Big tech's slow turn

Sales inch higher but investors aren't biting yet.

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Are Canada's top technology companies staging a comeback? Well, the Tech 100 does show signs of a turnaround. For starters, take the Top 10 companies by revenue on this and the past four Tech 100 lists (excluding communication service providers for a better apples-to-apples comparison). In fiscal 2004, this year's group put the brakes on a three-year trend of declining sales and actually grew its revenues–although just barely–by 2%. On a broader scale, eight of our 11 Tech 100 sectors posted sales gains over fiscal 2003, with electronics, hardware systems and semiconductors leading the charge with increases of 30% or more.

In fact, more than 70% of the companies on our list boosted their top-line in fiscal 2004. And get this: although Nortel took a 4% sales dip last year, it recently reported a 4% revenue increase in its first quarter of 2005. “Eventually, the natural growth rate of technology reasserts itself,” explains Duncan Stewart, a high-tech portfolio manager at Toronto-based Tara Capital, “and people go out and buy new things because old things wear out or the new ones are brighter or shinier.”

Canada's top technology companies, though, have their work cut out for them, especially with investors. The Tech 100 average one-year total return (which includes dividends) came in at 2%, dismally underperforming the S&P/TSX composite index's return of 20% over the same period. Although some stocks did catch fire, only about 40% of them actually made money for their shareholders. Looking ahead, BMO Nesbitt Burns high-tech analyst Brian Piccioni believes some Canadian tech companies face an uphill battle because key markets, such as personal computers and cellphones, have matured.

In short, although the firms on our Tech 100 have taken a step in the right direction, there's still a long way to go before tech wins over investors.