Encryption specialist courts U.S. defence sector

R.A. Hettinga rah at shipwright.com
Tue Mar 8 09:42:29 EST 2005


CANOE -- CNEWS - Tech News:

 March 3, 2005

 Encryption specialist courts U.S. defence sector

 TORONTO (CP) - Canadian-based cryptography specialist Certicom Corp. is
seeing increased interest from defence contractors and other technology
suppliers to the U.S. government, company executives said Thursday.

 The Mississauga, Ont.-based company, which has rarely reported a profit in
its 20-year history, announced earlier that its third-quarter loss had been
cut in half to $909,000 US in the period ended Jan. 31.

 Revenue in the quarter ended Jan. 31, expressed in U.S. dollars, rose to
$3 million from $2.1 million.

 Certicom said a couple of recent developments will likely boost future
revenue - a patent-licensing deal with General Dynamics Corp. and a recent
pronouncement from the U.S. National Security Agency.

 The NSA announced in February it has decided to establish elliptic curve
cryptography - Certicom's specialty - as the U.S. government standard for
securing data that's considered "sensitive" but unclassified.

 Certicom said the NSA decision, following its 2003 decision to standardize
on ECC for classified communications, will have a broad impact on suppliers
who want to sell information technology to the U.S. government.

 A unit of General Dynamics has licensed Certicom's entire portfolio of
over 300 patents for 15 years - giving the giant U.S. defence contractor
rights to use the Canadian company's ECC technology in any of its products.

 The royalty revenues from General Dynamics are expected to grow over time
as more of its products use Certicom's technology. And other defence
contractors may follow, Certicom executives told analysts Thursday.

 "We've had an ongoing set of discussions with a number of defence
contractors and we anticipate over time that we'll continue to move forward
and conclude similar contracts with other organizations," CEO Ian McKinnon

 "If you're a supplier of product to the classified market in the U.S.
government, you're going to have to be compliant with ECC," he said in a
conference call.

 Other suppliers who want to address the sensitive but unclassified market
will also have to make their commercial off-the-shelf products ECC
compliant, he added.

 McKinnon said Certicom expects to get an ever-larger portion of its
revenues from royalties paid quarterly for its software products or patent
rights, rather than from upfront one-time payments like the $25-million-US
deal in 2003 with the NSA.

 "The General Dynamics contract and the Research In Motion contract that
was announced last May are good examples of the model that we're trying to
structure all our contracts around," McKinnon said.

 Research In Motion (TSX:RIM), which also counts the U.S. government sector
as a major market, agreed last year to license its ECC technology for its
BlackBerry e-mail products.

 Certicom doesn't attempt to predict future revenue or profitability. But
the company, which went through major restructurings and downsizings after
the dot-com bubble burst, does release its projected operating expenses.

 Certicom said that in the current fourth quarter of fiscal 2005 its
operating expenses, including cost of sales, are expected to range from
$3.4 million to $3.7 million US.

 That compares with operating expenses of $3.5 million US in the third quarter.

 The company said increased expenses include plans for sales offices in San
Diego, Calif., Stockholm and London. The additions aren't expected to add
significantly to Certicom's overall workforce, which stands at about 100.

 The third-quarter loss of $909,000 US, or two cents a share, compared with
a loss of $1.8 million or five cents per share a year earlier.

 Analysts' consensus forecast had been for a loss of one cent a share,
according to Thomson One Analytics.

 Certicom shares (TSX:CIC) traded at $5.18 Cdn midday Thursday on the
Toronto Stock Exchange, up 25 cents or five per cent from the previous
close. That was above the previous 52-week high of $4.95.

R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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