Newspaper article...From the July 19, 2003 Hamilton Spectator:
Gennum sees bright future
The rise in the loonie hurt the integrated circuitry company's bottom line, but Gennum's chief executive is bullish on his vision
By Mike Pettapiece
The Hamilton Spectator
Call Ian McWalter a new Canadian, a business leader who bucks the trees-and-rocks image.
Not for him any whining about Canada's inability to compete and how the stronger loonie nips at profit margins.
Yes, the higher-flying dollar means short-term pain. But the president of Gennum Inc. says it pushes Canadians to become more creative and productive.
"It's a good thing," says McWalter, referring to the recent dramatic flight of the Canadian dollar since the turn of the year.
"I want to live in a country with a strong currency and I want my currency to be valuable elsewhere. ... This is good external pressure, from my point of view, to tell people we can be more efficient."
It's time for Canada to be a country based "on skills, knowledge and the efforts of our people, and move away from water and wood," he declares.
McWalter is bullish not only on his views of the dollar but also on his vision of the technological future.
He talks about an all-in-one device that tucks into the ear -- neat, since Gennum is a name-brand in the circuitry that goes into hearing aids.
The device could be a hearing aid and a cellphone and an MP3 player and who knows what else. The unit would use short-range wireless technology (called Bluetooth, after a Viking king who preferred talking to fighting).
"We're looking at new ways to use that technology since the hearing aid business is so flat right now. ... The issue is how you shape that and form it into a device that adds value for people."
Gennum, a silicon integrated and hybrid circuit maker, makes circuits and software for the hearing aid, HDTV (high-definition television) and data communications industries.
Video-broadcast components are now by far the fattest segment, seven times as profitable as the original hearing-aid business in the most recent quarter.
And chain-like, expertise in video was the link to Gennum's move into semiconductor products in the high-speed datacom world. Higher bandwidth data networks will lead to the next-generation Internet.
Since at least 80 per cent of its output is exported, Gennum felt the pain on its bottom line in second-quarter earnings. The loonie's rise chopped revenue in all areas.
A stronger dollar here -- well, stronger against the U.S. dollar, but weaker against the Japanese yen -- cuts deeply into export revenues.
Even so, Gennum made $2.4 million in the quarter. And its global success makes McWalter swagger a bit in his discretely small office near the Queen Elizabeth Way.
The company -- $116 million in sales last year -- is a leader in its specialized technologies as they apply to three key sectors: the hearing aid, video-broadcast and data communications industries.
"We are the global leader in HDTV chips. In fact, this would not be being deployed in Japan without our chips. ... The intention in all of these businesses is to be the leading player."
Leadership is the flower of growth. Gennum has never stopped growing. The company has added 20 per cent more employees in the past two years, to bring the total to almost 600. It has subsidiaries in Tokyo and London.
In Burlington, the company has more than 20,000 square metres under roof. A new building on Harvester Road was opened late last year. Earlier, the company sold the original home of its wafer-fabrication plant.
Its research and development costs are phenomenal: 30 per cent of revenues in the quarter ending in May. Gennum is in elite company. Last year, it was among the top 100 corporate R&D spenders in Canada.
(Companies normally benchmark their R&D spending against their revenues, and not as a part of their costs. For that matter, after-tax profit as well as sales and administration costs are also indexed against revenues.)
So, not only is it lonely at the leading edge, it is also costly. Doing masks for new chip products and buying computer-aided design tools can cost millions of dollars.
The company has set a target of $1 billion in revenues over the next decade. They hope to do this, not by buying other companies, but by growing internally, and also by doing technology deals with partners.
"If you look today with the products we have and the business we're doing, there is no one in a better position (to reach that target)," says McWalter.
He believes HDTV has monster potential, but not just a Japanese monster: "Our belief is all TV will go to HD over time, just as it went to colour."
Originally, Gennum focused on video-signal transport -- moving communications from point to point in television and broadcast studios. Now the company is into display devices -- the processing of images so the digital picture shows properly on the screen.
That puts Gennum closer to the consumer end of things and has relevance to both plasma display and liquid crystal display panels. The ordinary user touch -- as opposed to the studio industry -- also foreshadows the Bluetooth personal device future.
While Gennum looks good on HDTV, it stumbled in moving slowly to digital (as opposed to analogue) in the hearing-aid game. A new digital-signal processing product is only now clearing the shelves.
In the second quarter, revenue from hearing products fell to 43 per cent of all revenues. That's a 14 per cent tumble from last year's number. That part of the business is "perhaps not as stable for us as it used to be."
Despite its success on a world stage, Gennum shares trade in the $12 to $14 range on the Toronto exchange and they trade thinly -- average daily volume turnover is fewer than 36,000.
McWalter says he is content with the share price.
"It's an auction market and people do what they want. I don't complain and tell people it's too low or it's too high."
It would be nice, he says, to have U.S. standing or a higher profile south of the border. But it's not really necessary.
"There's some truth in that. We've considered a Nasdaq listing and you can raise more capital there. ... But to be frank, right now I could raise money on the Toronto market if we needed it. And it would be relatively inexpensive capital."
mpettapiece@thespec.com or 905-526-3283.