Business

Montreal Miracle

The new economy is booming in the old city, boosted by Quebec’s lavish aid for high-tech

Brenda Branswell November 13 2000
Business

Montreal Miracle

The new economy is booming in the old city, boosted by Quebec’s lavish aid for high-tech

Brenda Branswell November 13 2000

Montreal Miracle

Business

The new economy is booming in the old city, boosted by Quebec’s lavish aid for high-tech

Brenda Branswell

Montreal entrepreneur Richard Norman wrote his first computer program at the seasoned age of 8. At 13, he made his first sale, creating software that managed survey data for the town hall in his native Hanover, N.H.

“It took me a few years before I went commercial,” cracks Norman, 43, the boyishlooking president and co-founder of Hyperchip Inc. in his Montreal office. He is now immersed in his most ambitious venture yet.

The tech company is developing a system designed to handle telecommunications traffic at 1,000 times the capacity of existing technology. If Hyperchip succeeds in creating the petabit router, as it’s known, it would be an industry first. The site of the company’s cuttingedge work is a former locomotive repair shop near Old Montreal. Exposed metal pipes hang from the ceiling in the open office space with a cappuccino bar and a pool table nestled in a corner. Norman dismisses skeptics who question whether the company can deliver a petabit router by next year. “We’ve basically proven that it’s doable,” says Norman of the technology. Now, the focus is on implementation. “It’s not a harder challenge,” he says, “it’s just a bigger challenge.”

Hyperchip has a flock of disciples. The company recently cobbled together $100 million in its third round of financing—a deal believed to be the largest-ever infusion of venture capital for a private Canadian tech company. Hyperchip’s emergence as a fast-growing business is no anomaly in a city that has quiedy become a leading high-tech centre. A recent PricewaterhouseCoopers study of large metropolitan areas in North America ranked Montreal fourth in concentration of high-tech jobs on a per-capita basis. (Toronto placed higher

for total number of high-tech jobs; Ottawa, as a smaller city, was not included.) Montreal was also the only Canadian city singled out last summer by Wired magazine for its list of 46 global high-tech hubs to watch.

The New Economy is a key driving force behind the city’s economic resurgence. In August, the Conference Board of Canada predicted Montreal would lead the country in economic growth over the next four years, fuelled in part by the thriving aerospace and telecommunications sectors. Bom-

bardier Aerospace is growing at a dizzying pace, with 4,000 new jobs forecast for the next three years. Nortel Networks has almost doubled its workforce in Quebec—adding 2,600 jobs in the past two years, mostly in Montreal. “In terms of technology, I cant remember a time when things have been this buoyant overall,” says Lome Trottier, cofounder of Montreal’s Matrox Graphics Inc., which produces circuit boards used by computers to display graphics.

Since launching Hyperchip three years ago with business partner David Chamberlain, Norman has encountered plenty of quizzical looks from businessmen outside Quebec about why an American chose Montreal in which to run a business. “I tell them I got tired of the low taxes, the stable political climate and the warm winter weather, so I moved north,” he says with a grin. In fact, he bought a house in the city 15 years ago because his new wife, Sonja, was based there, and moved permanendy three years ago. He has resisted pressure from American investors to relocate the company in the United States. Some Americans can now appreciate advantages of Norman’s home base. Hyperchip mushroomed from a staff of 22 one year ago to its current 175. When board members look at who the company hires, Norman says, they ask incredulously, “Where do you find these people?”

A deep tech talent pool is invariably cited by local employers as a benefit of operating in Montreal. Companies can pluck graduates from four local universities. Historically, francophones have tended to be less mobile although some employers believe that is changing. But companies still compete fiercely for talent. According > to Trottier, starting salaries for engineers rose by at ' least 10 per cent last year, “which is huge.” Pay and op! erating costs remain lower in Montreal, though.

! Ronald Brisebois, CEO of the publicly traded Mon! treal-based tech company Cognicase Inc., estimates ; that salaries are at least 30 per cent higher in Toronto. j> Launched in 1992, Cognicase has posted spectacular : growth. It employs 3,500 worldwide, 2,200 of them in Montreal. The company currently has about 180 jobs open in Montreal and 40 full-time recruiters trying to fill them.

