Jonathan Ryder back at Dentons

After five years as chief operating officer and general counsel at Walton Development and Management, one of Alberta’s largest real estate developers, Jonathan Ryder has returned to Dentons Canada’s Calgary office as a partner in the commercial real estate and development group.

Ryder’s experience embraces residential and industrial development, land use and planning, leasing, and commercial, industrial and office transactions. He also acts as strategic advisor to several family offices in Alberta, providing advice on matters including acquisitions, joint venture and partnership structures, planning, and leasing.

“Jonathan was an associate at Dentons (Fraser Milner Casgrain at the time) for four years at the beginning of his career, becoming an important member of the team,” said Donald Leitch, Managing Partner, Dentons’ Calgary office. “He remained a friend of the Firm when he moved on to explore another opportunity in-house and we are delighted that he has now decided to come home.”

Karen Pirie joins Gowling WLG

Litigator Karen Pirie, formerly with Bennett Jones, has joined Gowling WLG’s Calgary office as a partner in its litigation and dispute resolution and medical eefence and health law groups.

Pirie practises primarily in the area of professional negligence, providing litigation counsel to physicians, dentists and other health care practitioners. She has acted for clients before all levels of the Alberta and federal courts, as well as before regulatory tribunals, provincial licensing bodies, hospital boards and arbitration panels.

“Karen is a senior litigator with an outstanding ability to represent and protect the interests of physicians and other medical practitioners,” said Peter Lukasiewicz, CEO of Gowling WLG Canada. “With her arrival at Gowling WLG, we’re expanding the depth of our medical defence team in Alberta ― and further enhancing the exceptional suite of advocacy services we provide to our clients across the country and around the world.”

McMillan, IBM partner on new legal software platform

McMillan LLP and IBM have announced plans for a new software platform designed to give clients better insight into the law firm’s legal services by delivering improved cost-effectiveness, promoting pricing certainty, and optimizing workflows and staffing by standardizing metrics for a range of legal services.

Powered by IBM’s predictive analytics system, SPSS, and running on IBM Cloud, the platform offers advanced algorithms and techniques that aggregate, analyze and interpret McMillan’s internal data to strengthen the decision making process. As a result, the platform will assist the firm in discovering new legal patterns and trends, and help its lawyers build more accurate pricing models. In addition, it will improve McMillan’s ability to forecast metrics for a range of its legal services, from purchasing and selling a business to managing litigation to financing transactions, and more.

“We’ve seen how cloud and big data can transform business,” said Teresa Dufort, CEO at McMillan. “That’s why we’ve chosen to be at the forefront of the legal industry using advanced analytics to service our clients. By partnering with IBM, we are looking to provide clients with greater transparency on the timing and cost of transactions. At the same time, we will enhance our ability to improve staffing and manage change. And we will pass the benefits on to our clients.”

Data security is a growing concern that chief financial officers need to address, a recent IBM-Financial Executives International Canada study of cyber security and business continuity in the country found.

In the past two years, 54 per cent of companies reported an IT failure, 45 per cent suffered a data breach and 29 per cent lost data, the study with about 100 respondents from a range of sectors and industries shows. However, 86 per cent of respondents said cyber security breaches were “rare events.”

That disconnect can be dangerous as employees at Mississauga-based IT services firm Commerx found out. Robust antivirus software and firewalls gave them a false sense of security that blinded them to an important weak spot: an outdated enterprise resource planning (ERP) system that handled management software.

• ‘If they haven’t been breached, they will be’: Companies well aware getting hacked is inevitable, though they won’t admit it in public
• Apple Inc’s top 25 most popular apps infected with malware
• How Magna’s cyber-security partnership is capitalizing on growing car-hacking fears

“One day we got a strange error message, and when we restarted the system, our accounting databases had been rendered useless,” said Marietjie Bower, then CFO at Commerx and a member of FEI Canada’s IT Committee. “We lost about a week’s work, and had to restore the old data on a completely new system.”

“It could have been much worse,” said Bower, who participated in the IBM-FEI Canada study. “We assumed that because our ERP wasn’t broken it was OK, but the system was so dated that it left us with a weakness we didn’t even realize existed.”

Commerx isn’t alone. The number of cyber security incidents detected by 9,700 respondents in a recent PwC study increased to about 42.8 million last year from 20.5 million in 2013 and the financial costs of investigating and mitigating incidents continue to grow.

While network and data security is traditionally the responsibility of chief information officers or IT departments, the ability to manage the advantages and risks related to a firm’s information is a crucial element of the CFO’s job, said Jerold Zimmerman, professor of business at the University of Rochester’s Simon School of Business.

“Payroll, purchasing, and financial reporting systems are the responsibility of the CFO,” he said. “The CFO must manage not only the outputs of those systems, but also what systems are chosen and how secure they are. Different companies may delegate this to a technology officer or a CIO, but ultimately the buck stops with the CFO.”

Evaluating and mitigating risk is a core function of the CFO, and the risks from a breach in information security are simply a new aspect of that responsibility, Zimmerman said.

“The CFO is the primary point of contact for risk, managing risk, and ensuring the organization can continue,” Zimmerman said. “The issue of cyber security is [that] it can have very detrimental effects on the organization’s ability to operate and generate revenue, as well as presenting a reputational risk. It’s relatively new and it comes from many unknown sources, so it’s important for the CFO to be able to ask the right questions, and to know who is responsible for cyber security.”

To date, business schools are lagging in preparing their graduates at the undergrad and MBA levels to manage IT threats and opportunities, Zimmerman said.

In part, that’s because new course content is generally added to the curriculum only when it’s possible to trim existing material. The relative novelty and evolving nature of the threat also make it a challenging subject to integrate. That’s why it’s important for aspiring CFOs and those working in the field to get training.

“I would encourage people to try and take as many IT courses as they can because it’s very hard to innovate in higher education,” Zimmerman said, adding that it’s also important to understand how employees think and behave around IT and the organizational culture.

The balance between a worker-friendly office, when it comes to IT policies, and the right level of security can be hard to achieve.

The workforce at TekSavvy, a Chatham, Ont.-based Internet service provider, has grown tenfold to more than 500 employees in less than four years leading to policy changes. Initially, as a small business, TekSavvy chose not to restrict how employees could access the Internet at work, a deliberate choice to foster a family-friendly atmosphere, said Jim King, vice-president of finance and a member of FEI Canada’s IT Committee.

“We’ve begun the process of streamlining and locking down access, thus diminishing the culture that has made us what we are today,” King said. “It’s a very large struggle because that’s how we try to differentiate ourselves from our competitors, and from the other employers in the marketplace.”

The PwC study found security incidents involving employees rose to 35 per cent last year, up from 31 per cent in 2013. Breaches from former employees rose to 30 per cent from 27 per cent. And those from current service providers, contractors and consultants were 18 per cent, up from 16 per cent.

It’s cloud o’clock. Do you know where your data is?

Not so long ago, if you asked a chief security officer (CSO) that question, he or she would point to the corporate data centre. And for better or for worse, that data centre was a known quantity. It was run by an internal IT department, its policies were set internally, its hardware and software owned and controlled by the company.

With the cloud, much of that has gone out the window. Its primary benefit is also its biggest drawback: clouds rely heavily on putting data … er, elsewhere. Vendors often own data centres in several locations around the country or around the world, and the number of locations is increasing.

International Business Machines Corp. (IBM) alone is spending US$1.2-billion to build 15 data centres across five continents (North America, South America, Europe, Asia and Australia) this year, bringing its complement of cloud facilities to 40. It plans to further expand to the Middle East and Africa in 2015.

Indeed, the cloud is a mixed blessing. Michael O’Neil, principal analyst at InsightaaS.com, says that CIOs and CSOs he’s spoken to are often unaware of their data’s location.

“For the most part, they don’t know that cloud means never saying that your data is in a particular place,” he said.

“I’d say the degree of clarity varies with the sector.”

Organisations in sectors such as financial services, healthcare, education and government, who need to know where certain types of data are, build the ability to audit locations into their supplier contracts.

“Where is your data in reality, in the cloud, versus where you think it would be – there might be a disjunction there,” hMr. O’Neil said.

For John van Loenen, VP and global information security director of Ipsos, a multinational market research firm, a major concern is that the data’s location isn’t always specified by a cloud vendor. In fact, some refuse to reveal the information, citing confidentiality. Since privacy legislation differs radically from region to region, data residency can be an important consideration for him.

“Among data protection people, where the data is – it’s our mantra,” he said.

He also worries about knowledge gaps within cloud service providers. During a recent RFP (request for proposal) process, he was astonished and disturbed to discover that the chief information security officer (CISO) of a global cloud provider was unaware of the provisions of the European Union’s Article 29, which enumerates many of the risks involved in cloud computing, and lists the duties and responsibilities of each party.

In Article 29’s executive summary, it says: “The wide scale deployment of cloud computing services can trigger a number of data protection risks, mainly a lack of control over personal data as well as insufficient information with regard to how, where and by whom the data is being processed/sub-processed. These risks need to be carefully assessed by public bodies and private enterprises when they are considering engaging the services of a cloud provider.”

However, notes Mr. O’Neil, it’s an open question whether knowledge of data residency is the most important factor. He’s inclined to put how the data is managed at the top of the list. At the same time, he acknowledges, regulated industries’ priorities differ.

“It’s important to be able to say ‘my information is stored in a location that keeps me clean with regulators’,” he said.

“I think having data resident in a particular geography is not a guarantee that it will be dealt with in the best possible way. It must also be secure, private, and properly backed up, so the business can continue to operate in case of disaster.”

Nonetheless, legislation is springing up worldwide that restricts the movement of data, particularly personally identifiable information (PII), between jurisdictions. Mr. van Loenen says he’s seeing the question of data location popping up throughout the developed world, especially if PII is involved. In many cases, such as in Japan, he says, explicit opt-in from affected individuals is required before PII can move outside the country.

“Companies must make sure processes (to obtain that consent) are in place,” he said. “It’s still something a lot of people struggle with.”

But it is possible to move to the cloud and still remain compliant, he adds. While vendors’ standard service offerings may contain fewer controls and less attention to privacy, you get what you pay for.

“It’s important to have contractual controls to know where data is at all times, and to have guarantees that it won’t be moved,” he said.

And even knowing your cloud provider’s stance isn’t enough. You have to move past the provider to its vendors and their sub-contractors.

It can be expensive. But it’s worth it. As Mr. van Loenen says:

“Not addressing risk has the habit of biting you on the bum!”

Financial Post

Earnings season heats up tomorrow, with four Dow components releasing quarterly results. Coca-Cola , IBM , Intel , and Johnson & Johnson are all set to announce how 2012 has started off, and all will offer compelling data on how the global economy is faring so far.

Goldman Sachs , CSX and Yahoo will add to the mix, giving traders a lot to digest.

Here’s what you need to know:

Coca-Cola (KO): The beverage company is expected to report earnings per share of US$0.87 on revenue of US$10.8-billion. Coca-Cola has invested heavily in its bottling ventures both in the U.S. and abroad, as a greater mix of net income is generated from international markets. But some analysts see headwinds overseas tampering results, most notably increased commodity costs and foreign exchange rates. “We anticipate China to slow to 4% volume growth on a more difficult comp and slowing consumption trends,” Kaumil Gajrawala at UBS says. “Internationally, we expect Eurasia & Africa +5.2%, Pacific +4.5%, Latam +3.8% and the EU +0.9%.” Last quarter Coca-Cola announced it would create a cost cutting program aimed at saving between US$550 and US$650-million a year by 2015. Analysts will be looking for greater details on how the company actually plans on wringing out those savings.

CSX (CSX): The transport giant is seen earning US$0.38 per share on top line results of US$2.9-billion. The company’s results, and any guidance it offers, will be closely watched as it acts as a gauge for the broader economy. Retailers, automakers and manufacturers all use CSX to move goods throughout the country, making it a nice leading indicator. Reported coal traffic has been soft for the start of 2012, heightening the importance of other shipments for CSX. “In the east, we still like the prospects for CSX and expect improved cost performance should begin to develop as the year progresses,” Brandon Oglenski of Barclays says. “Non-coal related growth remains robust in the industrial related segments, which should provide varying degrees of offset for most carriers.”

Goldman Sachs & Co. (GS): Goldman is expected to report quarterly results of US$3.55 per share on US$9.4-billion in revenue. Unlike peers J.P. Morgan Chase and Citi, the focus on Goldman will be exclusively on progress made in trading and investment banking. Already analysts see a return within the company’s Fixed Income, Currencies & Commodities unit, which accounts for a majority of Goldman’s profits. “Given our expectation of stronger FICC trading performance in 1Q (helped by mark-ups from tighter spreads especially in credit and mortgage) and gains from private equity and ICBC – we boost our 1Q12 EPS estimate from US$3.56 to US$4.00,” Citi’s Keith Horowitz says. “Equities however – despite the strong market rally – is likely to be little sluggish given weaker volumes (US tapes running -15% y/y) and slower derivatives activity.”

