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New stars emerge as tech sector breaks $7b

New Zealand's technology sector has broken through the $7 billion mark for the first time.

The annual TIN (Technology Investment Network) 100 list, sponsored by Industrial Research, NZ Trade & Enterprise and the Ministry of Science and Innovation (MSI), found total revenue of $7.014 billion for our 100 largest tech companies for year ending June 30, 2011 - a 5% increase over 2010's $6.7 billion.

Of that $7 billion total, $5.103 billion was generated in export receipts - a 2% increase over 2010's $4.9 billion.

TOP TECH COMPANIES BY REVENUE (000s)

That means TIN 100 companies in software, information technology (IT)  services and high-tech manufacturing are now generating as much export revenue as meat (also around $5 billion) and not as far as you think behind the dairy industry traditionally thought of as our mainstay (around $11 billion).

It also means more jobs. TIN100 publisher Greg Shanahan said the number employed in the tech sector, and high tech manufacturing, has grown from 24,000 in 2010 to 30,000 this year.

FASTEST GROWING TECH COMPANIES (revenue in 000s)

Some of the big names TIN100's Top 10 by revenue have had a flat year -  especially those in manufacturing ((F&P Healthcare, F&P Appliances, Tait, Temperzone, Moffat, NDA).

But new names are surging. Healthcare software company Orion Health (which recently bought a Microsoft business unit in the sector, picking up 50 employees to its 500-odd in the process) grew revenue by a third to $91 million.

The company - now New Zealand's largest employer of software developers, with around 470 staff in total - has won a string of US deals on the back of Obama's healthcare reforms and associated stimulus spending. Orion boss Ian McCrae recently told NBR he expects sales of $120 million to $140 million in the current year.

GPS crystal maker Rakon, which made investments in the US and opened a new manufacturing centre in China, increased revenue to $189 million from 2010's $144 million, and returned to profit.

Datacom owned by NBR Rich Lister John Holdsworth, topped the fastest growing list for the second year in a row. The Wellington-based  IT services company - which recently landed a data centre contract with the government (along with Revera) saw net profit fall 25% to $22.3 million, but revenue climb from $667 million to $725 million on strong Australian sales.

Tru-Test which (like fellow TIN 100 contender Gallagher Group) makes electric fencing and other high-tech products to keep livestock in check, was a new-entrant on the fastest-growing list this year.

Medical device maker Orthopaedic Synergy moved from number 7 on last year's fastest-growing list to number 5.

And Argenta - a contract manufacturer and tester of pharmaceuticals - made the fastest-growing list for the first time at number 10.

Dollar woes?
Forsyth Barr recently downgraded its profit forecast for TIN100 high-flyer F&P Healthcare.

Mr Shanahan conceded the strong Kiwi remained an issue for tech exporters, but told NBR it ranked only number three on a TIN100 list of tech exporters' biggest concerns.

It was a serious issue, but one that many had accepted as a day-to-day reality and "cut their cloth to fit".

And while global financial woes lingered, many in the TIN100 benefited from the fact they sold products or services that helped belt-tightening overseas customers cut costs.

Currency concerns rated highest among TIN100 members with exposure to the North American market, Mr Shanahan said.

Conversely, companies like Datacom that did a lot of business in Australia had benefited from movement in the transtasman exchange rate in favour of Kiwi exporters.

R&D spending up
TIN100 members' number one and number two issues were sales growth and profitability.

Did these perennial concerns reflect the global financial crisis?

To a degree, Mr Shanahan said. But he also noted New Zealand technology companies are "Not bunkering down. They're being quite aggressive. Research and development spending is up 15%."

The TIN100 survey did not formally study the impact of the Ministry of Science and Innovation's Technology Development Grants scheme, which is ladling $321 milllion on matching R&D funds on the sector (which have been phased in as a loosely-defined tax break on R&D has been phased out).

But Mr Shanahan's anecdotal impression was that the government had "created an environment that is increasingly supportive of R&D."

Increased R&D spending would ultimately lead to increased profit margins, Mr Shanahan said.

Selling out?
What of the vexed issue of companies fostered by government grants, and cheap loans, being sold offshore - with jobs and IP sometimes following? Right Hemisphere and CleanFlow Systems are two recent examples, joining the likes of Navman and NextWindow (read: From the taxpayer with love in NBR's print archive).

How do you stop a Navman-style drift of jobs, and IP, offshore?

"I'm not sure what you can do about that," Mr Shanahan told NBR. 

However, he continued to support the government's various initiatives to assist high-tech exporters, which include a high-profile series of R&D grants under the $321 million Technology Development Grants programme.

"You've got to accept it's a reality of life that some companies will be acquired [by overseas buyers]. But overall the positive outweighs the negative," Mr Shanahan said.

Emerging stars
Mr Shanahan has also been searching for "The Next TIN100", and his report showcases  emerging companies with $2 million to $12 million revenue. He described four for NBR:

  • Konnect Net "Proved in 2011 that there’s money in health IT catapulting sales to $7.8 million in only its second year since the launch of its SureMed service. The company’s IT solution allows medical practitioners and insurers to exchange information more easily. New Zealand’s largest software company Orion Health passed the $90 million mark in 2011."
  • Canterbury Scientific "Specialises in the development and production of freeze-dried and ready-to-use liquid controls for haematology and biochemistry diagnostic tests. The company grew its revenue by 56% to $4.2 million, undeterred by the Christchurch earthquake. The Healthcare Sector is the second largest in the TIN100, passing NZ$1b revenue for the first time in 2011."
  • Howick "Manufactures steel framing machinery and roll formers grew its revenue by 45% to $6.1million. Across the board, local manufacturing enjoyed a strong recovery particularly for many of New Zealand’s iconic companies and especially those exporting to the Australian market."
     
  • Unlimited Realities "A developer of software for touch screen applications enjoyed a 58% growth in revenue to $3.8 million. Touch screen solutions have proven to be fruitful for innovative New Zealand companies. Kiwi optical touch screen manufacturer Next Windows rapidly grew revenue to over $60 million before being acquired by Canadian Smart Technologies in 2010."

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