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Industry Report - IT & Technology - October 2010

A Company and Industry Analysis October 2010

CONTENTS

Current Environment – US

• Sector Overview• Sector Performance• Leading Companies• Mergers, Acquisitions and Alliances

Current Environment – Canada

• Sector Overview• Sector Performance• Leading Companies• Mergers, Acquisitions and Alliances

Industry Profile – US

• Industry Size and Value• Sector Investment• Research and Development• Policy and Regulatory Environment

Industry Profile – Canada

• Industry Size and Value• Sector Investment• Research and Development• Policy and Regulatory Environment

Market Trends and Outlook – US

• Smartphone Market Continues to Grow

• Mobile Web Conferencing to Overtake Conventional Video Conferencing

• Google’s Android System Takes off in Corporate Market

• Tablet PCs Continue to Gain Popularity

• Market Outlook

Market Trends and Outlook –

Canada

• Canada’s Wireless Landscape Takes Shape

• Cloud Computing Goes Green • Wireless and Mobile Broadband

Getting Cheaper• Market Outlook

Currency Conversion Table

The Scope of this Report

Key References

Comparative Data

Regional Reports Coverage

Current Environment — Key Points

• The US IT market continued to recover over the last six months, with with 12.6% annualized growth in the US PC market.

• Although Apple came third at 1.62 million in shipments, it enjoyed the biggest growth rate for the quarter at 15.4%, thanks to its well received iPhone and the iPhone OS-powered iPad tablet.

• Low interest rates, high cash reserves and low stock market values over the six months to August encouraged companies, including large technology vendors, to strike deals to diversify and become one-stop shops for clients’ various technology needs.

• Canadian PC market shipments totaled 1,483,034, with a growth rate of 22.6% in terms of unit volume, in the second quarter of 2010.

• The mergers and acquisitions market picked up somewhat, with a distinct focus on the IT healthcare industry evident in the key deals.

Industry Profile — Key Points

• As the recession clouds cleared, clean energy technology returned with renewed vigor in the first three months of 2010. Investors across the globe poured nearly US$1.9 billion into green technology startups, 29% more than in the fourth quarter of 2009 and a huge 83% year-on-year increase, according to the World Bank.

• The top four US tech companies — Microsoft, Apple, Intel and Cisco — over the past four years spent US$77.6 billion on R&D, and by 2009, total combined revenues were US$172 billion, an increase of 30.3% compared with the combined total four years earlier.

• ICT investments by Canadian SMEs tend to lag behind their US counterparts and those of Canada’s major trading partners, according to the Information Technology Association of Canada (ITAC).

• Green energy, advanced manufacturing, life sciences and biotechnology, and ICT all rely on Canada’s R&D, especially the R&D available in Ontario, thanks to its educated workforce and scientific community, and due to a tax structure that has cut companies’ R&D costs.

Market Trends and Outlook — Key Points

• Mobile phones are increasingly becoming the main communication tool for private and business use, and 2010 promises to offer users a number of innovations. Smartphones are better placed than the standard mobile phone to deal with these advances because of their large screens and speedy internet connections.

• Growing demand for higher functionality in smaller, more powerful gadgets with greater integration between hardware and software is likely to be the main growth driver for the US ICT industry in 2010 and beyond.

• The Advanced Networks for CANARIE, which focuses on advanced networks in Canada, is trying to position the Canadian north as the ideal home for cloud computing. The starting point is to establish high-speed, optical networks that run between Canada’s arctic and major urban centers.

• Canada’s future economic growth and productivity will depend heavily on investments made in its digital technologies, green technologies and on having the person with the right skills in the right job at the right time.

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North AmericaIT & Technology Sectors

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Research Analyst

Cheong Yaw Yuan

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Current EnvironmentUnited States

PC Market

The US PC market remained robust and in a recovery phase, despite challenges in the broader economy such as slower job growth and a more conservative ICT outlook in Europe and the Asia-Pacific. Slight upticks in sequential growth, as well as a jump of 12.6% in the US PC market over the past six months from the previous year, were signs of the IT market continuing to recover.

Although the computing market is relatively mature and recession-affected, there were encouraging signs that the market was growing in 2010. The revival in corporate spending, driven by new products such as the Windows 7 operating system (OS) from Microsoft (NASDAQ: MSFT), the Nehalem architecture from Intel (NASDAQ: INTC) and the much-in-demand iPhone and iPads from Apple (NASDAQ: APPL) will drive up sales worldwide. The power efficiencies and cost reductions afforded by these products are driving hardware upgrades among small and large enterprises alike. The server-refresh cycle, increased virtualization, growth of cloud computing and expansions of the data center segment are also factors driving computing market growth.

Hewlett-Packard Co (HP) (NYSE: HPQ) led all PC makers with 14.4 million units shipped worldwide during the second quarter of 2010, a 12% jump from the 12.8 million units it shipped during the same period in 2009, giving it a 17.4% share of the market. Acer Inc held second position with 10.8 million units shipped globally during the period, with third place Dell Inc shipping 10.2 million units worldwide, a 19% increase over the 8.6 million units in the second quarter of 2009, earning it a 12.4% share of the

market. HP’s overall share of the market slipped 1.4% from the year earlier, while Dell held steady.

In the US, PC vendors shipped about 17.9 million units in the second quarter of 2010, a 16% rise from the same period the year earlier. The data indicated that the professional PC market received a boost from an expected refresh cycle, and by demand from the public sector. Demands from small businesses and large enterprises are likely to gain steam in the last two quarters of 2010.

HP held its market leadership position in the US for the second quarter of 2010 with shipments of 4.72 million units, a 14.2% increase from year-earlier totals, earning a 25.7% share of the US market. Dell held second place with 4.41 million units shipped during the second quarter, a 10.9% growth and a 23.7% share of the market. Although Apple came third at 1.62 million in shipments, it enjoyed the biggest growth rate for the quarter at 15.4%, thanks to its iPhone and the iPhone OS-powered iPad tablet that burned up the sales charts and led their respective markets in the US and worldwide.

Semiconductors

Global sales of semiconductors by US manufacturers in the second quarter of 2010 grew to US$74.8 billion, an increase of 7.1% from the first quarter total of US$69.9 billion, according to the Semiconductor Industry Association (SIA). Semiconductor sales were exceptionally robust thanks to overall strong demand from a broad range of end markets in the first half of 2010, especially personal computers, mobile phones, corporate information technology setups, industrial applications and automobiles.

Sector Overview

Table 1: US PC Shipments for the Second Quarter of 2010 and 2009 (in thousands of units)

Company2Q 2010

Shipments

2Q 2010

Market Share

2Q 2009

Shipments

2Q 2009

Market ShareGrowth

HP 4,721 25.7% 4,136 25.4% 14.2%

Dell 4,408 24.0% 3,974 24.4% 10.9%

Apple 1,618 8.8% 1,402 8.6% 15.4%

Total 10,747 58.5% 9,512 58.4% 12.98%

Source: US Information Technology Industry Statistics



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Current Environment - United States

Worldwide semiconductor sales of US$144.6 billion for the first half of 2010 were more than 50% higher than in the same period of 2009, when sales totaled US$96.1 billion. The SIA attributed the extraordinary year-on-year sales growth to not only strong demand from key end markets, but also the huge effects of the industry slowdown in the first half of 2009. Sales from May to June 2010 saw an increase of 4.3% within the US, from US$4.39 billion to US$4.58 billion, while global semiconductor sales increased by 0.5%, from US$24.81 billion to US$24.93 billion. The SIA expects unit sales of personal computers to grow by 20% by the end of 2010, with mobile phone unit sales 12% higher than 2009 levels.

North America-based manufacturers of semiconductor equipment posted US$1.83 billion in orders in July 2010 (on a three-month average basis) and a book-to-bill ratio of 1.23, according to the July 2010 Book-to-Bill Report published by Semiconductor Equipment and Materials International (SEMI) in August 2010. The ratio reflects the US$123 worth of orders received for every US$100 of product billed for the month. The three-month average of worldwide bookings in July 2010 was US$1.83 billion, up 5.9% from the final June 2010 level of US$1.73 billion, and 220.4% above the US$571.8 million in orders posted in July 2009.

Software and IT Services

Enterprise software spending in North America, according to Gartner in September, is forecast to reach US$110.8 billion by the end of 2010. This would be an 8.5% increase from 2009 revenue of US$102.1 billion. If the market experiences consistent growth through to 2014, spending in North America could surpass US$143.6 billion. Most top software companies such as Microsoft, Oracle and SAP have significant service businesses to help customers implement and integrate their software into their IT infrastructure. With IT services revenues of US$4.5 billion, Oracle is listed just below Sun Microsystems (US$4.6 billion). Given the recent acquisition of Sun by Oracle, the combined companies are destined to jump to a position close to the top ten in 2011’s edition of the Services Top 100.