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Johnson & Johnson (JNJ): The Dow component is forecast to report earnings of US$1.36 per share on revenue of US$16.3-billion. Analysts will be looking to commentary on early sales of three new drugs: Incivo for hepatitis C, Zytiga for prostate cancer, and Xarelto to treat blood clotting. The company has a new leadership team stepping in next quarter, replacing its CEO of 10 years. Also in focus: the recent US$1.2-billion fine for violating Arkansas’ deceptive practices laws.

Intel (INTC): Intel will report first quarter results after the bell, with analysts eyeing earnings per share of US$0.51 on US$12.83-billion in revenue. The tech giant will offer an important glimpse into how sales of PCs are faring. Analysts are slightly above the company’s own guidance of $12.8 billion for the quarter. “We believe an improving [hard disk drive] supply chain should position INTC for an in line to modestly better C1Q12,” Vijay Rakesh of Sterne Agee says. “Gartner also last week reported better than expected PC shipments versus our and consensus estimates, though we believe primarily on restocking. Near term we believe Ultrabook OEM adoption and sell-through continue to be weak primarily on higher Retail pricing versus the mainstream Notebooks.”

IBM (IBM): The global tech giant is expected to report earnings per share of US$2.65 on US$24.8-billion in revenue when it announces tomorrow. IBM’s commentary on new contract signings will be an important gauge of the environment for tech services. Hardware is equally important to IBM — the category fueled the beat last quarter, with unit revenue up 21%. “For IT Hardware, bright spots include solid expectations around storage and services spending and ongoing tablet momentum,” Darrin Peller of Barclays says. “Indications for corporate PC and server demand down-ticked from our last survey, however.”

Yahoo (YHOO): Things have not been so rosy for Yahoo recently. Even after layoffs that the company hopes will lower costs, analysts have panned current prospects. The Street anticipates EPS of US$0.18. Citi’s Mark Mahaney is hoping Yahoo can offer some turn-around strategy to pacify investors. Otherwise it’s wait and see he thinks. “Based on intra-quarter channel checks and our model sensitivity work, we believe Street Q1 estimates are reasonable, with slight probability of upside on the bottom line due to cost controls,” Mahaney says. “In terms of the guide, we would expect YHOO to be more conservative than typical, given the newish CEO, Scott Thompson.”

The infrastructure challenges facing municipalities in Ontario is reaching a crisis point and technology has an important part to play in addressing the issue.

That’s the thinking behind a recently announced public-private partnership between the governments of Canada and Ontario, IBM and a consortium of seven universities led by the University of Toronto and Western University to tackle pressing infrastructure challenges. One of the targeted areas of pursuit will be water conservation and management within cities and across watersheds, including wild areas, as well as industrial and agricultural use.

IBM is investing up to $175 million through December 2014 through the formation of the IBM Canada Research and Development Centre with the goal of driving information and communication technology products and services to generate innovation and cost savings in infrastructure planning and execution. The Government of Canada will contribute $20 million towards computing resources.

It precisely the kind of technology municipalities need to support local capital planning efforts, says Dr. Grahame Farquhar, senior advisor and co-Chair of the Waterloo-based Canadian Municipal Water Consortium.

“One of the biggest issues municipalities are facing right now is [water system] infrastructure management and replacement,” he says. “They’re struggling with massive projected costs associated with this. Technology resources in the way of scheduling, modelling and managing data will increase the capacity for municipalities to properly sequence infrastructure management and replacement.”

Technology also plays an integral part in reducing overall consumption and ultimately infrastructure investment requirements, says Lou Di Gironimo, general manager for Toronto Water. He reports that investments in technology over the last couple of decades have delivered considerable results in terms of improving water management, reducing energy costs and lowering consumption rates despite the population growth.

“Eight years ago we set reduction targets to reduce our expansion requirements. We in fact exceeded those targets in per-capita consumption. That alone translated into a $150 million savings in infrastructure development costs.”

Municipalities will need all the resources they can get to tackle water conservation and treatment infrastructure issues, notes Theresa McClennaghan, executive director of the Canadian Environment Law Association (CELA) in Toronto.

“Ontario municipalities are looking at other places in the world for ideas on how to manage things differently in terms of water use, reuse and treatment because they are currently dealing with development pressures and infrastructure replacement in their capital planning. That’s what’s intriguing about this announcement, because it focuses on both infrastructure innovation and technology needs.”

International Business Machines Corp. is launching its first formal research and development lab in Canada through a $175-million investment over the next 21 months in a consortium with seven Ontario universities, the company said Tuesday.

The Armonk, N.Y.-based technology giant has about a dozen R&D centres around the world. Its original lab, the Thomas J. Watson facility in New York, is perhaps best known for its development of the Watson computer that faced off against Jeopardy! champ Ken Jennings.

The IBM Canada Research and Development Centre will include two of the company’s “Blue Gene/Q supercomputers” at the University of Toronto, cloud computing infrastructure at Western University in London, Ont., and a 25,000 square-foot IBM data centre in Barrie, Ont. set to open later this year.

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The federal and Ontario governments are also backing the project, with Ottawa investing up to $20-million and the province contributing up to $15-million.

The public/private collaboration, led by U of T and Western on the academic side, is expected to create 145 high-level research jobs in Ontario, whether at IBM Canada’s facilities themselves or the universities in its consortium.

Also involved are McMaster University, Queens University, the University of Ontario Institute of Technology, the University of Ottawa and the University of Waterloo.

But the consortium is not closed, said John Lutz, president of IBM Canada, noting that other schools and businesses could join over time.

“A lot of the great innovations come from smaller firms so we want to be sure we allow that,” he said.

The research focus is broad but the company said it would use these tools for analysis of massive data sets and work on problems around urbanization, health care, water and energy conservation and management, and software innovation.

“We consider Canada to be the home of IBM Analytics,” Mr. Lutz said at the announcement of the project in Toronto.

The company has software development labs in Toronto, Ottawa and London in Ontario, as well as Montreal, Edmonton, Vancouver and Victoria outside the province. Its Canadian corporate headquarters are in Toronto.

“Analytics can be used for many practical purposes,” Mr. Lutz said, pointing to research on how to improve the outcomes for premature babies, manage traffic congestion and track patterns of criminal activity to fight crime.

The province of Ontario has partnered with private enterprise to encourage homegrown innovation in the past; for example, it announced an alliance with Cisco Canada to create and retain R&D jobs in Toronto and Ottawa in August 2011.

More recently, Jim Balsillie came under fire over a $60-million deal between the Centre for International Governance and Innovation (CIGI) — a private think tank he created and chairs — and York University. Through CIGI, the co-founder and former co-chief executive and chairman of Research in Motion Ltd. committed to donate $30-million to create 10 research chairs and 20 graduate scholarships over the next 10 years at York.

But the deal caused controversy as many questioned how it would affect academic independence at York.

Mr. Lutz said IBM Canada’s initiative has not encountered similar issues around the involvement of private enterprise in public institutions and he does not expect any.

“As part of the design here we don’t have the specific endowment of chairs or the specific tagging of individual researchers,” the IBM Canada head said, adding that researchers can participate in projects they’re interested in but the company won’t dictate that.

The project is not intended to test products that are close to or already market-ready, Mr. Lutz said.

“In most of these cases we have had a long-standing relationship that’s got the right balance of governance that is satisfactory to the universities because it leans far enough toward a pure academic approach,” he said.

North American markets gave up some ground on open Wednesday as investors fretted over Europe. The Dow was off 0.4% while Canada’s main exchange opened closer to flat.

Here is a look at what the markets were doing just after the opening bell on Wednesday, January 11:

The Dow Joneslost 51.69 points, or 0.41%, to 12,410.78
The S&P 500lost 5.46 points, or 0.42%, to 1,286.62
The Nasdaqlost 5.50 points, or 0.20%, to 2,697.03
The S&P/TSXlost 7.13 points, or 0.06%, to 12,263.53

Fears of recession in Germany and a renewed warning on Italy had markets in a gloomy mood ahead of bond auctions in Spain and Italy later this week.

A preliminary estimate out Wednesday showed Germany’s economy shrank by 0.25% in the final quarter of 2011 , raising fears that the stalwart European nation could be headed into a recession as some expect this quarter to show another contraction. Growth for 2011 as a whole was still 3%, but that’s down from 3.7% the year before.

Meanwhile, David Riley, head of sovereign ratings at Fitch, said the European Central Bank should do more to support Italy and prevent a collapse of the euro through ramped up buying of eurozone sovereign debt.

The FTSEurofirst 300 index of top European shares was down 0.65% by midday, dipping after the Fitch comments.

Commodity prices were down 0.5% in early trade and crude futures slipped 0.83% to US$101.39 a barrel in New York while gold futures picked up 0.48% to US$1,639.40 an ounce.

Later today, investors will be eyeing the U.S. Federal Reserve’s Beige Book, an anecdotal report of economic conditions, due out at 2 p.m.

In companies news, Hostess Brands Inc. filed for bankruptcy protection again Wednesday, mere months after coming out of a similar process last year.

North of the border, scandal-plagued Sino Forest Corp. said it is “optimistic” it will work out a deal with bondholders to waive a default on its debt although it says it will not be able to file its overdue third quarter results and remedy the breach within the mandated 30 days.

In a financial outlook announced Wednesday morning, Magna International Inc. said it doesn’t expect much sales growth this year and predicts only a small uptick in its margins. The parts maker said it does expect substantial sales gains in the following two years as production in the auto industry picks up.

In other auto news, Japanese carmakers Honda and Toyota both said Tuesday they’re confident their Canadian sales will rebound in 2012 .

Finally, IBM once more set a record for patenting new inventions in the United States last year, but this time it came with more than 200 patents from its Canadian team.

For more morning commentary, check out our regular “Before the markets open” feature

For the 19th year in a row, International Business Machines Corp. has set the pace for patenting new inventions in the United States.

This time, the world’s oldest technology company owes part of its latest record to the efforts of its Canada-based staff. Of the 6,180 patents issued to Big Blue in 2011, 219 of them were submitted by Canadian inventors, a 564% increase from the 33 IBM patents to come from Canada in 2010.

“We are pleased that our Canadian team has contributed to over 200 of the U.S. patents IBM received in 2011, thereby demonstrating the continuing vitality and development efforts of our local labs,” said Manny Schecter, IBM’s chief patent counsel.

Surpassing the 5,896 patents the Armonk, N.Y.-based company received in 2010 was very much a global effort. More than 8,000 IBM employees contributed to the 2011 milestone from 46 U.S. states and 36 countries, with more than 26% of the company’s 2011 patents coming from IBM inventors outside the United States.

By comparison, IBM’s 2011 record total beats Korea’s Samsung Electronics Corp., which held the No. 2 spot, by nearly 1,300 patents. In fact, the combined annual patent totals of Apple Inc., Amazon.com Inc., Google Inc., EMC Corp., Hewlett-Packard Co., Microsoft Corp. and Oracle Corp. still fall short of the 101-year-old erstwhile punch-card maker.

Simply put, IBM has firmly entrenched itself as the leader of the U.S. invention industry.

Yet that industry is waning in dominance, with China having officially surpassed the U.S. in terms of total patents filed per year just last month. It was an event many experts saw coming as intellectual property plays an increasingly important role in global commerce.

As one of just two U.S. companies to make it into the top 10, the other being Microsoft Corp. at No. 6, according to IFI Claims Patent Services, IBM continues to stay competitive as China’s sleeping patent dragon awakens.

Part of that can be attributed to the US$6-billion the company spends on research and development each year. Apple, the world’s largest technology company with a market capitalization nearly double that of IBM, spent just US$2.4-billion on R&D last year, according to documents filed with the U.S. Securities and Exchange Commission this week.

Big Blue researchers focused their efforts last year on improving a wide variety of industries from retail to banking, heath care and transportation.

One of the Canadian patents relates to methods for granting user privileges in electronic commerce security domains. The invention helps IBM WebSphere Commerce software customers reduce administration and resource costs by providing common security and authentication across multiple online stores, enabling customers to remain logged in when shopping on multiple online stores administered by the same company.

Stella Rimington was recruited to join British spy service MI-5 at a cocktail party.

It was the height of the Cold War and Ms. Rimington, the wife of a diplomat, was living in India. When she jumped to field work, she first had to do the same standard test given to all male agents: Walk into a pub, approach any stranger and learn as much as you can about them. Then keep your cool when a superior officer enters and blows your cover story.

The pub that her superiors chose was a sleazy place near London’s Victoria Station and full of men of questionable character, according to a retelling of the event in Joanna Barsh’s book How Remarkable Women Lead.

