole sales and distribution process," said
Mr. Malone. "Acceptance (of HeartSaver) by cardio surgeons is key to
any kind of distribution. And that's why (HeartSaver developer) Tofy
Mussivand will continue to spend so much time visiting potential clinical
trial sites. Since the trial site has to undergo training, that makes them a
potentially first choice where the device would be sold."
Mr. Lorimer forecasts one- and two-year price targets of $23 and $50
respectively for World Heart shares, which now trade at about $13 on
the Toronto Stock Exchange.
The ever-growing popularity of the Internet and demand for greater
bandwidth contributed to a holiday rally among shares of Northern
Telecom Ltd. and Newbridge Networks Corp. Their stocks rose
significantly prior to Christmas. Analysts suggest the good times promise
to continue in the new year.
"We'll see a strong third quarter in January from Newbridge, with
strength in its WAN (wide area network) packet products," said
BancBoston Robertson Stephens analyst Paul Silverstein. "I think the
stock has a lot of room on the upside."
Mr. Silverstein says Newbridge might also make some acquisitions in
1999, with funds topped up by the sale late last year of affiliates
Cambrian Systems Corp. and Vienna Systems Corp. for about $300
million and $90 million respectively.
"You'll see Newbridge put that money to work," Mr. Silverstein said,
adding Newbridge "could acquire private companies with IP
technology."
Rumours that Newbridge itself might be acquired will likely continue in
1999, analysts say.
"I think Newbridge is a good fit for a number of companies," said John
Wilson, an analyst with Bunting Warburg Dillon, Inc. Mr. Silverstein
agrees.
"Over the long term, if Lucent Technologies, Alcatel and Siemens want
to be major players in the WAN packet industry, they'll have to do it by
way of acquisition," he said. "And Newbridge remains one of the four
ATM (asynchronous transfer mode) vendors of any consequence."
ATM is an extremely high-speed switching technology used to carry
voice, video and data traffic.
Nortel, North America's second-largest telecommunications equipment
maker, has enjoyed a flurry of investor interest that has doubled the
price of its stock in less than three months.
"The telecommunications industry is hot, and will be for a few years,"
said Yorkton Securities vice-president John Drolet. "Nortel is a big
player in that area."
In June, Nortel bought U.S. networking company Bay Networks in a
controversial, $9-billion deal to strengthen its bid for leadership in the
converging telecommunications and data communications markets.
Analysts say they'll be watching to see whether Nortel can successfully
absorb its U.S. partner. "Will Bay be efficiently integrated into Nortel in
1999?" asked Mr. Drolet. "That's the question. The jury's still out on it."
Mr. Wilson agrees.
"It's too early to tell if the Bay deal is impressing analysts. This is the year
when Nortel will have to prove it can make it (the Bay acquisition)
work. If so, 2000 is when you'll see products (developed through
Nortel's acquisition of Bay)."
After a slump in early October, Cognos has seen its stock surge close to
its 52-week high, thanks in part to strong, third-quarter financial results,
released in December. Cognos's shares are now trading around $37.
Improved growth in its chief product line, business-intelligence software,
has analysts warming to the company.
"Cognos has shown robust growth in 1998," said Canaccord Capital
Corp. analyst Paul Bradley.
"There are always other companies entering or expanding in (the
business intelligence market)," he added, referring in particular to
increased sales by competitor Business Objects of France. "But Cognos
has demonstrated that it's stayed ahead of the competition fairly
consistently in the last few years. There's no obvious reason why they
won't push on in a similar form in 1999."
A growing source of revenue for Cognos is its Web-based business
intelligence applications. Revenue from these products was three times
higher in Cognos's third quarter of fiscal 1999 compared with the
year-earlier period.
"The Web is showing tremendous growth, and it will continue to be a
major driver of our growth," said Paul Hill, Cognos vice president of
business development. In 1999, he said, Cognos "will expand the
definition of what is business intelligence," adding this could include
investments or acquisitions in new data-management technologies.
With a 165-per-cent gain, Corel Corp. posted the best result for 1998
of any stock trading on the Toronto Stock Exchange.
Cost cutting and revenues more in line with customer purchases (instead
of reflecting goods going to distributors) mean Corel is expected to post
its first significant profit in many quarters on Jan. 20.
It is also expected to get a boost in sales from the release this year of
two new versions of core products, WordPerfect Suite and CorelDraw.
No new versions of either product were released in fiscal 1998.
Corel will also be working this year on improving its credibility among
analysts, which has suffered in recent years as the company failed to
deliver on promises. As a result, Corel chief executive Michael
Cowpland might continue to keep a low profile in favour of chief
financial officer Michael O'Reilly, whom analysts consider most
responsible for Corel's recent
|