According to the newly published Services Top 100 in March 2010, a new research production of the Top 100 Research Foundation, IBM is the largest IT services company in the world. With IT services revenues of US$39 billion, IBM Global Services has a wide lead over HP, despite HP’s acquisition of EDS, which contributed considerably to HP’s services revenues. HP’s US$27.7 billion annual revenue is followed closely by Fujitsu’s

Table 2: Six-Month Stock Price Performances of Major US IT Companies

CompanyClosing Share Price as of Total

Rise/FallMarket Cap

February 1, 2010 August 2, 2010

Hewlett-Packard Co US$47.83 US$47.56 -0.56% US$89.22 billionInternational Business Machines (NYSE: IBM) US$124.67 US$130.76 4.47% US$154.86 billion

Dell Inc (NASDAQ: DELL) US$13.22 US$13.61 2.95% US$23.01 billionMicrosoft Corp US$28.46 US$26.33 -7.48% US$206.13 billionIntel Corp US$19.61 US$21.15 7.85% US$101.23 billionIngram Micro Inc (NYSE: IM) US$17.73 US$16.91 -4.62% US$2.23 billionOracle Corporation (NASDAQ: ORCL) US$23.22 US$24.29 4.61% US$111.83 billion

Cisco Systems Inc(NASDAQ: CSCO) US$22.73 US$23.80 4.71% US$118.22 billion

Apple Inc US$194.73 US$261.85 34.47% US$219.51 billionTech Data Corp (NASDAQ: TECD) US$41.51 US$40.66 -2.05% US$1.82 billion

Total Market Capitalization US$1,028.06 billion

Source: NYSE and NASDAQ



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US$27.1 billion, the largest Japanese IT services company that grew by a strong 20% organically in 2009.

Sector Performance

In the six months from February 1 to July 30, 2010, the IT-heavy NASDAQ composite index rose 5.72%, from 2,171.2 to 2,295.4. Although the rise was very different from the more than double-digit percentage surge recorded in the previous six months, it showed that the market was stable, with a mixture of stock price rises and falls among the top ten US IT companies. The total market capitalization of the IT companies analyzed by Mergent fell by 9.07% to US$1,028.06 billion on August 2, 2010 compared to US$1,130.62 billion on February 1, 2010. The drop in market capitalization and stock price fluctuations were due mainly to US IT firms losing their market shares to foreign manufacturers, especially Acer and Asus from Taiwan and Japan’s Toshiba and Fujitsu.

Over the six months to August, the biggest gainer was Apple Inc, which saw its share price jump 34.47% to US$261.85 per share. On May 26, 2010, the Cupertino-based company, which has been riding the iPhone wave, overtook Microsoft as the largest tech company in the world in terms of market capitalization. Apple had market capitalization of US$241.5 billion on May 26, approximately US$2 billion ahead of Microsoft, whose share price took a bit of a dive. On August 2, 2010, Apple still led Microsoft in market capitalization by US$219.51 billion to US$206.13 billion.

Leading Companies

Hewlett-Packard Co

HP announced net revenue of US$30.7 billion in the third fiscal quarter ended July 31, 2010, an increase of 11.4%, or US$3.1 billion, from the same quarter the year earlier. Its operating profit was up 14% to US$3.4 billion, with a net profit of US$2.6 billion, a 15% increase compared with the same quarter in 2009. HP’s revenue in the US grew 12% to US$14.2 billion for the third quarter of fiscal 2010, accounting for approximately 37% of its global revenue. Its revenue rose by 12% in Europe, the Middle East and Africa and up 8% in the Asia-Pacific, with revenue in the BRIC countries (Brazil, Russia, India and China) up 21%, accounting for 11% of HP’s total revenue. HP boosted its worldwide PC shipments by 12% in the second quarter of 2010, and maintained its leading PC global market share

position. HP’s notebook sales revenue for the quarter was up 10%, while its desktop PC revenue was up 27%.

IBM

Despite the difficult but recovering global economic environment, IBM again delivered double-digit earnings-per-share growth, improved its margins and improved its constant-currency revenue performance for its ongoing software, services and hardware businesses in all regions. IBM announced revenues of US$23.7 billion in the second quarter of 2010, a 2% increase from the same quarter of 2009. IBM made a net profit of US$3.4 billion in the quarter, a 9% increase from US$3.1 billion the year earlier. IBM’s revenues for the first half of 2010 totaled US$46.58 billion, an increase of 3.6% from US$44.96 billion in the first six months of 2009, with net income touching the US$6 billion mark, compared with US$5.4 billion the year earlier, an increase of 11%.

Dell Inc

Dell announced revenues of US$15.5 billion in the second quarter (ended July 30, 2010) of its 2011 fiscal year, an increase of 22% from the same quarter in fiscal 2010, with the company enjoying a net profit increase of 16%, from US$472 million to US$545 million. Improved demand across all products and services, as well as in all geographies, enabled Dell to expand its enterprise solutions portfolio. Dell’s business in emerging countries continued to grow rapidly, with total revenue from BRIC up 52%, accounting for 12% of Dell’s overall revenue.

Microsoft Corp

Microsoft announced revenue of US$16.04 billion for the fourth quarter ended June 30, 2010, a 22.44% rise from the same period the year earlier. Its operating income was US$5.93 billion, net income US$4.52billion, and diluted earnings per share were US$0.51 — increases of 48.73%, 48.37% and 50%, respectively, from the prior year period. For the fiscal year ended June 30, 2010, Microsoft reported revenue of US$62.48 billion, a 6.93% increase from the previous year. Its operating income, net income and diluted earnings per share for the year were US$24.1 billion, US$18.76 billion and US$2.10, increases of 18%, 28.77% and 20.67%, respectively. Strong sales of Microsoft’s Windows 7 operating system and the 2010 Microsoft Office released in fiscal 2010, and the improvement in the PC market, led to higher revenues. The higher diluted earnings



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per share reflected greater net income and the repurchase of 380 million shares during fiscal 2010.

Apple Inc

In the third quarter of fiscal 2010 (ended June 26) Apple posted record revenue of US$15.7 billion and net quarterly profit of US$3.25 billion, compared with revenue of US$9.73 billion and net quarterly profit of US$1.83 billion, in the year-earlier quarter. Apple sold 3.47 million Mac computers during the quarter, a new quarterly record, and a 33% unit increase over the year-earlier quarter, while 8.4 million iPhones left the shelves worldwide, a 61% unit growth. Apple began selling iPads in the third quarter, with total sales of 3.27 million units. Among the best news for Apple this year was its passing of archrival Microsoft in market capitalization — US$241.5 billion versus Microsoft’s US$239.5 billion on May 26, 2010. Apple not only exceeded Microsoft in market capitalization but also became the largest tech company in the world.

Intel Corp

Intel announced second quarter 2010 revenue of US$10.8 billion, operating income of US$4 billion, net profit of US$2.9 billion and earnings per share of US$0.51. These were the best quarterly figures for Intel in 42 years, thanks to strong demand from corporate customers for Intel’s most advanced microprocessors. In the first half of half 2010, Intel recorded a 38.87% net revenue surge, from US$15.17 billion in 2009 to US$21.06 billion, as of June 30, 2010. Revenue generated by its PC client group for the first six months of 2010 was US$15.51 billion, up 36.56% from US$11.36 billion in the first half of 2009. Microprocessor revenue was US$12.07 billion, an increase of 36.89% from the first half of 2009. In May 2010, Intel entered the smartphone and tablet markets, launching its Moorestown chips, based on the Atom core and designed for smartphones and tablets. It launched new core chips for ultra-thin laptops in the second quarter, significantly boosting its microprocessor sales.

Mergers, Acquisitions and Alliances

Overall low interest rates, high cash reserves and low stock market values over the six months to August encouraged companies, including large technology vendors, to strike deals, with the main aim of diversifying and becoming one-stop shops for clients’ various technology needs. The growing demand for wireless solutions directed Intel to

focus heavily on microprocessors for PCs, mobile PCs and servers. With new objectives to boost its presence in smartphones, the world’s largest chipmaker announced in August 2010 it had agreed to acquire Infineon Technologies’ wireless solutions (WLS) business for US$1.4 billion.

Germany’s Infineon Technologies (FSE: IFXA) is a major supplier to Apple, Nokia (NYSE: NOK), Samsung (KSE: 005930) and others. Intel’s goal is to expand mobile and embedded product offerings in the areas of smartphones, tablets, netbooks, notebooks and embedded computing devices. The acquisition of Infineon’s WLS will strengthen the second pillar of Intel’s computing strategy, internet connectivity, and enable it to offer a portfolio of products covering the full range of wireless options, from Wi-Fi and 3G to WiMax and 4G. The path to achieving 4G LTE will be accelerated and achieved sooner by bringing together Intel’s leadership in Wi-Fi and WiMAX with WLS’ leadership in 2G and 3G. WLS’ best-in-class cellular technology with will be paired with Intel’s core strengths to enable the delivery of low power Intel-based platforms that combine its applications processor with an extended portfolio of wireless options.

With the rapid expansion of growth across a vast array of internet-connected devices, more and more of the elements of people’s lives have moved online. While energy-efficient performance and connectivity still define computing requirements, security has become a third major demand in all computing experiences. To meet this demand, in August Intel announced plans to buy security company McAfee for US$7.68 billion, the biggest acquisition in its 42-year history. The boards of both companies approved the deal.

