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Home > The Press > The Financial Times

The Press - The Financial Times

LIFE AFTER THE CRASH

July 14 2001

he renaissance of the British technology industry remains in place despite a week of disappointment for leading companies, say Michael Skapinker and Caroline Daniel.

For believers in a British and Irish high-technology renaissance, the events of the past week have sounded like the sickening crack of a hand-held personal organizer accidentally dropped on the pavement.

 

Fran Rooney of Baltimore Technologies, the Irish Internet security company, resigned on Tuesday after a collapse in his company's share price. His resignation came days after John Mayo, chief executive - designate of Marconi, the UK telecommunications company, was forced to step down after shocking investors with a profits warning. On Wednesday, Psion, inventor of the hand- held organizer and one of Britain's high- tech hopes, announced it was leaving the hand-held business and would no longer compete with US rivals such as Palm and Handspring.

 

The UK has seen its technology dreams dissolve before. In the 1980s, Acorn, one of the world's first home-computer companies, enjoyed huge success. Sir Clive Sinclair's Sinclair Research launched the ZX80, the first computer ever to cost less than 100 GBP. And Alan Sugar boasted that his Amstrad consumer electronics company would one day be as big as Sony. Of these, only Amstrad is still in business - but its dream of world domination is long gone.

 

There were even greater hopes for the current crop of companies, many centred on Cambridge's Silicon Fen, but their market capitalisations are a fraction of what they were before last year's worldwide downturn in technology shares.

 

Arm Holdings, the designer of microprocessors headed by Robin Saxby, is now worth 2.2 GBP bn, compared with a peak of 9.6 GBP bn. Autonomy, the software company, is valued at 416 GBPm, compared with a peak of 5 GBP bn. Baltimore has dropped even further, from 5GBP bn to 159 GBP m. Bookham Technology, which once vowed to be the Intel of optical components, has seen its value fall from 6.5 GBP bn to 207 GBP m. Pision is now valued at 342 GNP m, compared with a peak of 5.6 GBP bn.

 

The company's founders and chief executives have suffered a sharp drop in their personal riches, too, although few are poor. Mike Lynch, chief executive of Autonomy, has watched the value of his holding drop from 900 GBP m to 75 GBP m. Andrew Rickman, chairman of Bookham, has seen his family's stake fall from 1.5 GBP bn to less than 50 GBPm, although he sold 40 GBPm of shares in September.

 

So is the 1990s UK high-tech revival set to go the way of its predecessors? Executives, financiers and consultants all say "no", arguing that something has changed in Britain this time round. Shares have plunged, as they have done in Silicon Valley, and some companies will disappear. But the best will survive, they say. British technology now has the financial infrastructure, the skills and the attitudes to create a sustainable industry.

 

Few have witnessed as many as Hermann Hauser, the Austrian who settled in Cambridge, created Acorn and more than 20 other companies and now runs Amadeus Capital Partners, the venture capitalists. British high technology is now far stronger than it was a few years ago, he says. " If you compare us with the US, we still have a long way to go. But if you compare us with ourselves five years ago, it's incredible."

 

The difference begins, he says, with the quality of people launching high-technology companies. The business plans submitted to him are " incomparably better " than they were, he says. Michael Jackson, chairman of Elder Street<, the venture capital firm, and of Sage, the software company, says many of those going into high executives of larger companies and are already wealthy from exercising share options.

 

Mr. Jackson says that 10 years ago, technology entrepreneurs could seek financial backing from only three sources: 3i, Apax and Schroders. There are many more venture capitalists operating in the UK today. The downturn has made investors wary but luck of finance is no longer an obstacle to at start-up with a viable idea. "The venture capital market is going to be picky but there's a lot more money around", he says.

 

Attitudes to entrepreneurship are also markedly different, Mr. Hauser says. Two years ago, he launched a business plan competition for Cambridge students, similar to one at the Massachusetts Institute of Technology. He was worried that few would turn up for his inaugural talk. Four hundred came.

 

Not everyone takes such as rosy view. Keith Woolcock, an analyst at Nomura, says that although Accel Partners, the Silicon Valley venture firm, has announced a 500 GBP m fund for European and Israeli investments, some US venture capitalists, such as Bowman Capital and Kleiner Perkins, have withdrawn from the UK. Other funds are retreating to the safer terrain of management buy- outs of traditional business.

 

The relatively small size of the UK market is also a barrier to British companies wanting to grow. Psion never made much of an impact in the US, selling most of its hand-held organizers in Europe. Its name did not help, as Americans struggled to say it.

 

"They say piss-ion, or Zyon. It's a challenging brand," one company insider said. The real problem, however, was that Psion was not big enough to compete with US rivals such as Palm and Handspring. David Potter, Psionīs chairman and founder, says:

"We created the organizer market but now it is becoming huge- and frankly we don't have the scale to compete with that."

 

Stuart OīGorman, fund manager at Henderson Technology, a UK- based fund, says: "The problem for the UK technology sector is that it is all sub-scale. On a global basis it is small cap technology. There is no big gorilla- there are not even many in Europe. That's the problem for the UK - we will do really well only in niche products."

 

Psion plans to concentrate on providing services to businesses and on its 28% stake in Symbian, which is licensing an operating system for wireless devices. Mr. Jackson says this is the way forward for UK high-tech: software and specialized products. "I don't think hardware, with very few exceptions, is where the UK should be. It depends on having a large domestic market," he says.

 

Paul Todd, a consultant and high-technology specialist at Mckinsey, says companies that can expand beyond the British market have a high chance of success, particularly as the UK now has the financial and legal services infrastructure to support their growth. "Companies that have made it through that barrier have made it through the only barrier that exists in the UK," he says.

 

Even finding skilled staff is no longer the problem it was, Mr. Todd argues. During the Internet boom, talent was spread widely across many companies. Now that many dotcoms have failed, the remaining companies such as Arm, which has achieved substantial success outside its home market. Autonomy's Mr. Lynch says those who remain pessimistic about the UK industry's prospects simply have too little experience of high- tech's business cycle. Silicon Valley knows its best companies will survive. The best in the UK will pull through too, he says.

 

What of those whose companies fail? Traditionally, in the UK, business failures have felt marked for life. In the US, failure has long been regarded as a necessary part of an entrepreneur's education. Mr. Todd believes the British attitude persists - but not in high-tech companies. "They have to live with risk and none of them is so arrogant that they don't realize that luck plays a part," he says.

 

Mr. Hauser agrees that British attitudes to failure in business have changed. "Look at me", he says. "I've failed so many times it's not true- and I'm part of the establishment now".

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