Value-added Electronics

Global Competitiveness Snapshot: Electronics

IBM-PLI Quality Score Ranking

Text Version (IBM-PLI Quality Score Ranking): IBM-PLI Quality Score Ranking

IBM-PLI Profitability Index Ranking

Text Version (IBM-PLI Quality Score Ranking [2]): IBM-PLI Profitability Index Ranking

Western Canada’s Capabilities in the Value-added Electronics Sector

Western Canada’s Value-added Electronics sector is very diverse and comprises many facets of hardware-oriented technologies. Key areas of strength include:

• Photonics;
• Power Smart technologies;
• Computer hardware (including haptics, robotics, nanotechnology, quantum computing, semiconductor design, sensors and System-on-a-Chip [SoC]); and
• End of Life electronics processing.

It is important to note that the western Canadian Value-added Electronics sector is largely focused on design and integration, and does not have significant manufacturing capacity. While low-volume, high-margin components are often manufactured in Western Canada, most firms elect to outsource higher-volume, lower-margin manufacturing, mostly to Asia.

Many value-added electronics sub-sectors got their start serving Western Canada’s natural resources industries, such as forestry and mining, as well as the transportation, automotive, agriculture and tourism industries. As these industries have become increasingly mechanized, western Canadian technology innovators have risen to the challenge, developing rugged, cost-effective, environmentally-friendly solutions to complex technical problems. As such, the western Canadian technology community excels at designing integrated self-contained systems that are sufficiently resilient to withstand extremes often found in Western Canada, including temperature, salt water, humidity and extreme vibration.

Coincidentally, due to Western Canada’s historical reliance on natural resources, an important advantage for western Canadian manufacturers is cradle-to-grave lifecycle value. Most notably, mining giant Teck provides many of the precious metals used in electronics manufacturing and similarly provides end-of-life recycling for electronics to recover those same metals.

Employment Levels, Contribution to GDP and Key Foreign Investors

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Overall, the high-tech industry contributes about 5% to Canada’s GDP⁴⁵, and the Value-added Electronics sector generates a significant portion of this. In Western Canada, there are a total of 848 establishments focused on computer and electronic product manufacturing, and 423 specializing in electrical equipment, appliance and component manufacturing. British Columbia leads western Canadian provinces, with 660 establishments in these sub-sectors, although Alberta is also home to a significant number of value-added electronics companies⁴⁶.

Photonics

Western Canada’s photonics industry generated C$760 million in revenue in 2007. This sub-sector encompasses a number of technologies, including biophotonics, display technologies, imaging technologies, LED technologies, manufacturing, optical computing and memories, sensors and solar energy.

British Columbia is home to approximately 50 photonics companies that are particularly active in the areas of signage, lighting and alternative energies, and has generated a number of innovative spin-off companies. B.C.’s photonics companies employ 2,010 people, whereas Alberta, Saskatchewan and Manitoba have approximately 95 photonics companies, which employ about 2,990 people⁴⁷.

Many of Alberta’s photonics companies focus on developing solutions for the Oil and Gas sector, and its photonics industry is supported by NINT, the Alberta Centre for Advanced Microsystems and Nanotechnology Products ( ACAMP), the Alberta Centre for Advanced Microsystems and the provincial government’s Nano-Alberta team.

Some noteworthy western Canadian companies operating in the photonics space include: Carmanah Technologies (Victoria-based), GBL LED Lighting (Vancouver-based), Photon Control Inc. (Vancouver-based), Illumivision Inc. (Edmonton), Imaging Systems Group Inc. (Calgary), Immersive Media Corp. (Calgary) and Channel Systems Inc. (Pinawa, Manitoba).

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Powersmart Technologies

Due to its strengths in environmental technologies, there has been a rapid increase in the number of companies in Western Canada specializing in the manufacture of equipment that generates and distributes electrical power, as well as storage and transmission devices, accessories, and electronics for carrying electricity. The majority of clean technology companies in Western Canada are focused on energy generation and energy efficiency, with 89% of products and services having moved beyond the research stage to testing and refinement, or revenue generation⁴⁸.