Ingram Micro announced plans for more acquisitions, directing its focus to Asia. The region currently contributes 23% to Ingram Micro’s revenue, and the company hopes to increase this to 30% in five years, riding growth in the Chinese and Indian electronics markets. Ingram looked at possible acquisitions related to customer data collection, corporate computing, logistics, mobile technology and cloud computing services.

In July 2010, Ingram Micro completed the acquisition of Asiasoft Hong Kong Ltd, a value-added software distributor with a major presence in Hong Kong. Asiasoft caters to a broad range of customers, ranging from large to small and medium-sized enterprises, and represents vendors such as Citrix, VMWare, Adobe and Symantec. The company has six specialties: virtualization, security



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systems, desktop management, networking, business continuity and applications.

The takeover continued Ingram’s recent acquisition spree, following the June 2010 announced purchase of Albora Soluciones, a distribution company based in Barcelona, Spain. It will make the Spanish acquisition through the EMEA (Europe, the Middle East and Africa) arm of Ingram Micro. The terms of both acquisitions were not disclosed, but Ingram Micro believes the addition of Asiasoft will strengthen its presence in enterprise computing, particularly in Asia. Albora Soluciones will enhance its capabilities in the virtualization, security and middleware solutions segments.

In September 2010, HP won the bidding war to buy data storage company 3PAR Inc (NYSE: PAR) with an offer of US$2.4 billion, after rival Dell bowed out. 3PAR is a leading global provider of highly virtualized storage solutions with advanced data management features, including dynamic tiering and thin provisioning for multi-tenant cloud-computing environments. Such technology is becoming increasingly crucial due to the mounting strain emails, online video and electronic business transactions put on corporate data centers. HP’s vast global salesforce could quickly turn 3PAR into a bigger, more profitable business.



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Current EnvironmentCanada

Canada has built an international reputation in emerging areas such as e-gaming, animation and special effects software. However, growth rates have declined in the Canadian ICT sector in the face of intensifying international competition, placing Canada behind other countries in the adoption and use of digital technologies. In 2007, Canada ranked 11th among 21 Organisation for Economic Co-operation and Development (OECD) countries in total economic investment in ICT. The size of the Canadian industry sector has fallen below the OECD average, ranking 14th out of 23 countries in terms of total business sector GDP.

Statistics Canada estimates the country’s ICT sector generates 5% of gross domestic product (GDP), accounting for 11.5% of real GDP growth since 2002. Competition from emerging economies is growing, especially from Indian and Chinese firms, which have become world leaders and innovators. Canadian firms have been slower to invest in digital technologies than have firms in other

countries, and the industry is aware of the need to increase investments in digital technologies to remain competitive. The Government of Canada has requested input on the development of a digital economy strategy that positions Canada to compete and succeed globally.

Canadian PC market shipments totaled 1,483,034, with a growth rate of 22.6% in terms of unit volume, in the second quarter of 2010, according to IDC Canada. Portable PC shipments grew by 25.4% year-on-year to 913,518, while desktop PC shipments were up 18.5% to 569,516 in the second quarter of 2010. The Canadian PC market outperformed the global market, experiencing 20.9% year-on-year growth in the second quarter.

HP maintained its top position in the Canadian PC market with a 23.6% share. The company also led with a 23.9% share of desktop shipments and a 23.4% share of portable shipments. Acer held second place with a 19.7% share of total PC shipments, while Dell was third with a 17.1% PC

Sector Overview

Table 3: Six-Month Stock Price Performances of Major Canadian IT Companies

Company

Closing Share Price as of

Total Rise/Fall Market CapFebruary 1,

2010

August 3,

2010

Celestica Inc (TSX: CLS) US$10.77 US$9.27 -13.93% US$1.87 billionResearch in Motion Ltd(TSX: RIM) US$68.06 US$56.77 -16.59% US$26.35 billion

CGI Group Inc (TSX: GIB.A) US$14.29 US$15.02 5.11% US$4.09 billionMacDonald Dettwiler & Associates Ltd (TSX: MDA) US$39.99 US$48.05 20.16% US$1.89 billion

Softchoice Corp (TSX: SO) US$7.63 US$8.75 14.68% US$164.16 millionOpen Text Corp (TSX: OTC) US$43.03 US$40.50 -5.88% US$2.58 billionSMTC Corp (TSX: SMX) US$1.07 US$3.45 222.43% US$45.04 millionConstellation Software Inc(TSX: CSU) US$39.60 US$41.50 4.79% US$918.65 million

Zarlink Semiconductor Inc (TSE: ZL) US$1.30 US$1.99 53.08% US$250.53 million

Gennum Corp (TSE: GND) US$4.55 US$6.82 49.89% US$235.71 millionMarket Capitalization US$43.39 billion

Source: Toronto Stock Exchange



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Current Environment - Canada

market share. Consumer shipments continued to outpace the overall client PC market, growing 28.1% over those of the second quarter of 2009. Shipments of mini notebooks were down by almost 168,000 from their high in the fourth quarter of 2009, and continued to slow in the second quarter of 2010, due to the rise of the ultra-portable notebook category, including tablet PCs, which grew 203.6% year-on-year.

Sector Performance

Following the US stock market’s gradual recovery, there was a positive response from the Toronto Stock Exchange. It gained 4.1%, or 465.05 points, over the six months from February 1 to close at 11,782.60 on August 3, 2010, reflecting the Canadian economy’s rise over the previous 12 months. Seven of the ten leading IT companies followed by Mergent saw higher share prices, with SMTC seeing the highest six-month surge of 222.43%. The market capitalization of these ten companies totaled US$43.39 billion as of August 3, 2010.

Leading Companies

Celestica Inc

In the second quarter ended June 30, 2010, global provider of electronics manufacturing services (EMS) Celestica announced revenue of US$1.59 billion, an increase of US$190 million from US$1.4 billion in the same quarter of 2009. Its adjusted net earnings for the quarter were US$48.3 million, or US$0.21 per share, compared with US$31.1 million, or US$0.14 per share, for the same period the year earlier. Its 2010 first half revenue totaled US$3.1 billion, compared with US$2.87 billion for the first six months of 2009, with adjusted net earnings totaling US$91.4 million, or US$0.39 per share, compared with US$64.7 million, or US$0.28 per share for the same period in 2009.

Research in Motion Ltd

Research in Motion Ltd (RIM), a world leader in the mobile communications market and maker of the BlackBerry personal digital assistant, announced second quarter (ended August 28, 2010) revenue of US$4.62 billion, up 9% from US$4.24 billion in the previous quarter, and up 31% from US$3.53 billion in the same quarter of the previous fiscal year. Net income for the quarter was US$796.7 million, compared with US$475.6 million in the same quarter of the previous year.

RIM added 4.5 million subscribers during the quarter, up 56%, with the number of active BlackBerry users passing 50 million for the first time. Solid financial results for the second quarter were driven by effective business execution and strong demand for RIM’s portfolio of BlackBerry smartphones and services in markets around the world. RIM shipped more than 12 million Blackberry smartphones during the quarter, and expected to add up to 5.4 million subscribers during the third quarter, with revenue of about US$5.3 billion.

CGI Group Inc

CGI reported fiscal 2010 third quarter (ended June 30, 2010) revenue of C$901.6 million (US$879.93 million), and net earnings of C$85.9 million (US$83.84 million). This represented 0.7%, or a C$6.3 million (US$6.15 million), year-on-year revenue increase, and growth of 12%, or C$10.3 million (US$10.05 million) in net earnings, compared with the same quarter of 2009, due to a reduction in CGI’s long-term debts and an increase in earnings from continuing operations. For the quarter, the company secured new contracts worth C$838 million (US$817.86 million), bringing total bookings over the previous 12 months to C$4.1 billion (US$4 billion). As of the June 30, 2010, the company’s signed backlog orders totaled C$11.4 billion (US$11.13 billion), 3.1 times its annual revenue.

MacDonald Dettwiler & Associates Ltd

MacDonald, Dettwiler and Associates (MDA), a provider of essential information solutions, reported consolidated revenues for the second quarter ended June 30, 2010, of C$258.35 million (US$252.14 million), an increase from C$245.79 million (US$239.11 million) for the same period of 2009. Net earnings for the quarter rose by 8%, from C$25.29 million (US$24.68 million) to C$27.49 million (US$26.83 million), due to increased cash flow following the receipts from larger dollar value contracts. The company’s long-term debts, as of June 30, 2010, fell by C$81 million (US$79.05 million) to C$261 million (US$254.73 million), as it continued to reduce debt with strong cash flows generated from operating activities.

Softchoice Corp

Hurt by foreign exchange losses, leading North American provider of technology solutions and services Softchoice reported net earnings of just US$6.4 million in the second quarter of 2010, or US$0.32 per share, compared with



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Current Environment - Canada

US$12.6 million, or US$0.72 per share the year earlier. During the three-month period, the company sustained a foreign exchange loss of US$2.6 million, compared with a gain of $6.2 million the year earlier. However, revenue rose by 11% to US$311.2 million, on the back of higher hardware and software sales. For the first half of 2010, Softchoice reported revenues of US$593.96 million, compared with US$497.63 million the year earlier. Its net earnings were US$10.92 million, compared with US$10.25 million in 2009. As of June 30, 2010, the company’s debt totaled US$14.72 million, compared with US$16.78 million six months earlier.

