Is Ottawa still Silicon Valley North?
As Nortel crumbles, analysts consider the fate of high-tech sector in capital
It was the large concentration of high-tech companies around San Jose, Calif., that led the area to be dubbed Silicon Valley. An abundance of those companies much further north earned Ottawa the nickname of Silicon Valley North.
A brief recent history of Silicon Valley North
In 2000, Nortel Networks Corp. was a telecommunications technology giant with 90,000 employees worldwide, including 17,000 in Ottawa at its main research and development centre. A short distance away, 15,000 more tech-savvy employees worked for JDS Uniphase Corp., a competitor in the same sector. Surrounding them were smaller but significant players like Corel Corp., maker of Wordperfect and Coreldraw software, andMitel Networks Corp., as well as large branch offices of foreign companies such as the French telecommunications company Alcatel, which employed 2,250 people in Ottawa.
Technology executives in both Ottawa and San Jose even began lobbying for non-stop flights between the two Silicon Valleys to boost their cross-border business links.
Then in 2001, the technology bubble burst and the value of Silicon Valley North crashed with the stock market. By then, Corel Corp. had already slashed hundreds of Ottawa jobs during restructuring the year before. But that was just the beginning. Alcatel cut around 800 local jobs over less than two years. JDS's worldwide workforce shrank from 30,000 to 5,000 and the company moved its headquarters to California. Nortel immediately slashed its workforce in half, carrying out more cuts over the years as its sales sagged and it struggled through a 2004 accounting scandal.
In 2006, Ontario had managed to lure Texas based PC retailer Dell Inc. to set up a call centre in Ottawa, promising $11 million in tax credits in exchange for 1,100 jobs. Other call centres followed and Silicon Valley North briefly reinvented itself as something of a Bangalore West.
Dell announced in April 2008 that it would be shutting its Ottawa call centre.
Meanwhile, Nortel's struggles went from bad to worse. The company had hoped new CEO Mike Zafirovski would turn things around, but he couldn't and in January Nortel filed for bankruptcy protection.
In June, executives at Nortel Networks Corp., Ottawa's former high-tech star, began selling the company off, piece by piece, after seeking bankruptcy protection five months earlier. Under the circumstances, some people were no doubt questioning if the city still deserves its nickname.
Denzil Doyle, chairman of Doyletech Corp., which does business planning for high-tech companies, says Ottawa's technology industry is in rough shape these days.
"To put it harshly, it's not just in decline, but it's in decay," he says.
Claude Haw, president of the Ottawa Centre for Research and Innovation, an economic development agency that promotes high-tech businesses, sees things differently.
"I think we've got a great technology base here," he explains. "We've continued to see the number of companies grow year over year for the last several years."
Less than a decade ago, there was no question. The western outskirts of Ottawa were weighed down with shiny, sprawling glass buildings on breezy campuses. Inside, tens of thousands of well-educated employees were researching and developing new technologies for companies with international clout. Surrounding them were smaller companies they nourished through the services they purchased and the educated workers they attracted to the region.
Now, the former JDS Uniphase campus is owned by local real estate company Minto Developments, which has leased it to the RCMP to be used for new headquarters. Nortel's Skyline campus at Baseline and Merivale roads was sold to the federal government in 2003 (the government put it up for sale again in 2007), while its 11-building Carling Avenue campus sits largely empty.
Jeffrey Crelinsten, president of the Impact group, a company that offers science, technology and innovation consulting services, admits a large "anchor" company like Nortel really benefits a city like Ottawa.
"It spawns new companies, it spawns experienced managers, it creates an environment that understands the global scene … and it supports universities," he says.
It acts as a customer for smaller companies. It also provides huge opportunities for the development of staff in the many areas of its organization, giving them the skills to start and head up new companies, Crelinsten says.
Doyle describes Nortel as an "incredible incubator."
"I think people completely underestimate the incredible impact that Nortel has had on the high-tech community in Ottawa," he says, crediting it with helping companies like Mitel Networks Corp., Newbridge Networks Corp. (bought by Alcatel in 2000), Mosaid Technologies Inc. and Tundra Semiconductor Corp. get their start.
"We're not getting the startups that we used to get, as our existing companies either get amalgamated or go out of business," he says. "Or many of them, of course, are getting bought out by foreign buyers and they tend to move them out of the country, primarily to the United States."
He says part of the problem is Canada's tax system doesn't offer the same incentives to invest in venture capital as it does to invest in oil or mining exploration.
Haw believes Ottawa is becoming less dependent on "large, large players."
"We've really seen a broadening of sectors, a significant number of smaller companies," he says. "The information and communications technology background that many people in the region have is very applicable looking at clean technology, at IT and health care … so we're not so dependent on a single industry any longer."
According to the Ottawa Centre for Research and Innovation, there are currently 1,800 high tech companies in the region with 79,000 employees, the same number as there were in 2000.
However, that figure includes lawyers who specialize in high-tech and support staff. Statistics Canada, which doesn't include such employees, reported 54,000 employees in Ottawa's technology sector last year, down by almost 5,000 from the year before.
'It's more fragmented, it's smaller'
"It's more fragmented, it's smaller," he says.
But he thinks the destruction of Nortel has had an upside, as it has allowed smaller companies to pick up talented, experienced employees.
"The destruction of Nortel although it's short-term pain, it may be long-term gain."
He says that while Nortel may have pumped a lot of money into research and development, it didn't have a good business culture and wasn't spending the money in the right places.
"They weren't solving customers' problems," Crelinsten says.
As Ottawa residents contemplate what went wrong, Doyle notes that there is another Canadian city which seems to be doing a better job of nurturing its technology sector.
"The whole Waterloo [Ont.] area, there's something about it that they seem to have local angels there now that will take companies to a size," he says.
Doyle even suggests Waterloo might now be in a position to overtake Ottawa and claim its former title.
"They're still smaller than Ottawa, but they're moving at such a clip. Ottawa's becoming a branch-plant for Canadian companies," says Doyle.
He notes that BlackBerry smartphone-maker Research In Motion Inc. and business software development company Open Text Corp. both have headquarters in Waterloo, but smaller offices in Ottawa.
Crelinsten admits Waterloo is growing, but says Ottawa should be able to hang on to its technology title.
"Absolutely … there's still a large critical mass of high-tech companies."
Even though the industry may be smaller now, he says that doesn't necessarily mean it's dying.
"It may become better," Crelinsten says.