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“They were leaning on the bar drinking pints in their grimy raincoats,” Ms. Rimington recalls. “I started to chat up a guy who was obviously surprised and thought my profession was something else!”

Eventually she was tapped to be head of the spy service, the first woman to hold the job.

Trailblazers such as Ms. Rimington have shown the way for scores of women over four decades. But rarely have so many women at one time risen to the very top positions of power in business and politics as in the past year.

Christine Lagarde, France’s Minister of Finance, was named head of the International Monetary Fund at a crucial time for the institution. Former ebay Inc. executive Meg Whitman was appointed chief executive of Hewlett-Packard Co. Virginia Rometty was named chief executive of IBM Corp. and takes up her position on Jan. 1. German Chancellor Angela Merkel is easily the most powerful politician in Europe and her status has only grown with the continent’s sovereign debt crisis.

At home, Canada now has four sitting women premiers, the highest number since Confederation: Alison Redford leads Alberta; Christy Clark heads British Columbia; Kathy Dunderdale won a majority in Newfoundland; and Eva Aariak holds the top job in Nunavut. The number of women elected to the House of Commons jumped to 76 in last May’s federal election, a record increase of 25%.

All of these wins are hugely significant because they shatter preconceived ideas about what power looks like at the highest levels. It’s not a sea change that will necessarily lead to a flood of additional female appointments. Rather, it’s a redefining of the face of authority and influence at the top echelon of world affairs.

“In the past, the notion that the IMF could have been run by a woman would be unthinkable,” says Nan Langowitz, director of the Center for Women’s Leadership at Babson College in Wellesley, Mass. “In that sense, [these appointments] break some of the stereotypes and expectations of who should be running these large institutions. And I think that’s quite exciting.”

These women claimed the corner suites and leader chairs because they deserved it and not because of any progressive social policies. Ms. Rometty, for example, has been with IBM for more than a decade, managing a crucial merger and steering a sales drive in new markets. She was a logical candidate to lead the company after having proven herself.

But women are also rising at a time male authority is being tested like never before. As global problems such as economic stability and planetary warming grow, faith in men as leaders and the myth that has supported their superiority are arguably weakening.

They can’t lead countries without racking up problematic debt. They frequently break campaign promises and earnings guidance. They continue to build war machines that kill people while a portion of their citizens struggle to feed their families.

“There is this kind of fatigue and dissatisfaction” with male leadership, says Connie Glaser, a well-known U.S. author on workplace diversity and women’s leadership. “And I hesitate to use the word ‘disgust.’ But you know, there is a sense that something is not right here and that maybe it is time to look for a different style or a different approach. That maybe the testosterone, the aggressiveness, the high risk-taking is not the only way to lead.”

Corporate North America remains a largely male-dominated world.

Research released this month by U.S.-based Catalyst Inc., a leading non-profit organization expanding opportunities for women, shows women are no further along the corporate ladder in the United States than they were six years ago. Women held 14.1% of U.S. executive officer positions in 2011, down from 14.4% the year before, while board representation was up slightly to 16.1%.

In Canada, the percentage of women holding senior officer positions has barely budged, rising to 17.7% in 2010 from 14% in 2002, Catalyst data show. Of the largest 100 companies by market capitalization listed on the Toronto Stock Exchange, only one — yoga clothing retailer Lululemon — has a woman CEO.

The number of female board directors is also growing at a glacial pace. Of Canada’s FP500 companies and Crown corporations, 15% had women directors as of 2010, according to the Canadian Board Diversity Council, up from 9.8% in 2001.

“The big picture is still disappointing with so few women in c-suite roles,” says Pamela Jeffery, founder of the council. “But I think you have to look at all the progress that’s been made [internationally]. And particularly I think this year does show that there is traction now, moreso I think than in previous years.”

Separate Catalyst research shows that businesses that hire women in the boardroom for a sustained period of time perform better than those who don’t — and not just by a little.

Catalyst found that companies with three or more women directors in four or five years, on average, outperformed those with no women representation by 84% return on sales, 60% return on invested capital, and 46% return on equity.

So why don’t more corporations take the hint?

“It’s a question that mystifies me,” Catalyst chief executive Ilene Lang told CNBC this month. Still, she offers a couple of reasons. “The most important one is that overall, there is what psychologists like to call a ‘think-leader, think-male’ mentality. And we have to get past that.”

Gender-base stereotyping is embedded, often unintentionally, in the very talent management systems designed to cultivate an organization’s best talent, according to Catalyst.

Another explanation for the low numbers of women in top roles is the devotion required to the job and different perspectives on success.

Men for whom happiness is defined by career achievement won’t hesitate to make themselves available for work 24 hours a day any day of the week. Of the women that may also qualify for executive positions, many decide they’re simply not interested in giving that level of energy and time.

A number of countries have implemented gender-based quotas to help women reach power faster, particularly in politics. Some 110 countries have rules that facilitate women getting elected, including such places as Afghanistan, Iraq and Sudan, The Economist notes in a 2008 piece on the subject.

Supporters argue that having more women in politics is not only fair but beneficial, the news magazine writes. “Research suggests that, at least in poorer countries, quota laws change the subjects lawmakers discuss. A law in Rwanda that defines rape and protects victims of sexual abuse got through thanks to women legislators; their male counterparts saw the subject as taboo.”

In North America, the idea of formal quotas for women in business and politics is generally rejected.

The consensus is that women can, and have been, elected and appointed on their own merits. Hilary Clinton is arguably outperforming U.S. President Barack Obama in her role as secretary of state. Indra Nooyi is doing fine as CEO of PepsiCo Inc. as is Ursula Burns at Xerox Corp.

Have they reached the top by acting like men?

Margaret Thatcher arguably did. As education minister, she became known as “Maggie Thatcher Milk Snatcher” because she abolished free milk in British schools to meet budget-cutting targets. Once in power, the former British prime minister fought a war in the Falkland Islands and took on the unions — not exactly acts that you’d associate with the kind of consensus-building and empathy that women leaders are known for.

But her willingness to court and confront unpopularity may have been part of her appeal, Tony Judt writes in his book Postwar, a history of Europe since 1945. A surprisingly broad range of hard-bitten statesmen in Europe and the United States confessed, albeit off the record, to finding Ms. Thatcher rather sexy, he writes.

“She could bully and browbeat with less mercy than any British politician since Churchill, but she also seduced.”

Bonnie Dupont, a retired Enbridge Inc. executive, says that when she was working her way through the ranks in the Alberta oil patch in the 1980s, she wore dark suits for a period of time to meet the corporate dress code.

Some might argue she learned to play a man’s game in a largely male-dominated energy sector. But she doesn’t see it that way.

“I think it’s knowing who you are professionally,” she says. “You either know who you are and know what you’re about … or you don’t.”

Ms. Dupont let her work speak for herself. Five years ago, she became the first woman president of the Calgary Petroleum Club, a private social club for executives that only admitted women 40 years after it started.

For her, this year’s high-profile female appointments are simply well-educated, experienced and mature women who are ready to lead.

“I think it’s just a natural progression,” Ms. Dupont said. “It hasn’t happened fast enough as far as I’m concerned. But it is happening. And it’s gratifying to see it.”

Independent Investor

When Berkshire Hathaway chairman Warren Buffett announced his gradual investment in IBM Corp. had reached US$10.7-billion or 5.4% of the company, it appeared to be a breakthrough for him, since most investors know he generally avoids technology stocks.

On Nov. 14, Mr. Buffett told CNBC he was impressed that IBM has a clear plan to double earnings, and has a dominant position in its markets.

“I don’t know of any large company that really has been as specific on what they intend to do and how they intend to do it as IBM,” he said.

The computer giant’s management is aiming to improve its sales by at least 5% every year through 2015 – a lofty goal — and increase earnings to at least US$20 per share by 2015, up from US$11.67 in 2010.

Should investors follow Mr. Buffett and take a stake in IBM?

The stock hardly looks like a deep value candidate. At US$178, IBM’s shares are up 21.3% this year, well ahead of Apple Inc. (up 13.8%), SAP (10.3%) and Intel Corp. (7.9%). IBM shares have positively skyrocketed compared to the likes of Google (down 4.0%), EMC Corp. (down 3.7%), Oracle Corp. (down 7.4%) Microsoft (down 12.3%) and the laggard of the bunch, beleaguered Hewlett Packard Co., which is off a huge 38.8% in 2011 and if anything, looks far more like the kind of value investment Mr. Buffett would opt for.

Mr. Buffett’s investment in IBM therefore appears late, but so did his initial stake in Coca-Cola in 1988 after Coke shares had rallied, and that investment has worked out quite nicely for Berkshire Hathaway.

A quick look at the fundamentals shows IBM shares trade at an industry-high 9.9 times book value per share, while its return on equity is a fantastic 65%. Both figures, however, are the result of the company’s penchant for buying back its shares: IBM has bought back 30% of its float over the past decade.

Share buybacks reduce the size of the equity denominator, making a company look expensive on a book value basis and increasing the apparent return on equity, so neither figure matters much here. IBM’s net profit margin, return on average assets, debt levels and current ratio are all in the same ballpark as its competitors.

IBM, now 100 years old, stumbled with its shift from mainframe computers to smaller PCs and its fortunes appeared to reach a low in 1993, when its shares traded in the low teens. CEO Louis Gerstner then arrived from RJR Nabisco and began successfully turning the company around.

Under current CEO Sam Palmisano, IBM has filed more patents than any other U.S. company for 18 consecutive years, and enjoys annual revenue of more than US$100-billion, generated by 427,000 employees. Mr. Palmisano will retire at the end of this year, his place to be taken by senior vice-president Ginni Rometty, a 30-year company veteran.

Of the 31 analysts who follow IBM, 15 say its shares should be bought, 16 say hold and no one dares to say sell.

IBM’s target of achieving earnings of at least US$20 per share by 2015 is “highly attainable,” said Brad Zelnick, an analyst at Macquarie Capital (USA) Inc., who rates the stock outperform. His US$210 target price on the stock represents a 15.% gain that doesn’t factor in the 1.5% dividend yield.

“While we contend that IBM is by no means a ‘growth’ company, it is leveraged to several broader macro trends occurring in the technology industry,” Mr. Zelnick wrote in a recent report.

Rob Cihra, an analyst at Evercore Partners in New York, started his coverage of IBM with an overweight rating and like Mr. Zelnick has a US$210 target for the stock, which represents 14 times Mr. Cihra’s estimate of IBM’s 2012 earnings of US$15.02 per share.

“Everybody wants to be IBM, whether they know it yet or not,” Mr. Cihra wrote in a recent report. The company’s P/E ratio has expanded to 13 times, up from 10 just three years ago, “but we believe this has been justified, was overdue, and should continue, driven by consistency.”

Among online pundits, Louis Basenese at Wall Street Daily (wallstreetdaily.com), in comparing IBM to Intel, notes that IBM enjoys an economic moat that Mr. Buffett looks for. “Although it competes with different companies in each area, no competitors can match IBM’s breadth of offerings,” Mr. Basenese wrote.

You don’t need to know anything about technology stocks to understand that.

rmorrison@nationalpost.com

This is the second installment in our new weekly Tech Desk Op-Ed series, which features opinion and commentary related to technology issues in Canada.

By James Wallis and Mike Cook

When the thought of using mobile phones as a one-click passport for payments was imagined two decades ago, it was viewed more as a futuristic concept than a realistic opportunity.

Fast forward to today, in 2011, the market’s interest and demand for such solutions has changed. The industry has begun converging, the technology has started materializing and well-established players, as well as popular Internet entrants, have made plans to roll out viable digital wallet offerings within the next 3-18 months.

Analysts are expecting the mobile payments market to steadily climb: Juniper Research issued a report recently forecasting that the number of mobile users making payments for digital goods will reach 2.5 billion worldwide by 2015, up from the 1.8 billion forecast for 2011.

Needless to say, this is an exciting time for the future of payments.

But what remains to be seen is if all the excitement around mobile payments will translate into adoption and action. For widespread adoption to take place, Canadian consumers will need to be courted with incentives and discounts to change their behavior – to trade in the use of plastic credit cards, for the use of their ubiquitous smartphones.

In addition, banks and retailers will be tasked with providing significantly improved customer experiences to propel consumers to make the switch. Until the mobile phone becomes an established payment channel, consumers will still rely on traditional sources to pay for their goods and services.

Will this sea change actually take place? If all the activity happening in North America and in emerging markets is any indicator, then the answer is yes!

In Kenya, there are more than 14 million active users who are using mobile payments to pay utility bills, make purchases and transfer money between family members. In Canada, all major banks are now offering mobile applications, which are providing a base of customer usage that will in turn translate into mobile payments.

As mobile payments schemes become more established – and as security and regulations issues are ironed out – the payment movement will shift from the innovation phase to the industrialization phase.