Mergers, Acquisitions and Alliances

Canada’s ICT industry continued to reshape the country’s healthcare system with the rollout of electronic health records. New technologies allow businesses and individuals to stay connected, regardless of geographic location. ICT companies allocated significant amounts of resources to the Canadian healthcare industry, playing a big part in upgrading and enhancing the capabilities of the healthcare industry. The size of the industry means the opportunities are large. This meant a sustained focus on acquisitions in the niche healthcare IT segment.

Accordingly Celestica announced on July 23 it had signed a definitive agreement to acquire Allied Panels, a medical engineering and manufacturing service provider offering concept-to-full-production solutions in medical devices, with a focus on diagnostic imaging products. The acquisition will expand Celestica’s capabilities in the healthcare diagnostic and imaging market. Allied Panels’ existing customers include GE Healthcare, Siemens Healthcare (BSE: 506559), Sonosite and SuperSonic Imagine (NASDAQ: SONO).

The next month RIM acquired mobile infrastructure software company Cellmania Inc for an undisclosed sum. Cellmania is a leading provider of platforms and services that enable rich content experiences and reduce the complexity of monetizing content across mobile and broadband networks. RIM saw the acquisition in August as a chance to bolster its mobile application store, Blackberry App World, to enable it to compete better with Apple’s App Store and Google’s Android Market.

The growth of the market also means there were major opportunities in the equipment market. On June 10, Phoenix-based ON Semiconductor Corp (NASDAQ:

ONNN) announced it would spend US$22 million to acquire Canada’s Sound Design Technologies, a designer and manufacturer of ultra low-power semiconductor solutions for hearing aids and other portable, battery-powered audio applications. The purchase will solidify ON Semiconductor’s position as a leading supplier of ultra low-power digital-signal-processing technology for hearing aids and audio-processing applications, besides strengthening the company’s talent base and adding an experienced design-and-applications engineering team for the audiology segment. Sound Design Technologies will become an integrated part of ON Semiconductor’s medical division, based in Waterloo, Ontario.



11

Industry ProfileUnited States

Thanks to higher-than-expected demand for communications equipment, growth in US technology industry improved, with the US$724 billion US IT market expecting a rise of 8.4% increase in spending by the end of 2010, according to the US’ National Association for Business Economics (NABE). Sales of computer hardware and software are likely to lead the gains for the industry over the next year, with PCs, peripherals, and storage devices being top sellers among computer hardware. Operating systems and applications should pave the way for growth in software. Despite high levels of unemployment in the US, the IT industry has held up fairly well over the last six months. Overall ICT employment in the US is gradually recovering, with more ICT related jobs being offered and taken up compared to when unemployment rate surged during the recession a year ago. According to the Bureau of Labor Statistics, the US ICT industry in the first quarter of 2010 employed approximately 3.455 million workers compared to 3.452 million as of December 2009.

Sector Investment

When the recession struck, global warming concerns took a backseat. However, as the recession clouds cleared, clean energy technology returned with renewed vigor in the first three months of 2010. Investors across the globe poured nearly US$1.9 billion into green technology startups, 29% more than in the fourth quarter of 2009 and a huge 83% year-on-year increase, according to the World Bank.

Google Inc (NASDAQ: GOOG) quietly invested between US$100 million and US$200 million in social gaming behemoth Zynga. The latter raised somewhere around half a billion dollars in venture capital in the past year alone, including US$150 million from Softbank Capital (TSE: 9984) in August and US$180 million in late 2009 from Digital Sky Technologies, Tiger Global, Institutional Venture Partners and Andreessen Horowitz. Zynga is widely known for being Facebook’s most successful gaming platform, accounting for four of the most successful applications (apps) on Facebook, including Farmville, Texas HoldEm Poker, Café World and Mafia Wars. Zynga’s revenue for the first half of 2010 was an estimated $350 million, half of which is operating profit.

The Google investment was a strategic deal, making Zynga the cornerstone of Google Games, which is to be launched later in 2010. Not only will Zynga give Google Games a solid base of social games to build on, but it will also give Google the beginning of a true social graph as users log into Google to play the games. Chances are high that PayPal will be replaced with Google Checkout as the primary payment option. Zynga is currently still PayPal’s biggest single customer, and Google will be looking for ways to make Google Checkout relevant.

Zynga continued to work on high-level strategic business development deals. The reason these deals are so attractive to companies such as Yahoo, and now Google, is that Zynga allows them to enter the massive social graph, currently controlled by Facebook. For whatever reason, people love to play these games and become passionately addicted to them, coming back day after day, and that has helped Facebook become what it is today. Google, Yahoo (NASDAQ: YHOO) and others want a piece of the action.

Intel Capital, Intel Corp’s global investment organization, on May 3, 2010, expressed its ongoing support for technological innovation with the announcement of three US-based investments totaling US$15 million. The deals include eldercare website Caring.com, real estate investment ratings provider SmartZip Analytics and infrastructure services provider Virtustream. As technological innovation becomes more important in driving growth across all economies, the three investments, ranging from IT infrastructure to digital health and the consumer internet, reflect Intel Capital’s core emphasis on cultivating the most promising areas of innovation to foster the development of future technologies. In addition to these three investments, Intel Capital also highlighted several recently announced investments, including those in educational gaming company Tabula Digita, Carrier Ethernet solutions provider Overture Networks and advertising technology firm BlackArrow.

On August 16, 2010, Apple Inc announced it would invest an undisclosed sum into near field communications (NFC), a brand-new, short-range wireless technology that sends information over short distances, such as between a mobile

Industry Size and Value



12

Industry Profile - United States

phone and a cash register or ATM machine. In April 2010, Apple patented a traditional payment application and a new payment application that allow users to pay for a concert ticket via their mobile phones and then confirm attendance by pointing their phones at an entry kiosk. Apple has recently lodged several patent applications, hinting that it could soon lodge new capabilities for future iPhones.

Research and Development

Modern corporations of all kinds are more committed to innovation as technology is becoming an integral component of products from all manufacturers, not just within the technology sector. A lot of the functionality from the technology industry is penetrating other industries; for instance, modern cars are high-technology entities and not just vehicles transporting people from A to B. The recently observed reductions in R&D budgets by technology firms in the US may not signal a reduced commitment to innovation, as companies are increasingly forming alliances in efforts stretch their R&D dollars further. (Domestic R&D spending by all US companies fell by 13.1% to US$233.92 billion in 2008, the most recent year for which data is available, from US$269.27 billion in 2007, according to the National Science Foundation).

The top four US tech companies — Microsoft, Apple, Intel and Cisco — over the past four years spent US$77.6 billion on R&D, and by 2009, total combined revenues were US$172 billion, an increase of 30.3% compared with the combined total four years earlier. Of the four companies, Apple is getting the best return from its R&D allocation, as its US$4.6 billion investment recorded the highest ever ROI (return on investments) of US$43 billion. It outstripped the other three companies in financial performance and set high standards for ROI on R&D. Apple’s market capitalization has tripled since the start of 2006 and, in May 2010, surpassed that of Microsoft.

On June 30, 2010, Intel announced a new research division, Interaction and Experience Research (IXR), which will focus on defining new user experiences and new computing platforms, with innovations likely to help re-imagine all future computing experiences. With the performance advancements now available across a continuum of computing devices, including the traditional PC, Intel’s engagement and experience with technology will become much more personal and social through individual user contexts informed by sensors, augmented by cloud

intelligence, and driven by more natural interfaces such as touch, gesture and voice. However, Intel has not announced the amount that it will pump into the new division.

Semiconductor Research Corp (SRC), a leading technology research consortium, announced on July 13, 2010, that it had established a US$5 million industry-university partnership devoted to bringing clean, reliable, and efficient energy systems and technologies to the marketplace. Smart grid simulation capabilities are still limited, and new transformational approaches are required to enable significant integration of renewable energy resources into the grid, according to SRC. The development of these capabilities is beyond the scale of a single company or industry, making cooperation between industry and academia critical to delivering the benefits of alternative energy on a global scale. The Energy Research Initiative (ERI) will team companies from semiconductors and other energy-related sectors with university research centers to address the world’s need for smart alternative energy sources and equip students with the technical skills that the burgeoning industry requires.

Policy and Regulatory Environment

US President Barack Obama in September called on Congress to approve a permanent R&D tax credit for US companies as part of a multibillion-dollar package intended to jump-start the nation’s economy. The proposals are designed to help US companies create jobs, and would expand the tax credit from about US$7 billion a year to about US$10 billion a year over the next decade. The President’s plan would also change the formula that businesses use to calculate their credit, with companies that use a simplified formula getting a tax credit of 17% of R&D spending, instead of the current 14%.

Trade groups representing the technology industry have long pushed for a permanent R&D tax credit, and the proposals earned praised from many technology companies. They said the R&D credit is one of the strongest tools the US has to spur the cutting-edge innovation and drive the creation of more American jobs. They say that US businesses need the certainty that comes with a permanent credit so that they can plan their R&D investments over the long term, instead of the current practice of yearly start-and-stop.