British Columbia has 50 establishments specializing in the manufacture of equipment that generates and distributes electrical power, which represents 8.4% of the Canadian total. Of these, 36 have employees, but the majority are relatively small, with 15 falling into the “micro” category (1-4 employees), 19 small (5-99), 2 medium (100-499) and no large players. Alberta leads B.C. with 59 companies (41 employers) but, as in B.C., the majority of companies are relatively small. Manitoba and Saskatchewan have very few companies, but Manitoba does have one significant establishment with more than 500 employees, compared to just 2 large players in all of Ontario⁴⁹.

As for companies primarily engaged in manufacturing electrical power storage and transmission devices, as well as accessories for carrying current, B.C. leads Western Canada with 114 establishments (71 employers), or 17.8% of the Canadian total. Alberta has 57 in total (35 employers), Saskatchewan 8 (5 employers), and Manitoba 16 (9 employers). Most of these companies are small. B.C. has just 5 medium-sized companies and Saskatchewan and Manitoba have one each. There are no companies with 100 or more employees⁵⁰ in Alberta.

In B.C., there are also 39 establishments involved in the manufacture of electric lighting equipment (22 employers), compared to 16 (11 employers) in Alberta, 3 (1 employer) in Manitoba, and none in Saskatchewan. There are no large companies (500+ employees) focused on this sub-category in Western Canada, and only one medium-sized establishment (100-499 employees) in B.C. All other companies operating in this space have fewer than 100 employees⁵¹.

Despite their small size, many western Canadian energy companies are known for innovative design and development of solutions that integrate electronics to make power more cost-effective and environmentally-friendly. Some noteworthy Power Smart technology companies in Western Canada are Delta-Q Technologies Corp., Energy Aware Technology Inc., Powertech Labs (a subsidiary of BC Hydro) and Manitoba Hydro.

Computing Hardware

Computing hardware comprises a number of sub-categories, including data storage, haptic interfaces, quantum computing, robotics, semiconductors (SoC) and sensors.

As with other high-technology clusters, the number of western Canadian companies specializing in computing hardware has increased dramatically over the past decade. The following table provides an overview of computing hardware establishments in selected provinces.

Table 4: Computing Hardware Establishments in Selected

	Employers	Micro (1-4 Empl.)	Small (5-99 Empl.)	Medium (100-499 Empl.)	Large (500+ Empl.)	All Establishments	Percent of Canadian Total
British Columbia	243	94	134	13	2	428	13.2
Alberta	185	68	106	10	1	335	10.4
Saskatchewan	18	3	13	2	0	35	1.1
Manitoba	34	13	20	0	1	50	1.5
Ontario	953	310	548	79	16	1,574	48.7
Canadian Total	1,921	622	1,128	146	25	3,234	100

Source: Industry Canada. See: http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic3351etbe.html.

Western Canada is home to a number of innovative computing hardware companies, including MacDonald, Dettwiler & Associates (MDA) (based in Richmond, B.C.); Spark Integration Technologies (Vancouver); Intelligent Robotics Corporation (IRC) (Vancouver, B.C.); D-Wave Systems (Burnaby, B.C.); Pacific Insight Electronics Corporation (Nelson, B.C.); Teradici Corporation (Burnaby, B.C.); Dynastream Innovations Inc. (Cochrane, Alberta); Control Innovations Inc. (Calgary, Alberta); Kayden Instruments (Calgary, Alberta); Scientific Instrumentation Ltd. (Saskatoon, Saskatchewan); International Road Dynamics (Saskatoon, Saskatchewan); SED Systems Ltd. (Saskatoon, Saskatchewan); Custom Circuits Ltd. (Regina, Saskatchewan); and SMT Research (Winnipeg, Manitoba).

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End-of-life Electronic Equipment (E-waste) Processing

Electronics contain a considerable amount of metals, including valuable precious metals like silver and gold and dangerous heavy metals like lead, cadmium and arsenic. Due to the accumulation of electronic waste (e-waste) in our technology-focused world, end-of-life management is increasingly part of the overall value chain for electronics.