Technology will emerge as the key enabler to drive open commerce. In the developed markets, the real opportunity will be in the value-added services that mobile payments will deliver to consumers. Banks and retailers will need technology to send targeted coupons based on device location, analyze transaction histories for fraud detection and market goods and services as part of cross-industry offerings.

Opening New Lines of Commerce

IBM’s research has found that the mobile payments ecosystem will expand beyond just advertising media and payments and will include new value-added services for transportation, retailing, healthcare, and education to name a few. The ecosystem may also include new ways to exchange value.

Real-time exchanges (much like the model embraced by PayPal) could emerge to change the way financial institutions compete for loans. Just as the Internet changed the way banks originate mortgages, mobile commerce could enable loan exchanges where individual banks bid on large purchases at the point commerce – just imagine retailers being in the loan origination business.

These types of exchanges would open up new opportunities for banks and retailers to collaborate on solutions to reduce excess inventories in a real time environment with attractive consumer offers from both a price and financing perspective.

The ecosystem could also see the return of closed loop payment schemes where individual banks and retailers collaborate to optimize value for all parties. Banks that have merchant and consumer relationships could be major beneficiaries in such an environment.

Managing Big Data

When the mobile payments industry takes off a few years from now, the growth in data will be so explosive – up to 10,000 faster and 10,000 larger than what traditional data warehouses and business intelligence applications can handle today.

Banks and retailers will need to invest in the right tools to manage the volume of “big data,” and control the influx of 24/7 structured and unstructured data feeds.

Providers will need to have increased scalability to manage voluminous transactions and new core capabilities will be required to drive smarter commerce.

In the new mobile economy, ecosystem suppliers will be called on to:

– analyze massive amounts of structures and non-structured data in a real time manner

– perform predictive analytics for risk and payment “spend”

– collaborate with retailers, banks and consumers in a real time environment

– interconnect with all social networks and ecosystem suppliers

– control private information for consumers

Emerging, data-intensive, real-time analytics workloads require systems that can process lots of data, analyze that data on the fly, and provide recommendations based on that analysis. IBM is working with clients and partners to shape the future of industries as they face increasingly complex—and vastly different workloads handling an unprecedented levels of data generated by complex financial transactions, electronic medical records, power grids, and more.

The Big Winner?

Our view is that the activity in the payments marketplace is volatile with many players competing to dominate media channels with new offerings. While mobile wallet offerings may become widely adopted in the next 3-5 years, what remains to be seen is which model will ultimately dominate this space.

Will one framework win over others? Or will multiple offerings and sources become pervasive? Only time will tell.

James Wallis is vice-president of global payments for IBM. Mike Cook is a partner in IBM’s financial services sector.

Cisco Systems, Inc (NASDAQ:CSCO) – $17.53 added 0.6% after ISI Group initiated coverage on the stock with a Buy rating. The stock has a positive technical profile. Intermediate trend is up. The stock recently broke above a modified reverse head and shoulders pattern on a break above $16.77. Short term momentum indicators are trending higher. Yesterday, the stock broke above its 200 day moving average at $17.04. Strength relative to the S&P 500 Index has been positive since July. Seasonal influences have just turned positive. Preferred strategy is to accumulate the stock at current or lower prices.

International Business Machines (NYSE:IBM) – $187.91 added 0.6% after Macquarie initiated coverage on the stock with an Outperform rating. The stock has a positive technical profile. Intermediate trend is up. The stock is expected to open near its all-time high at $188.00. The stock trades above its 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index has been positive since last January. Seasonal influences are turning positive. Preferred strategy is to accumulate at current or lower prices.

Baytex Energy Corp. (TSE:BTE) – $49.24 Cdn. is expected to open higher after RBC Capital initiated coverage with an Outperform rating. The stock has a negative technical profile with improving prospects. Intermediate trend is down. The stock trades below its 200 day moving average. Strength relative to the TSX Composite has been neutral since February. On the other hand, the stock recently moved above its 50 day moving average at $46.81 and short term momentum indicators are trending higher. Resistance is at $50.77. Seasonal influences are negative until mid-December. Preferred strategy is to accumulate on weakness closer to support at $39.18 as the period of seasonal strength approaches.

These days, unless you’re Apple Inc. you’re going to have a hard time keeping your head above water in the technology world.

Mark Moskowitz, analyst with JPMorgan, warned that both top and bottom-line near-term estimates are expected to decline anywhere from 3% to 10%, with further, more serious cuts to come in the first half of 2012.

“We think the cuts will come in a series, potentially increasing in size in the first half of 2012. We do not think the stocks have adjusted for this latter point,” he said in a report. “Our research indicates that CIO budgets already have come under pressure, and we expect this dynamic to worsen.”

Not surprisingly, the only bright light left in the tech space comes from the glow of an iPhone screen, with Apple still forecasted to have upside potential in both revenue and EPS estimates.

Other safe harbour options are IBM Corp., storage and data management solutions company NetApp Inc., and infrastructure tech firm EMC Corp.

IBM’s high exposure to the Asia-Pacific and Latin America sectors provides a decent buffer, however the company derives significant revenue from government and financial services.

As for NetApp and EMC, the concern is that investors are not prepared for estimate cuts of more than 5% as storage remains a high priority in IT budgets. Mr. Moskowitz expects cuts in the 2% to 6% threshold, but warned risks will ramp up considerably if those numbers climb any higher.

At the other end, Mr. Moskowitz recommend investors either vacate or steer clear from Hewlett-Packard Co., Lexmark International Inc., Xerox Corp., Brocade Communications Systems Inc., Emulex Corp., QLogic Corp. and STEC Inc.

“Company-specific and secular dynamics facing these stocks stand to amplify end-demand risks related to broader macroeconomic challenges,” he said. “The downside risk to estimates could be 10%-plus in the near term, and the next round of cuts could be worse.”

Mr. Moskowitz has downgraded five stocks, warning that some companies may not rebound at all over the next 12 months due to macroeconomic and company-specific reasons.

Lexmark, Xerox, Brocade and QLogic have been cut to “Underweight” from “Neutral” while Seagate, a maker of computer hard drives, has been cut to “Neutral” from “Overweight.”

By acquiring Platform Computing Inc. on Tuesday, International Business Machines (IBM) Corp. intends to help companies deal with their growing deluge of data and make billions of dollars in the process.

Headquartered in Markham, Ontario, 19 year-old Platform Computing has more than 2,500 companies around the world using its business management software and boasts strategic partnerships with Microsoft Corp., Intel Corp. and IBM among others.

While financial terms of the deal were not disclosed, there is good reason to believe Big Blue paid no small price for the Canadian cloud computing company.

Platform Computing has more than 500 employees in 15 offices worldwide and had revenues of US$50-million in 2003, the most recent year the private firm released earnings data. The company claims to have been enjoying profitable growth throughout its nearly two decades of operations.

According to Ottawa-based market research firm Branham Group Inc., Platform Computing made US$71.6-million in total revenues for its 2010 fiscal year. Those figures would suggest total year-over-year earnings growth of between 8% and 12% over the past decade.

“Across enterprises of all sizes, application complexity and the amount of data continue to grow significantly, driving the need for more and more compute capacity,” Armonk, New York-based IBM said in a statement.

“By combining Platform Computing’s software with IBM high performance systems and software, IBM can better serve enterprise clients who are turning to technical computing to reduce the cost and complexity of managing and analyzing massive amounts of data in a timely fashion.”

Platform Computing’s software is used to create and manage shared high-performance computing (HPC) systems commonly used in resource-intensive computing such as data modeling, analysis and event simulations. The market for such services is expected to grow 8% year-over-year from about US$14-billion in 2011 to US$18.5-billion by 2014, according to International Data Corp., a market research firm.

Songnian Zhou, a former computer science professor at the University of Toronto, co-founded Platform Computing in 1992 and has held the chief executive title ever since. While the company’s staff will eventually be integrated into IBM’s Systems and Technology Group after the deal closes later this year, it is unclear whether Mr. Zhou will remain.

“Platform Computing’s software has a proven track record over the past 19 years of helping clients to accelerate innovation, business analytics and IT services while being easy to deploy and manage,” Mr. Zhou said in a release.

“This acquisition will enable Platform Computing to better serve our customers by leveraging the IBM solution portfolio and extend the reach of our pioneering distributed computing software for broader enterprise adoption.”

The deal should help IBM accelerate a key initiative of its Smarter Planet strategy, which the 100 year-old technology firm expects to generate US$10-billion in annual revenues by 2015.

OTTAWA — Estimating the cost of taking an invention from idea to issued patent is easy. But determining what that intellectual property is worth once the patent is approved, is anyone’s guess.

The mysteries of patent valuation was one of the topics discussed at a two-day conference here on Canada’s IP policy, hosted by the Canadian International Council (CIC), a Toronto-based think-tank.

Lacking any definitive way of setting the value of any given IP portfolio, leading mobile players such as Google Inc. and Apple Inc. have spent billions of dollars in recent months amassing patents, the true value of which remains largely unknown and unrecorded.

“Non-physical assets don’t show up on a balance sheet, so when I look at the asset side, I don’t see a line item for intellectual property,” said Marshall Phelps Jr., former corporate vice-president for IP policy and strategy at Microsoft Corp. and International Business Machines (IBM) Corp. and author of Burning the Ships: Transforming Your Company’s Culture Through Intellectual Property Strategy .

“Between 70% and 80% of any modern corporation today are in intangibles,” Mr. Phelps said in an interview on the sidelines of the conference, which ended Friday. “It is like telling a general in a war, I won’t tell you where 70% of your troops are, now good luck with your battle.”

During a panel discussion, Daniel Gervais, professor of international law at Vanderbilt University and co-director of the Nashville-based institution’s IP program, asked “What do we know about [patent] licensing? Is there data, do we have data?”

When nobody volunteered a response, Prof. Gervais joked that patents have now become “the equivalent of dark matter to physicists: we know it exists but we don’t quite know what it is.”
Establishing a value for inventions that is separate from the physical products is an entirely new phenomenon brought on, in particular, by the recent and rapid rush by the world’s largest mobile technology players to erect massive patent walls to fend off lawsuits from the lengthening list of rivals in the still forming smartphone market.

Moreover, recent portfolio sales have stunned industry observers. The sale this summer, for example, of the 6,000-strong portfolio of defunct Canadian telephone firm Nortel Networks Corp. brought in an astonishing US$4.5-billion — triple what even the most bullish analysts were expecting.

“There is a heightened focus on patents following prominent smartphone IP litigation and recent high-profile IP sales,” Mike Abramsky, managing director of global technology equity research for RBC Capital Markets said in an interview this week in Toronto.

Major investment banks such as RBC and Sanford Bernstein have hosted conference calls to try to explaining the reasons behind recent deals. Google Inc.’s purchase last month of Motorola Mobility Holdings Inc. for US$12.5-billion was aimed, the banks said, at controlling the 83-year old Illinois phone maker’s more than 20,000 issued and pending patents in hopes of halting the tidal wave of litigation facing its Android smartphone platform.

Companies can derive value from patents not by just selling them. Despite having mobile software of its own — Windows Phone 7 — Microsoft Corp. nonetheless makes between US$5 and US$15 every time Samsung Electronics Corp. or HTC Corp. sells an Android-based device due to a handful of software patents it holds. As the two largest Android manufacturers by far, those two licensing agreements alone (Microsoft has similar agreements with six other manufacturers) translate into hundreds of millions of dollars in continuous annual revenues for the Windows maker.

Attempts to place price tags on IP portfolios that companies have been amassing internally for decades have produced widely divergent values. For BlackBerry maker Research In Motion Ltd.’s 8,400 patents it has filed in jurisdictions around the world, Jefferies and Co. analyst Peter Misek came up with a total liquidation value of US$2.5-billion, including the US$770-million worth of Nortel patents it acquired in July as part of the six-company consortium that made the deal. RBC said RIM’s patents should be valued closer to US$6-billion or nearly half the Waterloo, Ont. company’s total market value.

“All of a sudden we have some recognition that all this stuff is out there, but we don’t even know exactly what we’re talking about or what it is,” Mr. Phelps said. “So you’ve got everybody scurrying for hegemony in this world while half of them don’t know what it is that they’re scurrying after.”

The current situation is far removed from the second half of the last century, when there was a relative “peace in the valley” of patents, Mr. Phelps said. That is because IBM and AT&T had settled two landmark anti-trust cases with the U.S. government in 1956. Effectively, the two de facto monopoly holders agreed to license their technology for free to any company, anywhere, that requested one. Computing firms took an IBM licence, communications firms took an AT&T licence and nobody had cause to complain.

“But smartphones are computer platforms and communications platforms,” Mr. Phelps said. “So the old basis of you followed IBM or you followed AT&T and you were sort of okay – that is all out the window now.”