The proposed R&D tax credit is part of a spending and tax-cut package estimated to cost US$180 billion to



13

Industry Profile - United States

US$350 billion. The Institute of Electrical and Electronics Engineers-USA (IEEE-USA) welcomed the credit, saying it would help several sectors of the US economy by providing corporations some needed economic predictability in these turbulent times. IEEE added that the technologies US companies develop or improve would ultimately have a positive effect on US competitiveness, the growth of small businesses and job creation.



14

Industry ProfileCanada

According to the Information Technology Association of Canada, Canada’s largest ICT companies account for 70% of the sector’s 572,500 jobs, US$155 billion in revenues, US$30 billion in exports and US$11 billion in capital expenditure annually. The ICT sector represents about 5% of Canada’s GDP and was responsible for 9.4% of Canada’s GDP growth since 2002. However, Canadian SMEs are behind their competitors in using ICT, according to the Information Technology Association of Canada (ITAC). Many Canadian businesses have no expertise in how ICT can improve their bottom line, while half of SMEs have two or less ICT staff on their payroll, surveys have found. As result, ICT investment by SMEs lags behind the US and our major trading partners.

According to a special labor market intelligence report released by the Information and Communications Technology Council (ICTC) on July 30, 2010, the ICT labor force in Canada experienced a 4.5% unemployment rate relative to the 8.5% national unemployment rate in December 2009. The report also indicated that the ICT labor market grew most significantly in the Atlantic Region (+16.1%), Prairies (+13.8%) and Quebec (+10.6%), and that the demographics of ICT workers are changing. The trend reflected that more young people are entering ICT careers, and that digital media and database occupations are on the rise in terms of interest, which is encouraging as Canada’s digital advantage depends on having a highly skilled, educated and prepared ICT workforce.

Canada has been reinvesting in its telecommunications networks, and now Canada boasts several of the fastest 3G+ networks in the world. Half of all phone connections in Canada are wireless, with 75% of Canadian households having access to a wireless phone. Canada’s wireless carriers now offer coverage to more than 99% of Canadians. Advanced wireless networks that support smartphones and internet sticks are available to 96% of Canadians. Wireless revenues in Canada totaled US$16.9 billion in 2009, making it the largest component in the telecommunications mix, accounting for 41% of total revenues.

Sector Investment

Canada’s quest to become a fully digital economy is gradually slowing down, as many Canadian businesses lack

in-house ICT expertise. Half of SMEs (small and medium-sized enterprises) have two or less ICT staff on their payroll. As a result, ICT investments by Canadian SMEs lag behind their US counterparts and those of Canada’s major trading partners, according to the ITAC. According to the Conference Board of Canada, Ontario and Alberta have the highest levels of climate-friendly technology investments. Between 2010 and 2014, such spending is likely to hit US$2 billion in Ontario. Those dollars will add to the province’s GDP and contribute to greater exports, further driving the province’s economy.

Even though Advanced Micro Devices (AMD) (NYSE: AMD), a leading designer and manufacturer of computer processors, is located in California’s Silicon Valley, it is investing significant resources in its Markham, Ontario, facility as it develops next generation microprocessors. AMD’s Canadian operations will merge high-performance computer and graphics processors onto a single silicon die. The company aims to break new ground in performance, use less power, and enable breakthroughs in a wide range of computing devices. It is counting on Canadian expertise to help make that happen, pumping more than US$370 million into its Markham operations over five years and adding approximately 100 jobs to its 500-strong workforce.

The Ontario Government is helping Open Text Corporation (TSX: OTC), Canada’s largest independent software company. In March 2010, the province announced a US$34 million grant through its Next Generation of Jobs Fund, which will be part of Open Text’s planned five-year investment of US$225 million to create nearly 400 high-value jobs at its operations in Waterloo, Richmond Hill, and Ottawa.

With the help of a grant of up to US$25.5 million from the Ontario Government, Sandvine Corporation (TSX: SVC), an award-winning provider of internet equipment and software, announced on May 10 that the company would develop new products that will improve internet subscribers’ experiences and meet growing demand for high-bandwidth, quality-sensitive applications like video streaming. Sandvine will invest approximately US$170 million over five years, creating up to 75 new positions and retaining 195 high-value jobs.

Industry Size and Value



15

Industry Profile - Canada

Research and Development

Green energy, advanced manufacturing, life sciences and biotechnology, and ICT all rely on Canada’s R&D, especially the R&D available in Ontario, thanks to its educated workforce and scientific community, and because of a tax structure that slashes companies’ R&D costs. Ontario’s R&D-friendly tax environment is helping Canada attract more investment to its R&D centers. For every US$100 a company spends on R&D, tax credits make the actual cost as low as US$35, meaning that any sector that requires intensive R&D for the next generation of their product gets a very healthy tax credit. The tax on business investment in Ontario is being cut practically in half due to business tax cuts and the move to a harmonized sales tax, making business in Ontario more competitive. Its 33% corporate tax is relatively low compared to other countries. Huawei Technologies, China’s largest networking and telecommunications equipment supplier, expressed its plan on April 15, 2010 to expand its business in Ottawa, Canada by establishing a new R&D center located in the Kanata high-tech center. Huawei intends to promote its R&D in wireless, IP (Internet Protocol) and optical technologies by employing local talents to add to its current 70 local employees.

Policy and Regulatory Environment

Canada’s regulation of its financial sector helped attract and boost incoming ICT investments and R&D. While Canadian governments are typically pro-business, stricter capital requirements are still being enforced, and other safety measures are being taken to prevent the kind of meltdown that afflicted the US financial sector. Canada’s business and IT community welcomed the removal of the Section 116 tax clearance process in the 2010 federal budget submitted on March 5, 2010. This eliminates the need for thousands of investors in foreign venture capital funds to provide information to Revenue Canada to determine if they are subject to tax on any gains from the disposal of their shares.

Statistics show that, in most cases, investors were never taxed, and Section 116 caused unnecessary complications. The Government claims that the removal of Section 116 sends a message to international investors that Canada is open for business, removing what were perceived to be insurmountable barriers for many venture capitalists, who considered previous administrative requirements and economic delays strong deterrents to investing in Canada.

This change could also help attract new investment from emerging tech firms in Canada.



16

Market Trends & OutlookUnited States

The worldwide smartphone market grew by 64% in the second quarter of 2010 on an annualized basis. During the same period, shipments of RIM’s BlackBerry smartphones grew by 41%. Helped by the continued strong performances of devices such as the Curve 8520, RIM was once again the market leader in North and Latin America, and second worldwide with an 18% international market share while Nokia retained the number one spot, with a substantial lead in the worldwide smart phone market, achieving a 38% market share in the second quarter. Despite a period of turbulence, initial shipments of the iPhone 4 were strong and contributed to Apple’s 61% growth and 13% worldwide market share for the quarter. However, the collective growth of Android device shipments across a range of handsets was more remarkable. With key products from HTC, Motorola, Samsung, Sony Ericsson and LG, among others, shipments of smartphones running the Google-backed Android operating system grew by an impressive 886% in the second quarter of 2010.

Smartphone shipment data for the second quarter of 2010 revealed the impressive momentum Android is gaining in markets around the world. In the US, the largest carrier, Verizon Wireless, was heavily promoting high-profile Android devices, such as the Droid by Motorola and the Droid Incredible by HTC. These products were well received by the market, with consumers eager to download and engage with mobile applications (apps) and services, such as internet browsing, social networking, games and navigation. The US smartphone market grew by 41% year-on-year. It is the largest smartphone market in the world by a significant margin, with 14.7 million units, accounting for 23% of global shipments in the second quarter. Android devices collectively had a 34% share of the US market in the quarter. With 851% growth, Android became the largest smartphone platform in the country.

More and more manufacturers are aiming to get a slice of the mobile computing pie, particularly the smartphone market. Mobile phones are increasingly becoming the main communications tool for private and business use. Smartphones are better placed than the standard mobile phone to deal with these advances because of their large screens and speedy internet connections. There are already phones on the market using 1Ghz (Gigahertz) chips, which work on Apple’s iPhone OS and Google’s Android platform.

Mobile phones with 2Ghz processors, which is more processing power than in many current laptop models, are expected to be available in the near future. This may lead to PCs being ignored when there is a need to access emails, to quickly check the net, or to update Facebook pages.

Mobile Web Conferencing to Overtake Conventional

Video Conferencing

Mobile web conferencing is still new, but there is a growing need within the business segment for the service. ICT manufacturers and service providers are looking to capitalize on the trend by supporting it with niche features. CIOs (Chief Information Officers), for instance, can score points by offering mobile web conferencing to their traveling executives. In many ways, web conferencing is more practical on smartphones than on laptops. This can be seen in the range of mobile web conferencing apps, like Cisco WebEx and AT&T Connect, which are now riding the smartphone wave straight into executives’ hands via popular devices like the iPhone, BlackBerry and Droid.

AT&T launched AT&T Connect for the iPhone earlier in 2010, which taps into AT&T’s wireless network that supports simultaneous voice and data. The app will call out to web conference participants to join, allow participants to send messages to other participants, identify speakers, let participants view presentations, choose emoticons and answer polls, among other capabilities.