Western Canada is a North American leader in e-waste recycling, primarily due to Teck Resources Ltd. and regional programs that are run as subsidiaries of Global Electric Electronic Processing (GEEP) Inc. in Alberta and Manitoba.

Research and Development Facilities:

Our research shows that Western Canada is home to over 30 research facilities and groups that have generated numerous technological innovations and spin-off companies in the Value-added Electronics sector. Some key centres of research and innovation are as follows:

• Advanced Materials and Process Engineering Laboratory (AMPEL) – University of British Columbia: AMPEL is a multidisciplinary research centre designed to bring together top-level basic and applied research groups to work on leading-edge research of materials, devices and processing sciences. Key research areas include electro-optics, materials for sustainable energy, nanocomposites, nanomaterials, nanoscience and engineering, photonics and nanostructures, quantum coherence in nanostructures, and quantum materials.
• 4D Labs – Simon Fraser University, British Columbia: 4D Labs is an applications- and science-driven research centre, providing multiple facilities with equipment for academic, industrial and government researchers. 4D Labs is focused on accelerating the design, development, demonstration and delivery of advanced materials and nanoscale devices, with the goal of making technologies faster, smaller and less expensive. Key research and development areas include biosystem and electronic integration, fuel cells, magnonics, molecular electronics, passive energy control systems, photonics and photovoltaics.
• National Institute for Nanotechnology (NINT), Alberta: NINT is a multidisciplinary institution involving researchers in physics, chemistry, engineering, biology, informatics, pharmacy and medicine. Established in 2001 and operated as a partnership between the National Research Council and the University of Alberta, it is jointly funded by the Government of Canada, the Government of Alberta and the University of Alberta. Areas of research include devices and sensors, electron microscopy, engineered materials for energy, materials and interfacial chemistry, molecular scale devices, nano-life sciences, nanotechnology and supramolecular nanoscale assembly.
• Quantum Computing Research Group – University of Calgary, Alberta: Quantum information has real potential for changing the way we process information. Quantum devices could, potentially, dramatically speed up data searches, easily solve computational problems that are hard to solve on existing devices such as supercomputers, generate true random numbers and unbreakable cryptographic keys (the latter for secure communication), increase communication capacity by dense packing of information, provide ultra-precise measurements, etc. In collaboration with other research groups and institutions, the Quantum Computing Research Group conducts research into computational aspects of quantum mechanical systems, including quantum algorithms, quantum complexity theory, quantum communication complexity, quantum information theory and quantum computer simulations of quantum mechanical systems.
• Manitoba HVDC Research Centre Inc.: Located in Winnipeg, the Manitoba HVDC Research Centre was jointly established by Manitoba Hydro, Teshmont Consultants, Federal Pioneer and the University of Manitoba, in 1981, as a non-profit research company. The Research Centre has become a world leader in electric power system simulation, applied power systems analysis and related technologies.

HVDC develops and markets an array of products and services worldwide, including the renowned power system simulation software PSCAD® (PSCAD®/EMTDC®) and the real-time playback system RTPTM. The Centre employs 28 people full-time, the majority of whom are professional engineers and technology specialists.

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Table 5: Key Electronics-related Research Facilities in Western Canada