Matrox’s Trottier recently donated $5 million of his personal fortune to McGill University and pledged another $5 million if McGill comes up with $7 million. The money will be used to build a new information technology building and increase enrolment—a welcome development given the shortage of

When Mamma calls

Herman Tumurcuoglu makes no attempt to act like a stodgy executive. Dressed in a ribbed sweater and jeans, the 28-year-old dot-com millionaire reaches into a desk drawer in his Montreal office and offers a visitor a chocolate bar. Four years ago, Tumurcuoglu and business partner Danny Arseneau developed a Web site that sweeps through the databases of several major search engines and offers the results in one place. They called the company Mamma.com, “the mother of all search engines.”

The nondescript Web site is short on fancy graphics, and it is hardly alone in the meta-search field. But “it grew almost exponentially,” Tumurcuoglu says. “People loved the concept.” He claims the site attracts six million different visitors a month, mosdy from the United States, although independent measures are lower. Revenue comes from banner advertising on the site as well as sales of the technology to other companies for their own search engines. There are also revenue-sharing deals with search engines queried by Mamma.com. The company grew rapidly from a handful of staff to 58 employees at its peak. The availability of highly creative technical staff “at a really good rate on a worldwide scale” is a Montreal advantage, says Tumurcuoglu. Last year, as in every dotcommer’s dream, Montrealbased Intasys Corp. bought a 67.5-per-cent stake in Mamma.com for $41 million in shares and cash.

But dot-com reality has also hit. The purchaser’s shares have since fallen sharply in value. “After taxes, I’m probably barely a millionaire now,” says Tumurcuoglu. Layoffs have brought the staff down to 40. Tumurcuoglu also had to work through the death of Arseneau earlier this year. And market volatility threw a wrench in plans to raise cash for a pre-IPO round of financing. “It got to be a very hard environment to do financing over the summer when the stocks were plummeting,” he says. The company still plans to go public, but for now the focus is on building a profitable firm. Mamma.com moved into the black for the first time last month and Tumurcuoglu expects it to earn seven figures next year. He concedes most dot-com companies rarely turn a profit. But that won’t be the case for long, “because one of two things will happen: either they’ll go profitable or they’ll go bankrupt.” He’s determined to avoid the mother of all disasters. B.B.

IT professionals. Simply keeping potential employees in the city can pose a challenge. Last spring, Boston-based tech firm Teradyne Inc. snapped up about 40 per cent of McGill University’s graduating class in electrical and computer engineering, notes department chairman David Lowther. “People are trying everything to get employees,” says Lowther.

Generous provincial tax credits for research and development have helped lure companies to the city. The province also offers incentives such as a five-year holiday from Quebec income tax for foreign high-tech staff. For Hyperchip, where about 10 to 15 per cent of the workforce comes from outside the country, “that is key to attracting people,” says Norman. But critics accuse the governing Parti Québécois of excessive largess and meddling. The latest flap is over Quebec’s plan to massively subsidize a proposed $3-billion computer microchip plant on Montreal’s west island. The province is offering Taiwanese company Mosel Vitelic about $1.8 billion in cash and tax breaks. The PQ wants Ottawa to kick in $500 million—an amount the Liberals have called too rich, although negotiations continue. Quebec says the plant would create 1,500 jobs, but opponents argue that the memory-chip market is highly volatile. Some say provincial tax cuts would attract more investment.

The city’s low profile can be a challenge for Montreal high-tech entrepreneurs who slug it out on a global scale. “Were less visible on an international level and with Americans,” says Brisebois, noting how some people assume that if the software is developed in Silicon Valley it is automatically superior. Norman, with his outsider’s grasp of the Canadian psyche, contends that in self-effacing fashion Montreal does not realize its tech strength. Ironically, he could moonlight as the city’s hightech ambassador: in rapid succession he fires off a list of who is doing what in each sector. His verdict on the city? An American accent still evident in his enthusiastic voice, Norman declares: “It’s really the sleeping giant.” EH!