The new reality is a patent war. Apple and Samsung, for example, have waged several dozen simultaneous courtroom battles — some of which having already resulted in certain products being blocked in certain countries.

Mr. Phelps predicts the litigation frenzy will ease off as more firms adopt the paid licensing model he established while at IBM in the mid-1990s, which eventually pulled Big Blue back from the brink of near bankruptcy. In the next 10 years, he said, the rush to scoop up relevant IP will have subsided and the patent valuation bubble will have popped.

But even Mr. Phelps admits his timeline is at best a guess.

“Oh that?” he said. “I just made that up.”

Stale products, clumsy marketing and launch efforts, unreliable earnings guidance and unconvincing leadership.

Research in Motion Ltd.’s failure to address these four key challenges may have led to its devastating second quarter results.

Mike Abramsky, analyst with RBC Capital Markets, said in a research note Tuesday that RIM can still right its ship, but valuation won’t improve until the company deals with these trouble spots.

RIM’s low earnings and lower investor sentiment prompted the analyst to drop his price target on the stock to $29 from $35 while he maintains a sector perform rating.

RIM shares closed at $23.45 on the TSX on Monday.

On the subject of products, Mr. Abramsky notes that four years into a post-iPhone world, RIM still hasn’t offered competitive smartphone products or addressed the “app gap.”

“With QNX, we believe RIM needs to renew its focus on innovative, bold user experiences and address its lagging application ecoystem,” he said.

But the race to produce compelling products and software needs to go hand in hand with well-executed marketing and launch initiatives.

Mr. Abramsky noted RIM continues to ship products late and incomplete and has mis-communicated how long it would take for promised products to hit the market.

The company has also been out-manoeuvred on the marketing front and is now effectively positioned as passe, he said.

“In our view, the criticism has been so intense it threatens RIM’s franchise and future sales as young buyers (especially BBM users) may no longer view BlackBerry as ‘cool,'” he said.

The company has also failed to offer reliable guidance, he said, pointing to the miss on Q2 results and retracting overoptimistic projections.

“[This] has created, in our view, a formidable gap with the investment community that needs correcting.”

Finally, he notes that the investment community has raised “legitimate questions” about the vision and direction of the company’s leadership and may be looking for changes at the board or management level.

Mr. Abramsky said governance is a key issue and the board could seize the chance to independently reassess these questions in a public context.

“To us, RIM’s board has an opportunity to take a more active role in providing a ‘check and balance’ on key management decisions,” he said.

Many positive factors still remain in RIM’s favour, he noted, such as a loyal customer base, a still-strong business base and international momentum.

“However, in our view, a turnaround hinges on addressing the above issues, as RIM prepares to launch smartphones powered with QNX, its new operating system,” he said.

Mr. Abramsky also noted that he continues to see RIM as a possible takeover target.

Its proprietary BlackBerry messaging services, network operations centre, mobile R&D team, global brand and subscriber base and patent portfolio all make it appealing, he said.

He estimates a takeout valuation could come in at $30 per share or higher, which represents a $16-billion market capitalization and a 25% premium.

That price would be 0.7 times enterprise value per share, slightly more than the 0.6 times EV/S Google Inc. shelled out for Motorola but a discount to other wireless precedents, Mr. Abramsky said.

“Potential acquirers in a hypothetical takeout scenario could include Microsoft, Cisco, IBM and Nokia.”

The analyst also noted that, as he’s said before, he sees potential value in splitting RIM into two businesses, one for network, the other for handsets.

Over the past two months, the company behind the world’s largest search engine has been quietly amassing control over a broad range of inventions developed by the world’s oldest technology company.

Following an acquisition of 1,030 patents from International Business Machines (IBM) Corp. in July, Google Inc. scooped up another 1,023 pieces of intellectual property from Big Blue last month. The patents cover an immense field of technology from the Java programming language, computer security, mobile phones and of course, Web-based search.

News of the second set of acquisitions, which were sold on August 17 and disclosed by the United States Patent and Trademark Office (PTO) on Tuesday, was firstreported by the SEO by the Sea blog and confirmed by Bloomberg News on Wednesday evening.

While the price Google paid for the 2,053 IBM patents it now owns was not disclosed, the Mountain View, Calif.-based Internet company has recently spent billions of dollars on a stockpile of intellectual property in hopes of deterring any potential aggressor that might otherwise consider accusing Google of infringement.

David Drummond, Google’s senior vice president and chief legal officer, described what he considered to be a “hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents,” in a post to the Official Google Blog dated August 3. The goal of the alleged campaign, Mr. Drummond said, was to make devices based on Google’s increasingly ubiquitous Android mobile operating system appear less attractive to consumers.

Less than two weeks later, Google agreed to pay US$12.5-billion to acquire mobile phone maker Motorola Mobility Holdings Inc. It was the single largest purchase Google had ever made and gave the search firm access to more than 20,000 patents and patent applications filed by Motorola over the course of its 83-year history.

In early July, Apple Inc., Microsoft Corp., Research In Motion Ltd. and three other major mobile players all bandied together to wrest control of the 6,000-strong IP portfolio once controlled by fallen Canadian telephone giant Nortel Networks Corp. away from Google. The consortium had to offer US$4.5-billion , more than triple what analysts had previously been expecting, to trump Google’s mathematically humourous bid of US$3.14-billion.

Google has been playing catchup to the IP of other technology companies largely because of its age. The company was founded just 13 years ago this month, while its leading competitors such as Apple and Microsoft have spent decades building up their respective patent war chests.

As the company continues its strategy of erecting an impenetrable wall of IP around its products, Google nonetheless remains embroiled in a number of high-profile patent disputes.

Google has been fighting software giant Oracle Corp. for more than a year over a stripped-down version of Java called Dalvik , which is used in some primary Android applications such as email. Oracle purchased its Java patents as part of its US$5.6-billion acquisition of Sun Microsystems Inc. in 2009.

In 2004, Microsoft agreed to pay Sun Microsystems more than US$2-billion to settle an ongoing lawsuit over Java patent and licensing violations. With damages in the Google v. Oracle case estimated to be even higher (although a the Court eventually adjusted the damages claim closer to US$100-million ), the two companies were pushed into settlement talks last week.

Then there is Apple, which just this week asked a Florida court to delay two ongoing patent disputes between the iPhone maker and Motorola. The Cupertino, Calif.-based company would prefer to wait until Google’s acquisition of Motorola is complete, the filing said, which is expected to happen no later than the start of next year.

Google’s need to collect patents from other companies as a result of its age is perhaps best exemplified through its dealings with IBM. Big Blue has been filing patents for more than a 100 years and in January of this year, broke the U.S. patent record after being issued a total of 5,896 patents in a single year.

Here are a few of the more interesting patents filed by IBM that are now owned by Google.

• Coordination Of Cellular Telephones In A Residential Area To Obviate Need For Wired Residential Service
• Method And System For Efficient And Reliable Mac-Layer Multicast Wireless Transmissions
• Electronic Mail System
• Method And Apparatus For Enhanced, High Speed Updating And Storing Of E-Commerce Orders In A Server
• Method To Keep A Persistent Trace Of Weblink Use Per User
• Method, System, And Program For Ordering Search Results Using An Importance Weighting
• Session-History-Based Recency-Biased Natural Language Document Search
• System And Method For Providing Service For Searching Web Site Addresses
• System And Method For Searching Patterns In Real-Time Over A Shared Media
• System, Method And Program Product For Answering Questions Using A Search Engine
• System And Method Of Using Data Mining Prediction Methodology
• System And Method Of Automatic Discovery Of Terms In A Document That Are Relevant To A Given Target Topic
• System And Method For Web-Based Querying
• Identifying Duplicate Documents From Search Results Without Comparing Document Content
• System And Method Of Ranking And Retrieving Documents Based On Authority Scores Of Schemas And Documents

OTTAWA — International Business Machines (IBM) Corp. said Thursday it has reached a deal to buy Toronto-based Algorithmics for US$387-million.

Algorithmics makes software that helps financial companies analyze things such as risk and regulatory requirements. IBM said the company has more than 350 clients, including 25 of the world’s top 30 banks.

“Today’s economic environment demands that financial institutions have more cash on hand, a better understanding of their financial standing and the ability to deliver more transparency to stakeholders,” Rob Ashe, general manager of business analytics with IBM, said in a statement.

“Combining Algorithmics’ expertise with IBM’s deep analytics portfolio will allow clients to take a more holistic approach to managing risk and responding to economic change across their enterprises.”

Ashe was formerly CEO of Cognos Inc., an Ottawa-based maker of business analytics software that IBM bought in 2008 for about US$5-billion.

Algorithmics is part of the Fitch Group, which is owned by Paris-based Fimalac.

Today in technology: International Business Machines (IBM) Corp. unveils a major advance in computing technology representing a drastic departure from the long held industry standard, Apple Inc. loses its mobile advertising chief and Amazon.com Inc. attempts to woo governments to the cloud.

IBM announces breakthrough in ‘cognitive’ computing
The world’s oldest technology company just unveiled a whole new way to design computer chips.

IBM Corp., which celebrated its centennial anniversary just two months ago, released prototypes of its first ‘neurosynaptic’ computer chips designed to mimic the processing functions of the human brain on Thursday. Part of Big Blue’s long-term cognitive computing initiative, the new chips represent a radical departure from traditional chip design and promise to reduce power consumption by several orders of magnitude while increasing both speed and processing capacity.

“This is a major initiative to move beyond the von Neumann paradigm that has been ruling computer architecture for more than half a century,” Dharmendra Modha, project leader for IBM Research, said in a release.

“Future applications of computing will increasingly demand functionality that is not efficiently delivered by the traditional architecture.”

“These chips are another significant step in the evolution of computers from calculators to learning systems, signaling the beginning of a new generation of computers,” he said.

No biological elements were used in their creation. Instead, researchers used digital silicon circuits inspired by neurobiology to create what they call a “neurosynaptic core” that integrates storage, processing and communication functions thereby maximizing efficiency and requiring no software.

As a result, the ‘cognitive computers’ are capable of learning by experience, discover correlations and make predictions based on their memories of previous events much in the same way a human mind develops into maturity. Such a design will allow future computers to analyze complex events in real time and respond accordingly, the company said.

“Imagine traffic lights that can integrate sights, sounds and smells and flag unsafe intersections before disaster happens,” suggested Dr. Modha, also mentioning a grocer stocking shelves who could use an instrumented glove that monitors sights, smells, texture and temperature to flag bad or contaminated produce as another potential use of his technology.

Development began at IBM’s upstate New York research facility in 2008 thanks to a US$4.9-million grant from the Defense Advanced Research Projects Agency (DARPA), part of the U.S. Defense Department. For the next phase, DARPA granted US$21-million in additional funding to IBM and four Universities based across the United States.

Long term, the goal of the SyNAPSE project is to create a chip system with ten billion neurons and one hundred trillion synapses that consumes just one kilowatt of power and occupies no more space than a modern day PC.

Top Apple mobile ads exec to become venture capitalist: report
Andy Miller, Apple Inc. vice president of mobile advertising, is planning on ending his tenure with the world’s most valuable company, AllThingsD reported on Wednesday. Mr. Miller sold his mobile advertising firm Quattro Wireless to Apple for $275 million in early 2010 and assumed his new role shortly thereafter. His new job will reportedly be general partner at Boston-based venture capital firm Highland Capital, which was the primary financial backer of Quattro.

Amazon launches government cloud service
The world’s largest online retailer launched cloud-based Web hosting services targeted specifically at government bureaucracies on Thursday. The move from Amazon.com Inc.’s Web Services (AWS) division is a clear attempt to capitalize on the U.S. government’s recently announced cost cutting measure to shutter up to 50% of its websites , though considering the reliability issues cloud services such as AWS in particular have been facing recently , some departments may think twice before taking advantage.

The analysts at RBC Capital Markets came out with a comprehensive analysis Wednesday of the technology stocks they expect to do well under different market conditions this year.

Dividing market conditions under three economic scenarios — bull, base or bear economies — the analyst team at RBC looked at the major technology sectors and how each scenario would effect the companies in those sectors. They then picked stocks that could potentially offer better returns under each scenario.

Below is a look at what they picked.

IT hardware/Technology supply chain sector

Bull case:

NetApp — NASDAQ: NTAP. Price target: $43.03. Rating: Outperform, Above Average Risk.
TE Connectivity — NYSE: TEL. Price target: $30.98; Rating: Outperform, Average Risk.
Jabil Circuit — NYSE: JBL. Price target: $16.42. Rating: Outperform, Above Average Risk.