Smartphones are a perfect fit for mobile web conferencing as executives do not need to pull out and boot up laptops to participate, nor do they care to look at slides on a tiny screen typical of traditional mobile phones. For example, the iPhone’s credit card-sized screen makes viewing documents easier on tired eyes, as does Apple’s iPad — a device that has the potential to transform mobile web conferencing with its big screen, giving everyone the same visual web conferencing experience as a laptop, but with greater convenience.

Google’s Android System Takes off in Corporate

Market

While Apple has had success marketing its iPhone to consumers worldwide, the corporate market is embracing

Smartphone Market Continues to Grow



17

Market Trends & Outlook - United States

Google’s Android mobile operating system. The operating system saw a fivefold increase in availability in the corporate market over the last nine months. Apple’s presence with its operating system iOS, however, held strong in the face of intense competition — nearly double that of Android. New data released by ComScore, a leader in measuring the digital world, on September 22, 2010 showed that Android went from just 3% availability in the corporate market in November 2009 to 16% in August 2010.

From May 2010 to August 2010 alone, the presence of Google’s operating system grew from 10% to 16%. But over that same period, Apple’s iOS, which powers the iPhone, iPad and iPod touch, managed to grow in the enterprise market as well, if only marginally, from 30% to 31%. Most of the growth of Android and iOS has come at the expense of the corporate leader, RIM’s BlackBerry OS. Although Blackberry OS still carries more than double the corporate market presence of Apple’s iOS, it fell three percentage points, from 69% to 66%, between May 2010 and August 2010.

Apple’s iPhone 4 did not give the company the bump in sales it needed to put Android’s momentum in check. Instead, Apple’s smartphone market share in the US dropped by 1.3 percentage point from 25.1% to 23.8% in the three months ended in July, while Android’s market share grew by an impressive five percentage points from 12% to 17%. Over the past few years, US consumers have delayed buying a new iPhone at the start of the year, knowing that Apple historically releases a new device during the summer. However, the late-June 2010 iPhone 4 release did not create the same hype in the US as its predecessors. Android-powered smartphones continued to gain market share, while all other major platforms lost ground.

Tablet PCs Continue to Gain Popularity

This year may be seen as the year the tablet PC fully entered the market. Practically every major consumer tech company is coming out or has come out with something thin, touchable, and Twitter-friendly. The evolution of the tablet PC is similar to that of the laptop computer, the netbook, and the smartphone. Companies are looking to sell consumers new ways to use computers, and consumers want something more portable than a laptop, more powerful than a netbook, and more comfortable than a smartphone. A new tablet PC fits the bill.

One notable development that may shake the notebook PC market is the launching of ARM-based smartbooks

by different brands and Google’s unveiling of its Chrome OS in the second half of 2010. Compared to netbooks, smartbooks will be smaller, cheaper, have longer battery life, and instant-on capabilities. The Windows 7-based tablet PC range is also expected to fuel growth in the overall market, while the Apple tablet — the iPad, with touch-control functions and App Store service has been a hit in the technology market. The iPad recorded shattering business as 3.3 million units were sold in juts three months. It is estimated that Apple sold more than five million during the quarter ended September 2010. During Research In Motion’s annual BlackBerry Developer Conference on September 27, 2010, the company announced its new tablet — the PlayBook. The tablet will utilize an OS created by the recently acquired IT solution company, QNX, called the BlackBerry Tablet OS, which will offer full OpenGL and POSIX support alongside web standards such as HTML5.

Market Outlook

The latest US GDP report suggests that the US economy is still growing, albeit at a slower pace than the first quarter of 2010. Real GDP — the output of goods and services produced by labor and property located in the US increased at an annual rate of 2.4% in the second quarter of 2010.

One trend that has stayed constant in the ICT industry is consumer demand for usability, easy accessibility and durability. While Android stole the lime light in 2010 in the smartphone OS category with the most growth, other mobile operating systems continue to gain overall subscribers, as Americans increasingly buy smartphones as the economy recovers, and the demand for higher powered smartphones soared. Companies such as Apple, after seeing the phenomenal sales of its iPads this year and the acceptance level of consumers towards its product, are likely to pump in more resources into expanding the device’s availability, as well as rapid adoption in the enterprise sector. Competitors in the same industry are likely to do so in order to grab as much market share as possible, and avoid the market being dominated.

Growing demand for higher functionality in smaller, more powerful gadgets with greater integration between hardware and software is likely to be the main growth driver for the US ICT industry in 2010 and beyond. The latest offering in smartphones operating systems comes from Microsoft, which hopes to win greater market share through its new mobile phone system, Windows Phone 7. Microsoft’s new Windows Phone 7 aims to simplify the organizing of data that is available to the user on their mobile phone or on the



18

Market Trends & Outlook - United States

internet. Microsoft announced in Barcelona that a series of new Windows phones should be coming onto the market in the final quarter of 2010. This will lead to competition among major ICT players in the industry. This is good for consumers’ growing appetite for better, cheaper electronic gadgets and services, as well as being good for the ICT industry’s general growth prospects.



19

Market Trends & OutlookCanada

In a country the size of Canada, it is not easy to get every household hooked up to a wired network, which is always faster, more reliable, and of better quality than a wireless network. The connection difficulties have forced service providers to go wireless, as mobile broadband is taking off in Canada, especially in rural areas. City dwellers heading to weekend cottages but want to stay connected, and the increasingly mobile Canadian work force, who may be working out of cars or cafes across the country, are now given the option to go wireless nationwide. The trend has created a new generation of Canadians unaccustomed to wires and cables, but who rely on their smart phones for connections or on internet data sticks for their primary internet connections.

New Canadian wireless mobile operator Wind Mobile announced in August 2010 that it had gained more than 100,000 subscribers during its first two quarters in operation, with most of the new subscribers being smartphone users. The company has lured customers away from Canada’s established players such as Rogers (TSX: RCI.B), Bell (TSX: BCE) and Telus (TSX: T, and is aiming to attract 1.5 million customers during its first three years.

Quebecor’s (TSX: QBR.A) Videotron cable arm launched 3G wireless services on September 9, 2010, a move likely to pressure prices in an increasingly congested Canadian market, as new entrants are encroaching on the market share of the Big Three (Rogers, Bell and Telus). Videotron’s offering, initially limited to the province of Quebec, will directly challenge established incumbent Bell as an integrated provider by offering cable television, broadband internet, landline and mobile telephony. Quebecor estimates it will spend between C$800 million and C$1 billion and hire more than 600 employees. With its fiber-optic network that can handle huge quantities of information at an affordable price, Videotron is putting pressure on other competitors, which would seem to be healthy for the growth of the ICT industry.

Cloud Computing Goes Green

Cloud computing brings greater efficiencies and accessibility of data and applications, but these are offset by the privacy implications of loss of control over personal

data. The enormous energy needed to power and keep cool huge server farms is also becoming a major concern. Canada may be enjoying a global competitive advantage that would address some of the critics’ concerns. However, the Advanced Networks for CANARIE, which focuses on advanced networks in Canada, is trying to position the Canadian north as the ideal home for cloud computing.

The starting point is to establish high-speed, optical networks that run between Canada’s arctic and major urban centers. The environmental advantages include easy access to clean energy sources such as wind and geothermal, and decreased energy requirements to cool the server farms. CANARIE is also recapturing heat generated in the cooling process and using it to heat nearby buildings. Server farms in Canada can also offer worldwide users better privacy protection, since data will never leave the country and will be subject to national privacy laws.

However, Canada is not alone in competing for cloud installations. Other countries are trying to position themselves as the ideal hosts. Iceland recently announced a high-speed link with the US, as it seeks to use its geographic position and availability of geothermal energy to advantage. Nevertheless, Canada already has much of the technical and privacy infrastructure in place to become a global player. It is a recognized fiber-optic network leader in close proximity to the US, and its privacy legislation meets international standards, thereby removing a potential impediment to data transfers. Many of the world’s leading technology companies are moving rapidly toward the cloud computing model to minimize operating cost, and Canada is responding by producing ideal solutions for data management.

The Green Star Network is a Canadian project trying to solve the heat problem generated by data centers. Its goal is to initiate a Canadian consortium of industry, universities and government agencies with the common goal of reducing greenhouse gas (GHG) emissions arising from ICT services. The expected result is the creation of tools, protocols and procedures for a growing network of ICT service providers that offer customers the lowest price and greenest services. The project is innovative because it focuses on the relationship between networks and green

Canada’s Wireless Landscape Takes Shape



20

Market Trends & Outlook - Canada

data centers to provide green ICT services. Canada and Canadians will benefit by a continued growth of ICT with a significantly reduced carbon footprint and an international leadership role in green ICT.

Wireless and Mobile Broadband Getting Cheaper

Traditional providers such as Bell, Telus and Rogers have yet to slash wireless prices and introduce unlimited data plans across the board because, if they did, all of their home phone subscribers would probably cut the cord on their landlines and go wireless completely. The revenue the Big Three would lose if all those people terminated their landlines and went wireless, maybe signing with other wireless provider, would be disastrous.

