Silicon Valley North Feels the Chill
By Luke McCann
OTTAWA (Reuters) - Ottawa is best known its politics, but for a time in the late 1990s, its most celebrated people were among the captains of high-tech industry.
They sponsored sports and entertainment arenas, employed the best and the brightest, and brought an entrepreneurial spirit that the city had never seen.
But just as Canada's Silicon Valley of the North rose with the high-tech boom, it fell with the crash.
Most recently, some Ottawa's former high-flyers have left or been delisted.
Corel Corp., which once took on Microsoft Corp. (MSFT.O) in word processing software, was recently delisted from Nasdaq and taken over by a U.S. venture capital firm.
JDS Uniphase Corp. (JDSU.O) officially moved its headquarters to San Jose, California, earlier this month, leaving only about 600 workers behind. In the boom years, the fiber-optic components maker employed 10,000 in Canada's capital.
GSI Lumonics Inc. (LSI.TO) tried recently to move to the United States, but its shareholders were against the idea.
These evacuations or attempted departures come at a time when Nortel Networks Corp. (NT.TO)(NT.N), one of the world's biggest telecoms equipment makers and the core of Ottawa's high-tech industry, is a shadow of its former self.
"The difference from three years ago is incredible here," said Ron Zambonini, chief executive of Canada's largest software maker, Cognos Inc. (CSN.TO).
"I used to come home from a Friday from wherever I'd been and the airport was full of hopeful, young graduates all coming to interview at Nortel," he said. "The salaries were spiraling high, options were there ... but then the bubble burst."
OTTAWA'S TECH ROOTS
Ottawa's technology industry dates back to the 1970s, when ex-Nortel employees Michael Cowpland and Terry Matthews started Mitel Corp., the city's original high-flyer. Each then went on to start his own company: Matthews' Newbridge Networks Corp. and Cowpland's Corel.
By the 1990s, the once-staid city was also the capital of Canada's booming technology scene.
Multimillionaires like Matthews, Cowpland and Jozef Straus, then CEO of JDS Uniphase, strutted through town like movie stars. More than 10 percent of the area's workers were employed in tech businesses. And Air Canada had a direct flight from Ottawa to San Jose, in the Silicon Valley.
But as the tech bubble started to deflate, retrenchment and job cuts began.
Matthews has sold Newbridge to Alcatel SA (CGEP.PA) of Paris, Cowpland has been fighting insider-trading charges by Canadian securities regulators, and Straus has stepped down at JDS.
Air Canada has canceled its direct flight to San Jose.
Employment in Ottawa's tech industry has fallen to about 52,000 last month from a high of about 70,000 in March 2001. It had bottomed out at 47,000 in July 2002, according to Statistics Canada.
Not that other technology centers have escaped the bad times.
"I go to Silicon Valley a lot to talk to customers, potential investors, and, frankly, it's no different," said Patrick Brockett, chief executive of Ottawa-based Zarlink Semiconductor Inc. (ZL.TO).
But other reasons are more country-specific.
Canadian companies face higher individual and company taxes. Nor can they offer up to 20 percent to 40 percent of their stock as options to employees as incentives, as many of their U.S. competitors do.
"There are a number of very large Canadian investment institutions that scream bloody murder if it gets above 10 percent," Brockett said.
Brockett, who was born in Britain and worked in the Silicon Valley for 15 years before coming to Zarlink 2-1/2 years ago, also believes Canada's culture should be friendlier toward creating wealth.
He said he does not want to see Canada become like Britain, which he believes lacks a world-class technology base because its people become jealous of those who get rich.
Cognos' Zambonini said that access to capital might be easier in the United States. But he stressed that Canada still has a lot to offer, including an educated and motivated work force.
"If you were going to build a gold mine you'd probably go to South Africa," he said. "But when you build a high-tech company your raw materials are people, and the people are here."
09/15/03 16:30 ET
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