Base case:

EMC — NYSE: EMC. Price target: $23.00. Rating: Outperform, Average Risk.
Amphenol — NYSE: APH. Price target: $46.57. Rating: Outperform, Average Risk.
TE Connectivity — NYSE: TEL. Price target: $30.98; Rating: Outperform, Average Risk.
Jabil Circuit — NYSE: JBL. Price target: $16.42. Rating: Outperform, Above Average Risk.

Bear case:

IBM — NYSE: IBM. Price target: $171.24. Rating: Sector Perform, Average Risk.
EMC — NYSE: EMC. Price target: $23.00. Rating: Outperform, Average Risk.
Hewlett Packard — NYSE: HPQ. Price target: $32.61. Rating: Outperform, Average Risk

Application & Enterprise software sector

Bull case:

CommVault Systems — NASDAQ: CVLT. Price target: $38.97. Rating: Outperform, Above Average Risk.
Fortinet — NASDAQ: FTNT. Price target: $20.23. Rating: Outperform, Speculative Risk.
Red Hat — NYSE: RHT. Price target: $37.65. Rating: Outperform, Above Average Risk.
VMware — NYSE: VMW. Price target: $92.55. Target: Outperform, Above Average Risk.

Base case:

Check Point Software Technologies — NASDAQ: CHKP. Pricer target: $56.49. Rating: Outperform, Speculative Risk.
Symantec — NASDAQ: SYMC. Price target: $16.82. Rating: Outperform, Speculative Risk.
LogMeIn — NASDAQ: LOGM. Price target: $32.99. Rating: Outperform, Speculative Risk.
RealPage — NASDAQ: RP. Price target: $24.46. Rating: Outperform, Speculative Risk.
SuccessFactors — NASDAQ: SFSF. Price target: $24.36. Rating: Outperform, Speculative Risk.

Bear case:

Microsoft — NASDAQ: MSFT. Price target: $25.27. Rating: Outperform, Average Risk.
Oracle — NASDAQ: ORCL. Price target: $27.50. Rating: Sector Perform Average Risk.
CA Technologies — NYSE: CA. Price target: $20.25. Rating: Outperform, Average Risk.
BMC Software — NYSE: BMC. Price target: $40.29. Rating: Outperform, Average Risk.

Data networking/Wireless

Bull case:

F5 Networks — NASDAQ: FFIV. Price target: $83.65. Rating: Outperform, Above Average Risk.
Riverbed Technology — NASDAQ: RVBD. Price target: $26.13. Sector Perform, Above Average Risk.
Polycom — NASDAQ: PLCM. Price target: $26.21. Rating: Outperform, Above Average Risk.
Ciena — NASDAQ: CIEN. Price target: $13.24. Rating: Outperform, Speculative Risk.

Base case:

Qualcomm — NASDAQ: QCOM. Price target: $51.26. Rating: Outperform, Above Average Risk.
F5 Networks — NASDAQ: FFIV. Price target: $83.65. Rating: Outperform, Above Average Risk.
Polycom — NASDAQ: PLCM. Price target: $26.21. Rating: Outperform, Above Average Risk.

Bear case:

Qualcomm — NASDAQ: QCOM. Price target: $51.26. Rating: Outperform, Above Average Risk.
Garmin — NASDAQ: GRMN. Price target: $31.69. Rating: Sector Perform, Speculative Risk.
Tellabs — NASDAQ: TLAB. Price target: $4.22. Rating: Sector Perform, Above Average Risk.

Software/Wireless sector

Bull case:

Apple Inc. — NASDAQ: AAPL. Rating: Outperform, Above Average Risk. Price target: $383.41.
Open Text Corporation — NASDAQ: OTEX. Rating: Outperform. Above Average Risk; $54.01.
CGI Group Inc. — TSX: GIB.A. Rating: Outperform, Above Average Risk. Price target: $19.69.
Constellation Software Inc. — TSX: CSU. Rating: Outperform, Above Average Risk. Price target: $67.00.
Research in Motion Limited — NASDAQ: RIMM. Rating: Sector Perform, Above Average Risk. Price target: $27.11.

Base case:

Apple Inc. — NASDAQ: AAPL. Rating: Outperform, Above Average Risk. Price target: $383.41.
Open Text Corporation — NASDAQ: OTEX. Rating: Outperform. Above Average Risk; $54.01.
CGI Group Inc. — TSX: GIB.A. Rating: Outperform, Above Average Risk. Price target: $19.69.
Constellation Software Inc. — TSX: CSU. Rating: Outperform, Above Average Risk. Price target: $67.00.

Bear case:

Apple Inc. — NASDAQ: AAPL. Rating: Outperform, Above Average Risk. Price target: $383.41.
CGI Group Inc. — TSX: GIB.A. Rating: Outperform, Above Average Risk. Price target: $19.69.
Open Text Corporation — NASDAQ: OTEX. Rating: Outperform. Above Average Risk; $54.01.
Constellation Software Inc. — TSX: CSU. Rating: Outperform, Above Average Risk. Price target: $67.00.

Semiconductor capital equipment sector

Bull case:

Novellus Systems Inc. — NASDAQ:NVLS. Price target: $28.71. Rating: Outperform, Average.
Applied Materials Inc. — NASDAQ:AMAT. Price target: $11.68. Rating: Sector Perform, Average.
KLA-Tencor Corp. — NASDAQ:KLAC. Price target: $36.29. Rating: Sector Perform, Average.
Nanometrics Inc. — NASDAQ:NANO. Price target: $16.28. Rating: Outperform, Above Average.

Base case:

Novellus Systems Inc. — NASDAQ:NVLS. Price target: $28.71. Rating: Outperform, Average.
Nanometrics Inc. — NASDAQ:NANO. Price target: $16.28. Rating: Outperform, Above Average.

Bear case:

RBC Capital Markets analyst Mahesh Sanganeria recommends avoiding semiconductor capital equipment stocks if you anticipate a bear economic and market scenario.

Today in technology: Google Inc. adds to its litigation warchest by acquiring a batch of patents from International Business Machines Corp.; Seattle’s police department upsets the local Twitter community by over-Tweeting 911 activity; China’s Alibaba throws its hat in the smartphone operating system ring and plans to challenge Google’s Android and Apple Inc.’s iOS.

Google girds itself for mounting storm of patent litigation

After failing to secure the patents of defunct telecom equipment maker Nortel Networks Corp. earlier this month , search engine giant Google has made a move to acquire a batch of patents from IBM, according to a report from Bloomberg .

Google did not say which areas of its business the patents relate to, however the Silicon Valley company has previously expressed interest in patents related to mobile networks and cellular technology in an attempt to bolster its Android mobile platform.

Earlier this month, Google was outbid by a consortium of six companies — including rivals Apple Inc., Microsoft Corp., Research In Motion Ltd., Sony Corp., EMC and Ericsson — for 6,000 Nortel patents and patent applications.

Although Google set the basement of the auction with a stalking horse bid of $900-million in April , then submitted several oddball bids during the auction process — including $1,902,160,540 and $2,614,972,128, which math whizzes might recognize as as Brun’s constant and Meissel-Mertens constant — the company eventually fell short of the $4.5-billion put up by the consortium.

Google has long been a critic of the current patent system in the United States and has called on the U.S. Congress and the Federal Trade Commission to overhaul the system, in an effort to reduce the number of intellectual property litigation actions in the technology industry.

“The tech industry has a significant problem,” Google General Counsel Kent Walker said in an interview with Bloomberg earlier this week. “Software patents are kind of gumming up the works of innovation.”

Seattle Police Department experiments with Twitter as police scanner, with mixed results

Beginning early Tuesday morning, followers of the Seattle Police Department’s official Twitter account were confused with a sudden steady stream of messages from the cops.

According to the New York Times , it was all part of a 12-hour experiment by the police department to post nearly all of its emergency calls on Twitter, so that regular folks could get a taste of what it’s like to be part of the Thin Blue Line. In total, about 40 messages were sent out each hour, for a total of 478 by the end of the day.

Needless to say, not everyone was impressed.

“The Seattle social media community is a family,” Linda Thomas, a local radio hose wrote in a blog post.

“Today, the SPD was a noisy uncle at the dinner table who was only talking about himself — in incoherent sentences at that — and refusing to acknowledge that there are others in the room.”

China’s Alibaba takes aim at Apple and Android

One of China’s largest Internet companies is taking on the biggest names in Silicon Valley with the launch of its own mobile operating system. According to the BBC , Alibaba plans to launch a new operating system known as Alyun OS, in an effort to cash in on the rabid demand for multifunction smartphones in the world’s most populous nation.

There aren’t many companies that live to see their 100th birthday. Even rarer are technology companies that reach the century mark. On Thursday, the grandfather of the technology industry, International Business Machines Corp., will celebrate 100 years in business. It’s a remarkable milestone for the company, which began as the Computing Tabulating Recording Company in 1911, almost a year before the sinking of the Titanic. Over the years, IBM has been at the forefront of technology innovation. IBM researchers and scientists helped give rise to the PC revolution, were instrumental in facilitating the Apollo space missions and are now helping to shape the emerging field of artificial intelligence and the future of health care. In an interview with Financial Post technology reporter Matt Hartley, IBM Canada president Bruce Ross reflects on 100 years of Big Blue.

QLet’s start with the centennial. IBM was founded a century ago, and the company operates with three central themes which have evolved over the years. Can you tell us a little about those?

A As a company, you can really compartmentalize what we’ve done over 100 years into three specific areas. The first is what we call the evolution of the modern enterprise. That’s all about the social aspects of the company. That’s being the first company in the world to hire women into the enterprise and to hire people of different racial backgrounds into the enterprise. So there’s a huge social agenda of the company, even up until today. In 1985, we set out a policy that said we would not discriminate based on what we could glean from a person’s genetic makeup. The social aspect of our company is clearly important to us. The second area is deep innovation. This is research and development that we spend $6-billion a year on. And the third area is the bringing together of that research and innovation to make the world a better place.

[np-related]

QIt’s very “Don’t Be Evil,” long before Google. There really are some amazing innovations that have come from IBM scientists. IBM pioneered the idea of computers with customizable software and your engineers taught a computer how to beat a grand master at chess. Are there certain achievements IBM plans to celebrate this year?

A Innovation is the hallmark of IBM. We would not be in business today if we were not a leader in innovation. Whether we’ve been in good times or bad times, we’ve continued to invest in innovation because we believe that’s a fundamental tenet for success. There have been a lot of great things to celebrate. We invented the UPC bar code with Procter & Gamble, which has completely changed the retail industry and manufacturing and many other industries. We worked with American Airlines in 1962 to create the Sabre airline reservation system which today is used in things like Expedia.com and others. So that code from ’62 is still used today. We were part of the Apollo space mission back right to the Apollo 11. But what a lot of people don’t talk about is the work that we did on Apollo 13, where some of our programmers put the code into the return-to-earth-modules inside the computers that allowed us to calculate how to bring people back. So that innovation back then is important, but also the innovation that we do today and with analytics and what we do in Canada and deep analytics. We’re again making huge contributions to the patent portfolio of IBM so we’ll be celebrating those as well. One that’s more recent is that some of our scientists learned how to take the excimer laser pulse technology and teach it how to etch human tissue, which then became laser eye surgery. Not many people think of us as having anything to do with that, and we’ve got five Nobel laureates through the history of the company.

QNow that IBM has gotten out of the PC business, consumers aren’t always aware of all of the things that IBM is doing, but you guys are working on so much stuff behind the scenes. What is it about the IBM approach to innovation that’s special? How does IBM encourage employees to think big and to ensure the future of a company that we’ll hopefully be talking about on a bicentennial podcast 100 years from now?

A It comes down to having a value system that everyone in the company believes in and buys into. IBM has three fundamental values, which are trust and responsibility in all our personal relationships. The second is driving value for our customers, and the third is innovation that matters for our company and for the planet. So we focus everything around the customer, the client agenda and then the innovation which is also a core theme. So our researchers aren’t just doing research for the sake of doing research. We have the largest math department of any private sector company. We have over 3,000 PhDs in the business, but they’re focused on innovating to solve real-world business problems. We spend a lot of time right through the Lou Gerstner era focusing on how do we accelerate the deployment of research so we have a value system that we link very directly to. We have a strategic set of themes, four of which that we run our business on: smarter planet -which is the improving business models through the deployment of technology -two is deep analytics, three is cloud computing and four is emerging markets. And in analytics, that is really what we take great pride in Canada as being the home of analytics for the IBM corporation.

mhartley@nationalpost.com

Today in technology: Apple Inc. topples Google Inc. as the world’s most valuable brand, Groupon Inc. partners with Live Nation to create a new online ticket marketplace and Sony Corp. delays the relaunch of its PlayStation Network.

Apple takes a bite out of Google’s brand power
Toppling the position held by the world’s largest search engine for the past four years running, Cupertino, Calif.-based gadget maker Apple Inc. was declared the world’s most valuable brand over the weekend by global research agency Millward Brown’s annual Brandz ranking.