However, market newcomers such as Mobilicity, Wind Mobile and Public Mobile have no such qualms about pricing as they do not have landline customers. Hence, their prices for wireless broadband are low, leading to an increase in wireless substitution. In Canada, the current proportion of wireless-only households is about 10%, compared with 23% in the US. The US number rose rapidly after new entrants MetroPCS (NYSE: PCS) and Leap Wireless (NASDAQ: LEAP) launched cheaper unlimited plans, inspiring Canada’s new entrants to emulate them.

WIND Mobile has already launched wireless broadband service packages in Toronto and Calgary with plenty of hype, and consumers’ monthly phone bills might become lighter with the greater level of competition. Shorter contract terms and higher prices of handsets are likely to be the outcomes as carriers will be less willing to subsidize costs upfront.

Market Outlook

One of the greatest threats to the future society and economy is global warming. Fortunately, as compared to other industry sectors, Canada’s ICT industry and research community has the knowledge and resources to reduce its direct CO2 output to zero, and the additional capability of enabling other Canadian sectors to reduce their carbon footprints.

Canada’s future economic growth and productivity will depend heavily on investments made in its digital technologies and on having the person with the right skills in the right job at the right time. Investing in efficient green technologies and targeted national programs,

including digital literacy for all Canadians, internship and mentorship, integration of internationally educated professionals through bridge training, as well as formal continuing professional development are the strategies that the Canadian government should be examining.



21

Currency Conversion Table

Source: Federal Reserve Bank of New York

Currency exchange rates as at September 27, 2010

Currency Unit Units per US$ US$ per Unit

US Dollar (US$) 1 1

Canadian Dollar (C$) 1.02462 0.97597



22

The Scope Of This Report

This report looks at the IT and high-tech industries in the US and Canada, focusing on the IT services, computer equipment,

software and semiconductor industries. The report aims to give a general picture of the current environment, industry

profiles and market trends using available data and examining key public companies. Key financial results for leading

companies in each country are presented in the comparative data tables.

Research analysts draw on a range of credible industry and company data sources as well as news and information

services to research and analyze the current trading environment, industry landscape and market trends and outlook for a

particular sector. Primary sources are used, unless otherwise indicated, which include company data, e.g. annual reports

and company financial results; macroeconomic and trade data; data and information from global and country regulatory,

industry and trade bodies; government data; and reports from industry organizations and private research organizations.

Industries covered by the industry reports are defined by standard industry classification systems and leading companies

are identified on this basis. SIC codes relevant for the above industry segments are: 3571, 3572, 3575, 5045 (Computer

Hardware & Equipment); 7371, 7373, 7374, 7375, 7376, 7377, 7378, 7379 (IT Services); 3674 (Semiconductors) and;

7372 (Software).



23

Key References

Global

World Semiconductor Trade Statistics (WSTS)

WSTS is an independent non-profit organization representing around 90% of the world’s semiconductor industry. It also collects data and publishes forecasts on semiconductor trade.http://www.wsts.org World Information Technology Services Alliance (WITSA)

WITSA is a consortium of information industry, software and IT associations around the world. The alliance also carries research and forecasts on the IT industry globally.

United States

Information Technology Association of America (ITAA)

A trade association representing the broad spectrum of the US IT industry; the ITAA also provides information about the IT industry.http://www.itaa.org Semiconductor Equipment and Materials International (SEMI)

Founded in 1970, Semiconductor Equipment and Materials International (SEMI) is an international trade association representing more than 2,300 member companies that develop, manufacture and supply the technology, equipment, materials and services used to manufacture semiconductors, photovoltaic, and flat panel displays.http://www.semi.org/ Semiconductor Industry Association (SIA)

The SIA represents the US semiconductor industry. It also conducts research and publishes statistics and forecasts.http://www.sia-online.org US Department of Commerce (DoC)

The department coordinates US government commerce policy. Encompassing a number of key government agencies, it also provides business products, services, information and resources. http://www.commerce.gov

Canada

Canadian Advanced Technology Alliance (CATA)

CATA is an entrepreneurial technology alliance that focuses on growing members’ business and global competitiveness through the pursuit of innovation and strategic partnerships. The alliance claims that 80% of their members are active exporters. http://www.cata.ca/ Canadian Venture Capital and Private Equity Association (CVCA)

CVCA represents more than 1,000 private equity companies in Canada, with more than C$50 billion (US$48.81 billion) in capital under management.http://www.cvca.ca



24

Industry Canada

A government department that promotes industry and a fair, efficient and competitive marketplace.http://www.ic.gc.ca Information and Communications Technology Council (ICTC)

ICTC is a non-profit council for IT professionals in Canada.http://www.ictc-ctic.ca Information Technology Association of Canada (ITAC)

A trade association representing the information and communications technology industry in Canada.http://www.itac.ca Statistics Canada

Canada’s national statistical agency that deals with social and economic statistics and products.http://www.statcan.ca



25

Notes to Comparative Data

- All figures are in United States dollars.

- All figures are as reported by the company.- N/A = Data Not Available.

- N/L= Not Listed.

- Companies ranked by total revenue for the full year most recently reported.Definitions- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.

- EBITDA = Earnings before interest, taxes, depreciation and amortization.

- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.

- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.

- Long Term Debt = Debt due to be paid at a date more than one year in the future.

- Return on Equity = The company’s earnings divided by its equity (book value).

- Profit Margin = The company’s net income as a percent of revenues.

Comparative Company Data | UNITED STATES

Company Country Ticker Exchange Primary SIC Other SICs

Hewlett-Packard Co United States HPQ NYSE 3571 3572 7378 3577 3575 7372

International Business Machines United States IBM NYSE 3571 3579 3577 7372

Microsoft Corp United States MSFT NASDAQ 7372 3577 7379

Dell Inc United States DELL NASDAQ 3571 3577

Apple Inc United States AAPL NASDAQ 3571 7372 3572 3575 3577

Cisco Systems Inc United States CSCO NASDAQ 3669 4899 7379 5065

Intel Corp United States INTC NASDAQ 3674 3669

Ingram Micro Inc United States IM NYSE 5045 4225

Oracle Corp United States ORCL NASDAQ 7372 7376 7373 5045

Electronic Data Systems Corp United States EDS NYSE 7371 7374 7376 7377 6324

Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3

Hewlett-Packard Co $114,552,000,000 $118,364,000,000 $104,286,000,000 $14,188,000,000 $13,829,000,000 $11,882,000,000

International Business Machines $95,759,000,000 $103,630,000,000 $98,785,000,000 $23,443,000,000 $22,497,000,000 $19,736,000,000

Microsoft Corp $62,484,000,000 $58,437,000,000 $60,420,000,000 N/A $21,677,000,000 $24,982,000,000

Dell Inc $52,902,000,000 $61,101,000,000 $61,133,000,000 $3,036,000,000 $4,186,000,000 $4,479,000,000

Apple Inc $36,537,000,000 $37,491,000,000 $24,578,000,000 $8,280,000,000 $8,790,000,000 $4,686,000,000

Cisco Systems Inc $36,117,000,000 $39,540,000,000 $34,922,000,000 $8,962,000,000 $11,175,000,000 $10,159,000,000

Intel Corp $35,127,000,000 $37,586,000,000 $38,334,000,000 $10,593,000,000 $11,814,000,000 $13,171,000,000

Ingram Micro Inc $29,515,446,000 $34,362,152,000 $35,047,089,000 $356,927,000 -$267,523,000 $504,705,000

Oracle Corp $26,820,000,000 $23,252,000,000 $22,430,000,000 N/A $10,161,000,000 $9,371,000,000

Electronic Data Systems Corp $22,134,000,000 $21,268,000,000 $19,757,000,000 $1,314,000,000 $995,000,000 $680,000,000

Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3

Hewlett-Packard Co $7,660,000,000 $8,329,000,000 $7,264,000,000 $3.21 $3.35 $2.76

International Business Machines $13,425,000,000 $12,334,000,000 $10,418,000,000 $10.12 $9.02 $7.27

Microsoft Corp $18,760,000,000 $14,569,000,000 $17,681,000,000 $2.13 $1.63 $1.90

Dell Inc $1,433,000,000 $2,478,000,000 $2,947,000,000 $0.73 $1.25 $1.33

Apple Inc $5,704,000,000 $6,119,000,000 $3,495,000,000 $6.39 $6.94 $4.04

Cisco Systems Inc $6,134,000,000 $8,052,000,000 $7,333,000,000 $1.05 $1.35 $1.21

Intel Corp $4,369,000,000 $5,292,000,000 $6,976,000,000 $0.79 $0.93 $1.20

Ingram Micro Inc $202,138,000 -$394,921,000 $275,908,000 $1.24 -$2.37 $1.61

Oracle Corp $6,135,000,000 $5,593,000,000 $5,521,000,000 $1.22 $1.10 $1.08

Electronic Data Systems Corp $716,000,000 $470,000,000 $150,000,000 $1.40 $0.91 $0.29