Key Value-added Electronics Research Facilities and Groups in Western Canada

Province	Group or Facility	URL
British Columbia	Adaptive Optics Research Group – UVic	www.engr.uvic.ca/~cbr/
	Centre for Research in Electronic Materials (CREM) – SFU	www.chemistry.sfu.ca/
	Image Communication Lab – SFU	www.ensc.sfu.ca/
	Imager Laboratory for Graphics, Visualization and HCI – UBC	www.cs.ubc.ca/labs/imager/
	Integrated Systems Design Laboratory – UBC	www.cs.ubc.ca/labs/isd
	Materials Science Group – SFU	www.chemistry.sfu.ca/
	Microsystems and Nanotechnology Research Group – UBC	www.mina.ubc.ca/
	Robotics and Control Laboratory – UBC	rcl.ece.ubc.ca/
	Robots and Mechanisms Laboratory – UVIC	www.me.uvic.ca/~ram
	Signal, Image and Multimedia Processing Lab – UBC	simpl.ece.ubc.ca/
	System-on-a-Chip Research Group and Lab (SoC) – UBC	soc.ece.ubc.ca/
	TRI-University Meson Facility (TRIUMF) – Particle Accelerator	www.triumf.ca/
	Visualization and Human-Computer Interaction – UVIC	N/A
Alberta	Calgary Centre for Innovative Technology	www.ucalgary.ca/fmd/development/CCIT
	Calgary Energy Research Institute	www.ceri.ca/
	Cramb Group – University of Calgary	N/A
	Electrical and Computing Engineering Research Facility (ECERF) – University of Alberta	www.engineering.ualberta.ca/ece/
	National Institute for Nanotechnology (NINT) – University of Alberta	www.nint.ca/
Saskatchewan	Canadian Light Source	www.lightsource.ca/
	High Performance Computing Centre – University of Saskatchewan	hpc.usask.ca/
	Centre for Studies in Energy & Environment – University of Regina	www.uregina.ca/
	Institute for Computer and Information Technology – University of Saskatchewan	www.cs.usask.ca/icit/
	Saskatchewan Structural Sciences Centre	www.usask.ca/sssc/
	TR Labs	www.trlabs.ca/
Manitoba	Applied Electromagnetic Laboratory – University of Manitoba	www.ece.umanitoba.ca/research/appliedem.html
	Atomic, Molecular and Optical Physics Program – University of Manitoba	www.physics.umanitoba.ca/research/atomic_molecular_optical_physics/amo_research.htmlatomic_molecular_optical_physics/amo_research.html
	Industrial Technology Centre	www.itc.mb.ca/
	Institute of Industrial Mathematical Sciences – University of Manitoba	umanitoba.ca/institutes/iims/
	Intelligent Sensing for Innovative Structures (ISIS)	www.isiscanada.com/
	Manitoba HVDC Research Centre	www.hvdc.ca/
	Scanning Probe Microscopy and Nanofabrication Laboratory – University of Manitoba	umanitoba.ca/faculties/engineering/departments/ece/
	TR Labs	www.trlabs.ca/

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Leading Foreign Firms Invested in Western Canada:

Western Canada has attracted some significant multinational companies in the Value-added Electronics sector, including Eastman Kodak, Dolby Laboratories, Schneider Electric and Seiko Epson. The majority of foreign firms are located in Greater Vancouver, and most created their presence through acquisitions of existing local companies.

3M: 3M Touch Systems is a diversified technology company producing solutions for a number of markets, including health care; display and graphics; and safety, security and protection services. 3M Touch Systems was formerly the B.C.-based Dynapro Technologies, which had 275 employees and was acquired by 3M’s Optical Systems division in 2000.

Bosch Group: The Bosch Group is a leading global supplier of technology and services in the areas of automotive and industrial technology, consumer goods and building technology. Bosch established a presence in Western Canada when it acquired Burnaby-based Extreme CCTV for C$93 million in 2007. Extreme CCTV specializes in the design, development and manufacture of advanced infrared illuminators and precision-engineered video surveillance products.

Broadcom Corp.: Broadcom Corporation is a global leader in semiconductors for wired and wireless communications. Broadcom established itself in Western Canada by acquiring Vancouver-based HotHaus Technologies in 1999 for $280 million. HotHaus is a manufacturer of software for embedded digital signal processors that enables transmission of digital voice, fax and data packets over data networks, including the Internet.

Dolby Laboratories: In 2007, Dolby, a world leader in entertainment technologies, acquired BrightSide Technologies, a development-stage technology company focused on innovations in High Dynamic Range (HDR) image technology for the film, medical, geophysical and satellite imaging markets. Dolby Canada conducts imaging research and development in Vancouver.