According to the ranking of world’s top 100 corporate images, the one meticulously crafted by Apple chief executive Steve Jobs was found to be worth more than US$153-billion, nearly half the company’s total market value and an 84% increase from its 2010 brand value. Google was barely ahead of International Business Machines (IBM) Corp. in the number two spot with a brand value of $111-billion, a 2% drop from its 2010 ranking.

“Apple is breaking the rules in terms of its pricing model,” Peter Walshe, global brands manager with Millward Brown, told Reuters by telephone. “It’s doing what luxury brands do, where the higher price the brand is, the more it seems to underpin and reinforce the desire.”

“Obviously, it has to be allied to great products and a great experience, and Apple has nurtured that.”

Despite what some analysts might have to say about the BlackBerry brand, beleaguered Canadian smartphone maker Research In Motion Ltd. also made the list. Coming in at number 26 with a brand value of US$24.6-billion, the figure is almost exactly what the Waterloo, Ont.-based company is worth in total market value.

Social networking giant Facebook Inc. made its official debut on the 2011 list at number 35 with US$19-billion in brand value, marking 246% growth from 2010. It was among 5 technology brands — the others being Apple, Baidu, Siemens and Cannon — to be included in the Top 20 Risers ranking.

Apple is easily among the world’s most secretive and insular companies, particularly when it comes to its own internal workings. To get a better understanding of how a picture of a common fruit somehow managed to become worth more than US$150-billion, check out the Inside Apple story in the latest edition of Fortune magazine.

Here’s hoping nothing untoward gets connected to the Apple brand in the near future. Like, for example, an Apple Store employee getting into a brawl with a customer outside a store.

Groupon and LiveNation partner to launch GrouponLive
The world’s largest online deals website Groupon and well known event ticket and promotion website Live Nation announced a joint venture on Monday morning. No launch date or financial terms of the partnership were included in the announcement, which did mention the new service will be called GrouponLive and will provide its users limited time offers for Live Nation and TicketMaster events taking place in North America. Those interested in learning when the new GrouponLive service will be available — which has already been rumoured to be on track to launch in time for the summer concert season — are advised to check out its website .

Sony delays PlayStation Network relaunch
The Sony PlayStation Network — which allows for online gaming through the Japanese electronics firm’s PlayStation 3 game console — has been down for several weeks now following a massive security breach that resulted in more than 100 million user accounts being compromised. Having initially said the service should be back online by the end of April, Sony said over the weekend that further testing is needed before the network can be reinitialized safely.

jberkow@nationalpost.com

Investors have hammered Research In Motion Ltd. in recent weeks as the company slashed its earnings forecasts and underwhelmed with the launch of its BlackBerry PlayBook tablet. As shareholders abandon the Canadian technology darling amid growing analyst opinion that things will not soon get better for the Waterloo, Ont.-based company, other Canadian tech stocks could serve as safe harbours.

With earnings multiples ranging from the mid-teens to the low twenties, some are more expensive than others, though they may be no more risky than RIM at this point. But considering the combined market capitalization of every non-RIM technology outfit in Canada is perhaps still less than the US$25-billion in market value still commanded by the BlackBerry maker, those safe harbours might not be so easy to find.

Financial Post tech reporter Jameson Berkow managed to unearth five such companies that are managing to make money despite not making headlines. All EPS figures are diluted/trailing 12 months for F2010 as most have yet to report first quarter 2011 earnings.

Open Text Corp. (OTEX/TSX)

Net income F2010
US$87.55-million (53.8% growth from F2009)
EPS US$2.74
P/E 21.98x
ROE 11.13%

As Canada’s largest software company and the second-largest provider of enterprise content management (ECM) software in the world, behind only International Business Machines (IBM) Corp., the Waterloo, Ont.-based company is perhaps the most well-known company to be presented here. But after recently posting two strong back to back quarters — helping to grow the value of its shares by nearly 30% in the past year — and the spotlight on Open Text can be expected to get very bright very fast.

“I’m seeing a lot of demand for enterprise software,” said Eyal Ofif of Canaccord Genuity, noting that companies are more willing to make discretionary purchases on business software now the economic recovery is firmly underway.

Despite most analysts already having ratings of Buy or better on Open Text, Mr. Ofif says the growth potential from emerging markets is even stronger than many expect.

“If they are able to get further into China, further into India and then Brazil and Russia then that is going to be potential upside that a lot of analysts are not anticipating.” the analyst said.

Then there is the possibility of an acquisition by an even larger entity — such as Microsoft Corp. or Oracle Corp. — looking to get into the ECM space; something Northern Securities analyst Sameet Kanade sees as likely.

“It is a very strong takeover candidate,” he said. “If you look at all the companies on the TSX that are potential takeover candidates, you could list Open Text as number one.”

TECSYS Inc. (TCS/TSX)

Net income F2010 $2.18-million (37% growth from F2009)
EPS $0.14
P/E is 13.5x
ROE 13.31%

Supply chain management might not sound like an especially sexy sector, but Montreal-based software firm TECSYS Inc. is making it look increasingly attractive. The company creates what are known as Integrated Delivery Networks (IDN), which lowers logistical costs of deliveries by streamlining orders.

Currently focusing sales efforts on the health care industry, Steve Li of Industrial Alliance Securities believes TECSYS will be able to make a strong value proposition for hospitals and clinics to use its service.

“Instead of having a truck for each pharmaceutical every week, you can have maybe one delivery for a bunch of different drugs,” the analyst explained.

“Plus the market penetration for their software is pretty low right now and that is a big market opportunity, especially with the issues in the health care sector to cut costs.”

Management has also shifted focus in recent years away from being a hardware reseller to pushing its proprietary IDN software, where the margins are much larger.

But it is one of those stories that is not very well covered, argues Mr. Li.

“If you’re not a very high growth story, you may not have the kind of interest you deserve even though you have been executing quite well,” he said. “[TECSYS] pays a dividend, they do share buybacks, but it still seems as though all these different things they’re doing are not sufficient to catch the interest of the Street right now.”

Bridgewater Systems Inc. (BWC/TSX)

Net income F2010
$23-million (105.4% growth from F2009)
EPS .53¢
P/E 15.64x
ROE 28.73%

As the proliferation of data-gobbling BlackBerrys, iPhones and Android devices continues into the wireless market, technology to manage congestion and data on wireless is certain to become all the more sought after. That is good news for Ottawa-based Bridgewater Systems Inc., which offers a product capable of managing traffic on wireless networks to keep them as efficient as possible.

Analysts are not expecting anything too exciting when the company reports quarterly earnings next month. But going forward, Bridgewater stock offers a “huge opportunity for investors,” argues Canaccord Genuity analyst Rob Young.

“It has this exposure to a huge market that the carriers are very interested in attacking and there is also the potential for them to get bought by a company that wants exposure to that huge market.”

Mr. Young considers Bridgewater to be one of the top three players in the policy control systems sector at the moment. Another one, a private Massachusetts-based company called Camiant Inc., was purchased by Tekelec last year for US$130-million.

“That leaves Bridgewater as a small cap option for companies such as Juniper, Cisco or HP that might be interested in improving their products in that area,” Mr. Young said.

Organic growth and acquisition possibilities aside, Bridgewater is also expected to reap the benefits of a “Bill Shock” law currently making its way through Queen’s Park. The law, introduced by Liberal MPP David Orazietti last November, would require wireless carriers to warn customers who were about to incur additional charges on their accounts. Only through software provided by firms such as Bridgewater would such warnings be possible.

Mosaid Technologies Inc. (MSD/TSX)

Net income F2010
$21.75-million (271.8% growth from F2009)
EPS $2.31
P/E 12.96x
ROE 16.42%

When thinking of all the major patent holding firms in the National Capital Region, the list often stops at Wi-Lan Inc. There is some good reasons for this — the firm’s recently successful litigation against major tech firms such as Intel Corp. and LG Electronics has made it Ottawa’s most valuable public company. But investors would ignore another patent firm, Mosaid Technologies, at their peril.

“Mosaid has been my top pick for about 12 months now,” said Mr. Kanade of Northern Securities. “Its shares have gone up almost 100% since then but there is still a lot of room for this stock.”

The analyst considers Mosaid not only a better run company than Wi-Lan, but it has an even stronger patent portfolio.

“The WiFi patents these guys have are fundamental WiFi patents that were written by the guys who invented WiFi,” he said.

Mosaid is also in the middle of a patent infringement case against 17 companies including RIM, which Mr. Kanade expects will settle favourably for Mosaid by the fall of 2012. “And that settlement should be in excess of $100-million,” he said.

All those reasons aside, the most appealing aspect of Mosaid might be that it is trading at an almost 60% discount to Wi-Lan.

VendTek Systems Inc. (VSI/TSX-V)

Vancouver-based prepaid telephone and electronic transaction processing software provider VenTek Systems is not listed in the above chart for one reason: trading of their stock was halted for the better part of the 2010 fiscal year.

Although a prolonged trading halt is often enough to make investors turn tail on a company, Tom Liston of Versant Partners in Toronto argues the stoppage “wasn’t crazy material.”

“It was just the processes for reporting were not quite in place and they had to go through and correct a number of items,” he said. “I don’t ultimately think it drastically changed the inputs.”

Since the stock resumed trading on the TSX Venture Exchange last April — which by its very nature garners an increased risk — it has nearly doubled in value. That is mostly due to a change in strategy whereby VendTek is now simply licensing its eFresh software as opposed to distributing it.

“So what they’ll do now is just clip a couple of cents per transaction, but it is zero cost to them so the margin is basically 100%,” explained Mr. Liston.

“That is the complete opposite of their previous model.”

So far, the change in strategy combined with an increased focused on emerging prepaid markets such as Brazil — where Mr. Liston estimates close to 95% of cellular service is prepaid — appears to be working. VendTek stock has been trading at or near a 52-week high for the past several weeks.

Last year was an historic one for the computer hacking community.

“From a security standpoint, 2010 is most remembered as a year marked by some of the most high profile, targeted attacks that the industry has ever witnessed,” reads an excerpt from the X-Force 2010 Trend and Risk Report, released by International Business Machines Corp. late last week.

After analyzing data from more than 4.7 trillion security events over the course of last year (or about 150,000 every second), the report from IBM documents 8,000 new vulnerabilities that did not exist in 2009.

Despite noting “significantly fewer” phishing attacks in 2010 relative to previous years — phishing attacks are when a hacker masquerades as a trustworthy source, such as a bank, in order to steal sensitive user data — the report found these sorts of attacks have simply been replaced by a more sophisticated version known as “spear phishing.”

“The numerous, high profile targeted attacks in 2010 shed light on a crop of highly sophisticated cyber criminals, who may be well-funded and operating with knowledge of security vulnerabilities that no one else has,” Tom Cross, threat intelligence manager for IBM’s X-Force, said in a release.

“From Stuxnet to Zeus Botnets to mobile exploits, a widening variety of attack methodologies is popping up each day.”

The evolving activity of the online underworld has attracted growing interest from the electronic security industry as cyber criminals become more ambitious with their attacks.

In the past year, the public learned of a major Stock Exchange — New York’s Nasdaq — falling victim to hackers and the now infamous Stuxnet worm was believed to have temporarily disabled the Iranian nuclear enrichment program in an attack reportedly planned by the Israeli government.

The term “ hacktivism ” also moved into the public sphere in 2010. A combination of ‘hack’ and ‘activism’, the word was a popular way of describing the actions of a hacker group called Anonymous , which claimed responsibility for attacks against the websites of Visa, Mastercard, PayPal and Amazon.com last year in response to those companies deciding to cut ties with whistle-blowing website WikiLeaks.

Those attacks, along with those against the Nasdaq Stock Market and Iran, exemplify the higher ambitions of modern hackers.

“Cyber criminals are graduating from stealing credit cards and banking credentials to targeting corporate plans and proprietary information,” Graham Titterington, principal analyst with industry analysis firm Ovum PLC, said in a report last month.

No longer satisfied with online retail scams and identity theft, today’s hackers are going after data supporting key infrastructure such as Stock Exchanges and industrial facilities , which tend to be more lucrative targets. And as smartphones and tablets find their way into the hands of virtually every business executive across every industry, hackers are shifting focus to mobile platforms as a way of accessing that data.

“In 2010, IBM X-Force documented increases in the volume of vulnerabilities disclosed in mobile devices as well as the disclosure of exploits that target them,” the IBM report said.

“The desire to ‘jailbreak’ or ‘root’ mobile devices has motivated the distribution of mature exploit code that has been reused in malicious attacks.”

Mobile protection services for corporate users has only recently become available, with McAfee Inc. and Symantec Corp. — two of the world’s largest security software makers — releasing their first mobile-focused products only in the past year.

But as more sensitive data is transmitted from unsecured smartphones and tablets , mobile devices are becoming a more attractive target.