CompanyTotal Current Assets -

FYE - 1

Total Current Assets -

FYE - 2


FYE - 3

Long-Term Debt -

FYE - 1

Long-Term Debt -

FYE - 2

Long-Term Debt -

FYE - 3

Hewlett-Packard Co $52,539,000,000 $51,728,000,000 $47,402,000,000 $13,980,000,000 $7,676,000,000 $4,997,000,000

International Business Machines $48,936,000,000 $49,003,000,000 N/A $21,932,000,000 $22,688,000,000 $35,274,000,000

Microsoft Corp $55,676,000,000 $49,280,000,000 $43,242,000,000 $4,939,000,000 $3,746,000,000 N/A

Dell Inc $24,245,000,000 $20,151,000,000 $19,880,000,000 $3,417,000,000 $1,898,000,000 $362,000,000

Apple Inc $36,265,000,000 $30,006,000,000 N/A N/A N/A N/A

Cisco Systems Inc $44,177,000,000 $35,699,000,000 $31,574,000,000 $10,295,000,000 $6,393,000,000 $6,408,000,000

Intel Corp $21,157,000,000 $19,871,000,000 N/A $2,049,000,000 $1,185,000,000 $1,269,000,000

Ingram Micro Inc $7,746,905,000 $6,674,837,000 $7,920,667,000 $302,424,000 $356,664,000 $387,500,000

Oracle Corp $27,004,000,000 $18,581,000,000 $18,103,000,000 $11,510,000,000 $9,237,000,000 $10,235,000,000

Electronic Data Systems Corp $8,445,000,000 $8,257,000,000 $8,502,000,000 $3,209,000,000 $2,965,000,000 $2,939,000,000

Company Return on Equity (Most Recent Yr) Profit Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3

Hewlett-Packard Co 18.91 6.69 31-Oct-2009 31-Oct-2008 31-Oct-2007

International Business Machines 59.30 14.02 31-Dec-2009 31-Dec-2008 31-Dec-2007

Microsoft Corp 43.76 N/A 30-Jun-2010 30-Jun-2009 30-Jun-2008

Dell Inc 25.40 2.71 29-Jan-2010 30-Jan-2009 1-Feb-2008

Apple Inc 20.49 15.61 26-Sep-2009 27-Sep-2008 29-Sep-2007

Cisco Systems Inc 15.87 16.98 25-Jul-2009 26-Jul-2008 28-Jul-2007

Intel Corp 10.48 12.44 26-Dec-2009 27-Dec-2008 29-Dec-2007

Ingram Micro Inc 6.71 0.68 2-Jan-2010 3-Jan-2009 29-Dec-2007

Oracle Corp 21.95 N/A 31-May-2010 31-May-2009 31-May-2008

Electronic Data Systems Corp 7.39 3.23 31-Dec-2007 31-Dec-2006 31-Dec-2005



Notes to Comparative Data

- All figures are in United States dollars.

- All figures are as reported by the company.- N/A = Data Not Available.

- N/L= Not Listed.

- Companies ranked by total revenue for the full year most recently reported.Definitions- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.

- EBITDA = Earnings before interest, taxes, depreciation and amortization.

- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.

- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.

- Long Term Debt = Debt due to be paid at a date more than one year in the future.

- Return on Equity = The company’s earnings divided by its equity (book value).

- Profit Margin = The company’s net income as a percent of revenues.

Comparative Company Data | CANADA

26

Company Country Ticker Exchange Primary SIC Other SICs

Research in Motion Ltd Canada RIMM NASDAQ 3661 4813 4899 3669

Celestica Inc Canada CLS NYSE 3672 3679

CGI Group Inc Canada GIB.A TSX 8742 7379

Softchoice Corp Canada SO TSX 5045

MacDonald Dettwiler & Associates Canada MDA TSX 7375 8748

Open Text Corp Canada OTEX NASDAQ 7373 7371 7379

Constellation Software Inc Canada CSU TSX 7372

GSI Group Inc Canada Canada GSIG NASDAQ 3674 3679 3678 3629

Corel Corp Canada CRE TSX 7372

Zarlink Semiconductor Inc Canada ZL TSX 3674 3661

Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3

Research in Motion Ltd $14,953,224,000 $11,065,186,000 $6,009,395,000 $3,882,131,000 $3,128,259,000 $1,987,886,000

Celestica Inc $6,092,200,000 $7,678,200,000 $8,070,400,000 $195,800,000 -$563,800,000 $189,100,000

CGI Group Inc $3,560,930,034 $3,540,566,926 $3,614,866,789 $628,614,078 $585,910,968 $577,257,404

Softchoice Corp $1,244,295,000 $777,082,000 $703,237,000 -$7,731,000 $43,459,000 $30,546,000

MacDonald Dettwiler & Associates $952,085,103 $1,227,687,017 $903,981,792 $112,114,690 $185,864,898 $146,609,980

Open Text Corp $785,665,000 $725,532,000 $595,664,000 $188,500,000 $184,867,000 $128,111,000

Constellation Software Inc $437,940,000 $330,532,000 $243,023,000 $84,562,000 $64,382,000 $40,041,000

GSI Group Inc Canada $288,468,000 $291,081,000 $259,030,000 -$225,897,000 $30,126,000 $18,996,000

Corel Corp $268,230,000 $250,480,000 $177,191,000 $48,996,000 $37,305,000 $42,405,000

Zarlink Semiconductor Inc $220,141,000 $227,165,000 $183,555,000 $18,929,000 -$14,707,000 -$37,300,000

Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3

Research in Motion Ltd $2,457,144,000 $1,892,616,000 $1,293,867,000 $4.35 $3.35 $2.31

Celestica Inc $55,000,000 -$720,500,000 -$13,700,000 $0.24 -$3.14 -$0.06

CGI Group Inc $294,605,452 $280,057,159 $236,048,207 $0.96 $0.88 $0.72

Softchoice Corp -$14,388,000 $21,997,000 $15,930,000 -$0.82 $1.27 $0.93

MacDonald Dettwiler & Associates $39,509,595 $96,816,125 $71,799,364 $0.98 $2.34 $1.75

Open Text Corp $56,938,000 $53,006,000 $21,660,000 $1.09 $1.04 $0.44

Constellation Software Inc $10,224,000 $14,994,000 $11,110,000 $0.48 $0.71 $0.53

GSI Group Inc Canada -$203,847,000 $15,155,000 $7,501,000 -$4.73 $0.36 $0.18

Corel Corp $3,707,000 -$13,062,000 $9,251,000 $122,022.46 -$453,226.28 $357,351.49

Zarlink Semiconductor Inc $7,654,000 -$29,544,000 -$48,353,000 $0.05 -$0.25 -$0.41

CompanyTotal Current Assets -

FYE - 1


FYE - 2


FYE - 3

Long-Term Debt -

FYE - 1

Long-Term Debt -

FYE - 2

Long-Term Debt -

FYE - 3

Research in Motion Ltd $5,812,656,000 $4,841,586,000 $3,477,354,000 N/A N/A $7,259,000

Celestica Inc $2,542,800,000 $3,171,800,000 $2,999,600,000 N/A $732,100,000 $758,300,000

CGI Group Inc $1,074,141,683 $849,172,264 N/A $247,093,008 $277,231,098 N/A

Softchoice Corp $268,636,000 $232,196,000 $165,921,000 $13,717,000 $21,897,000 N/A

MacDonald Dettwiler & Associates $236,934,538 $274,024,692 $221,326,119 $393,381,617 $424,522,094 $318,128,489

Open Text Corp $434,910,000 $430,074,000 $350,436,000 $299,234,000 $304,301,000 $366,765,000

Constellation Software Inc $215,261,000 $132,841,000 $90,463,000 N/A N/A N/A

GSI Group Inc Canada $275,222,000 $338,647,000 $290,803,000 N/A N/A N/A

Corel Corp $94,533,000 $71,517,000 $73,919,000 $138,226,000 $158,473,000 $89,223,000

Zarlink Semiconductor Inc $152,655,000 $119,444,000 $134,700,000 $68,900,000 $57,203,000 $77,400,000

Company Return on Equity (Most Recent Yr) Profit Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3

Research in Motion Ltd 32.32 16.43 27-Feb-2010 28-Feb-2009 1-Mar-2008

Celestica Inc 3.73 0.90 31-Dec-2009 31-Dec-2008 31-Dec-2007

CGI Group Inc 13.91 8.27 30-Sep-2009 30-Sep-2008 30-Sep-2007

Softchoice Corp -21.34 -1.16 31-Dec-2008 31-Dec-2007 31-Dec-2006

MacDonald Dettwiler & Associates 9.15 4.15 31-Dec-2008 31-Dec-2007 31-Dec-2006

Open Text Corp 8.29 7.25 30-Jun-2009 30-Jun-2008 30-Jun-2007

Constellation Software Inc 9.46 2.33 31-Dec-2009 31-Dec-2008 31-Dec-2007

GSI Group Inc Canada -133.52 -70.67 31-Dec-2008 31-Dec-2007 31-Dec-2006

Corel Corp -44.33 1.38 30-Nov-2008 30-Nov-2007 30-Nov-2006

Zarlink Semiconductor Inc 9.06 3.48 26-Mar-2010 27-Mar-2009 28-Mar-2008


Industry Report - IT & Technology - October 2010Notes

27



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