“The same password and hacking threat vectors that have existed in the PC domain will be pretty quickly migrating to the mobile space,” said Dave Lowenstein, chief executive of Toronto-based cyber security firm Federated Networks Inc., told the Financial Post in an interview last month.

“Certainly in the next 24 to 36 [months] I think we’ll see much more mature malware attacks that start exploiting the mobile domain much like they are the PC domain today.”

Among the IBM report’s conclusions is that nearly half (44%) of all vulnerabilities still remain unpatched, which means they can continue to be exploited long after their existence has been made public. Yet even if those security holes are promptly closed, the rapidly evolving state of cyber crime means hackers will simply make new holes and gain access through them.

jberkow@nationalpost.com

Today in technology: a leaked document from a major U.S. retailer suggests when Research in Motion’s long-awaited tablet PC will launch in the U.S. and how much it will cost, IBM begins the digitization of Manitoba health records, Adobe submits to Apple with its latest update and Facebook poaches another top Google executive.

BlackBerry Playbook to launch March 27, starting at US$499: report
Nearly six months after Research in Motion’s answer to Apple’s iPad was unveiled to the world, the PlayBook is finally on the verge of going on sale. According to a merchandising record obtained by the website precentral.net , Canada’s smartphone maker will launch its first-ever tablet offering in the U.S. on March 27. That is in line with previous estimates of a late March release, although recent reports have suggested the device won’t start shipping until April 10.

According to the report, the PlayBook will be available at three different price points depending on the storage capacity of the device, with a 16 GB version costing US$499 and 32 GB and 64 GB versions available for US$599 and US$699 respectively. Since the document is said to be from a “major U.S. retailer,” none of the stated figures can be directly applied to Canada, though it does at least shed some light on how RIM plans to position its tablet. Canadian release dates and pricing for the PlayBook remain very much a mystery and RIM did not immediately respond to a request for comment.

Electronic health records coming to Manitoba, courtesy of IBM
Technology has been touted as a cure for the ailing financial state of the Canadian health care industry, and making digitizing health records is viewed by many experts as a good place to start. Based on a $22.5-million agreement struck in 2009 between the Government of Manitoba and International Business Machines Corp. (IBM), the first stage of EChart Manitoba was rolled out on Monday, enabling health care providers quick and easy access to more than 30 million health records in the Province.

In a statement, IBM said the new system will reduce the chance of medication errors, duplication of treatments and unnecessary medical testing, issues which can cost a health care system billions of dollars in lost efficiencies. The next release of the project, which will include access to diagnostic imaging information, is expected to come in December of this year. Ontario attempted a similar project in 2009 that didn’t go very well , so here’s hoping it works out better in Manitoba.

Adobe submits to Apple with latest update
That Apple Inc. chief executive Steve Jobs isn’t the biggest fan of Adobe’s Flash is no big revelation, nor is it shocking to say that Adobe isn’t exactly BFFs with Apple either. However, what would be an attention-grabbing thing to announce is that Adobe has finally conceded to Apple’s desire for everything to be based on HTML5, a new web programming language similar to the standard HyperText Markup Language but with interactive and animated functionality similar to Adobe’s Flash as well.

When Adobe released Wallaby last weak , a new tool for application developers that automatically converts Flash files into HTML5, it might not have been a full blown capitulation to Apple’s demands, but it sure was meeting them more than halfway. Score one for Steve Jobs.

Google corporate development goes to Facebook
The world’s largest search engine has been working hard lately trying to retain its top talent, but the allure of working for the next up-and-coming Web firm is too strong for some (and the chance at getting some pre-IPO Facebook stock is probably pretty tempting also). So when Amin Zoufonoun , Google’s number two corporate development executive, decided to leave the company for a similar position at Facebook , his reasons needn’t be explained in any great detail. Suffice to say he was not the first , and quite possibly will not be the last major industry player to join the world’s largest search engine in the months leading up to its public offering.

jberkow@nationalpost.com

Manager: David Burrows, Barometer Capital Management
Private Pool: Equity Pool
Description: Tactically managed, bottom-up and top-down, focused on market leadership
Firm’s AUM: $1.6-billion
Performance: 1-year +22.7%, 3-year +5.0% (as of February 28, 2011)
Management fees: 1.95% (A Class), 0.95% (F Class)

Despite the big rally in equity markets since March 2009, David Burrows believes a broader reallocation to equities from fixed income has only just begun in the past few months. The president and chief investment strategist at Barometer Capital Management points out this is happening both at the pension fund level and with private investors.

According to statistics from the Federal Reserve, pension funds have averaged 45% exposure to equities since 1960. Yet Burrows points out that number currently sits at less than 35%, up only slightly from a 50-year low of roughly 30% in 2009.

At the same time, we’ve just seen the biggest ramp-up in household ownership of treasury bonds since 1968. The manager notes that risk-averse private investors finally began re-allocating from fixed income to equities in December, and continued that move at a faster pace over the past two months.

“Markets are all about following the money, and the money is finding its way back into equities, likely in a bid to counter rising inflationary pressures,” Burrows says.

He is focusing on companies with pricing power, operating in supply-constrained industries, and capital spending.

“That’s where the market leadership is,” Burrows says, highlighting automation, technology and machinery. “Corporations do have cash and will spend it if they can gain productivity.”

The manager also looks to where the market breadth expansion is taking place. That leads him to energy – specifically oil producers and mid-sized growers – including some international names that have good production growth, but also big near-term catalysts. Burrows also likes some segments of the basic materials space such as Labrador Iron Ore Royalty Corp.

He recommends avoiding anything that is a price-taker right now, where rising costs can have an impact. The manager also thinks investors should be a little careful with global financials since it is unlikely they will be able to repeat the growth and return on equity of the 15-year period leading up to 2008.

BUYS
Labrador Iron Ore Royalty Corp. (LIF-U/TSX)
Close $72.30, down $3.20 P/E 11.76

Why do you like it? LIF provides an opportunity to participate in a growth-oriented iron ore producer through its 15.1% stake in Iron Ore Company of Canada. IOC operates in a politically stable, mining-friendly jurisdiction, with minimized operating risk. The bulk of LIF’s revenues are based on royalties.

What’s the upside? Current production at the Carol Lake iron ore deposit is 18 million tonnes, but IOC can eventually increase that to 50 million if demand stays strong. We now expect a total of $7 in cash distributions in 2011, amounting to a yield of 10.0% in 2011, and growing to $10 or 14.5% in 2012.

The biggest risks? Chinese growth slows and hurts consumption in steel, which would hurt iron ore pricing.

Describe the position: A core position in both equity and income mandates. Owned LIF units from a low of $29 and continue to buy at current levels.

MasTec Inc. (MTZ/NYSE)
Close US$19.16, down US69¢ P/E XX 17.91

Why do you like it? It is a well-positioned infrastructure company in three key secular growth sectors – wireless networks, gas pipelines and electrical grids.

What’s the upside? The EIA expects as much as US$230-billion of spending for natural gas infrastructure with 80% going toward pipelines. Wireless infrastructure revenues should ramp up as capital spending is driven by 3G and 4G rollouts. The transmission division should benefit from more infrastructure investment in the U.S. electrical grid.

The biggest risks? Slower than anticipated growth in telecom spending related to network infrastructure.
Describe the position: A more aggressive, growth-oriented position in equity mandates. Originally purchased at just over US$16 and has been added to over the past month.

IBM Corp. (IBM/NYSE)
Close US$162.02, down US$3.84 P/E 14.02

Why do you like it? It is well positioned in three key areas of global IT capital spending – cloud, services and enterprise software.
What’s the upside? Very strong and visible earnings growth is anticipated to generate $100-billion in free cash flow as IBM sees accelerating demand for global consulting services and business analytics.
The biggest risks? Slower earnings and economic growth delay companies’ plans for an IT refresh.
Describe the position: Core position in equity mandates. Began buying shares at US$140 dollars per share and continue to buy up to and including current prices.

SELL
Air Canada (AC.B/TSX)
Close $2.71, up 2¢ P/E 9.03

Why don’t you like it? Air Canada is being hurt by rising energy costs. It is one stock in a bad neighbourhood. The airline has experienced pressure from competitor airlines in the U.S. and Pacific markets, who have been bringing back capacity and becoming more aggressive with pricing.

What is the downside? For every dollar increase in the average price of a barrel of oil over the year, IATA estimates airlines will face the task of recovering an additional $1.6-billion in costs. The company also faces uncertainty related to labour negotiations.

A potential positive? Oil prices fall, which brings down the cost of fuel and increases the airline’s operating margin.

Describe the position: Selling was done at various levels down to a stop loss at $3.

By most accounts, the Canadian mergers and acquisitions market for small to mid-sized businesses is relatively robust, despite the global recession.

M&A activity has been buoyed by the heavy activity of so-called “strategic buyers,” as well as by continuing tough conditions in the initial public offering (IPO) market (a key alternative to selling your company).

It is unfortunate there is little data for the small end of the market to be more scientific and definitive, but here are some practical observations:

“Strategic” in the eye of the beholder Today, strategic buyers are considered to be companies that buy other companies they consider complementary to their core business. This would include broadening their product offering, geographical coverage, core skill sets of staff and customer base — not simply getting bigger for bigness sake.

But the notion of what is “strategic” changes. At one time, buying unrelated businesses as part of a conglomerate strategy was considered strategic, and will probably again be one day. In the late 1990s and into the 2000s, companies of all sizes either bought or started ventures unrelated to their core business, either looking for returns on investment separate from their existing business, or simply goosing overall returns for the owners. Many of these initiatives didn’t end well, particularly as capital market conditions deteriorated for small to mid-sized businesses even before 2008.

Even today, the distinction between a “strategic” deal and a “buying to get bigger” deal is fairly fine. Frankly, if it is acquired cheaply enough, it becomes strategic to the buyer and its stakeholders.

Size matters Size has a much broader and bigger impact on SMBs relative to larger corporations. In today’s markets, which bucket you fall into will help determine your probability of being acquired, or getting financing to do an acquisition. (See accompanying scale). The type of buyer or investor who may be interested in your company will also change materially as you move from bucket to bucket. This will also drive what valuation methodology will be used.

So a deal that moves an SMB from one bucket to the next may be “strategic” for that reason alone, and not empty empire building.

As a general rule, you will get a better relative valuation (i.e. multiple of sales or earnings or cash flow) as you move up the scale. The same is true for the probability of selling your company or getting financing to do an acquisition.

This is by necessity a simplified picture, as each industry will have its own unique features and considerations, but the overall paradigm holds broadly. Whether any deal is truly “strategic” will be specific to each SMB.

Raising the bar Another important trend boosting the volume of M&A activity for SMBs is the increasing quality of targets.

First, many of the weakest companies have either done distress deals or disappeared.

Second, overall SMB market valuations are improving somewhat from the trough in 2008, bringing more high-quality companies into the market.

Third, with the passing of time, more and more good companies and their owners lose patience with waiting for things to get better and lower their expectations. Expectations are very sticky for SMBs on the downside — it is an effect of the unceasingly bullish sentiment that motivates and drives entrepreneurs. This is a much stronger and more influential factor for this segment than for the large cap players.

New consolidation plays Another element having a major impact on M&A activity in this segment is the acceleration of the consolidation curve in a number of market segments many SMBs are in. Software-as-a-service, cloud-computing technology, security, mobile technology, digital media and entertainment, and consumer devices come to mind. These segments are lead by cash-rich and increasingly acquisitive giants including Google, Cisco Systems, Apple, IBM, Intel, Oracle and others.

The giants are becoming increasingly broadly integrated, and are hollowing out the medium-sized segment of the corporate world as they seemingly scoop up everything to become one-stop-shops for their own customers.

All this leaves an opportunity for SMBs to follow their own growth and acquisition strategies: Namely, to move into the increasingly vacant middle ground to become big and interesting enough to be acquired by the giants, if they are not currently sufficiently attractive targets.

Consolidation plays have existed for years in both the technology and traditional business segments, but the paradigm is on steroids these days.

Opportunity in chaos While M&A deal volumes and valuations in the SMB segment are much more volatile than for the overall market, bottom line, these companies have never had such a good opportunity to define their own opportunity to benefit from these plays.

Bucket Sizes
The typical size “buckets” for evaluation of SMBs break down as follows in terms of sales revenues:
Early stage $1-million
Emerging $1-million to $5-million
Ramp-up $5-million to $10-million
Expansion $10-million to $25-million
Critical mass $25-million+

— Brad Cherniak has spent more than 20 years as a principal, advisor to and investor in private companies. He is co-founder and partner at Sapient Capital Partners, a Toronto-based advisory firm to companies from early stage to $50-million in revenues. His column appears monthly in the Financial Post. He can be reached at brad@sapientcap.com.