Eastman Kodak Co.: Eastman Kodak is the world's foremost imaging innovator. Kodak Research Laboratories was established with its acquisition of Burnaby-based Creo Inc., which had a broad portfolio of digital graphics solutions.

Honeywell International Inc.: B.C.-based Honeywell Video Systems (formerly Silent Witness Enterprises), a division of Honeywell International, provides digital video and CCTV systems and components, including equipment for specialized applications and financial transaction verification systems.

Intel Corp.: Intel produces quad-core processors for desktop and mainstream servers for those in the healthcare industry. In 2003, Intel acquired West Bay Semiconductor, a Vancouver-based designer of high-speed and high-density networking chips that enable voice and data transport over synchronous optical networking/synchronous digital hierarchy-based optical networks.

Schneider Electric: Schneider Electric, a world leader in electrical distribution, industrial control and automation products, systems, services and supplies, established a significant presence in Western Canada with the acquisitions of Victoria-based Power Measurement, a designer and manufacturer of enterprise energy-intelligent systems, and Vancouver-based Xantrex Technology, a producer of advanced power electronic products and systems for the renewable and mobile power markets.

Seiko Epson Corporation: Seiko Epson specializes in digital image innovation devices. The company’s Vancouver Design Center is a global leader in the development of energy-saving LCD graphics controller chips for mobile communications and handheld computing devices.

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Business Case Analysis: Niche Expertise in Specific Electronic Sub-segments

Our analysis of the IBM-PLI data gives us a snapshot of the global competitiveness of the Electronics sector in Western Canada. On IBM-PLI’s Quality Score, Vancouver and Edmonton ranked 9th and 13th out of 20 global centres in the study. On the Profitability Index, Vancouver and Edmonton ranked 7th and 4th respectively.

As in the Aerospace sector, in terms of the different qualitative factors influencing this ranking, western Canadian centres show up competitively in areas such as their general business environment, infrastructure and living environments. However, they ranked relatively poorly in areas such as flexibility of labour and regulations, the presence of an industry cluster and local potential to recruit skilled staff.

We would like to make two points about the benchmarking data as they relate to Western Canada’s Value-added Electronics sector. First, what is significant about this ranking is that western Canadian centres rank significantly below other North American centres, particularly Toronto (ranked 2nd) and San Jose (ranked 4th) in quality rankings, and at par with Tier 2 Canadian and U.S. centres such as Ottawa, Waterloo and Raleigh-Durham. Second, on IBM-PLI’s Profitability Index, Edmonton does rank 4th, but Vancouver’s 7th-place ranking is not competitive with other comparable Tier 2 centres in either the U.S. or Canada. These Canadian and U.S. clusters have been receiving major investments from Canadian and international electronics companies.

Also, a look at the history of foreign investments in Western Canada’s Electronics sector shows that typically, most of the large investments have taken the shape of strategic acquisitions, by global players, of western Canadian companies with a specific product portfolio that adds value to the global portfolios of foreign companies. Most of the major investments described above have been strategic acquisitions, telling us that western Canadian capabilities are strong in niche electronics applications.

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Industry Structure and Competitive Dynamics: Strong Enabling Technology Players in Western Canada, but Minimal Electronics Manufacturing Capability

Our analysis of western Canadian capabilities in electronics shows that the industry has strong niche players that have historically developed enabling products and technologies used in various electronics industry segments worldwide. Companies such as MDA, Spark Integration Technologies, PMC-Sierra, D-Wave Systems, SED Systems and western Canadian divisions of 3M, Broadcom, Dolby and Eastman Kodak have developed a strong electronics product and services portfolio that is used worldwide by leading integrated device manufacturers (IDMs) and semiconductor assembly and test service (SATS) manufacturers. Newer western Canadian players in the photonics and Power Smart technology space are following the same route, developing niche enabling products that are used in their respective global value chains.

The two major global trends in electronics over the past decade have been: 1) The movement of back-end manufacturing capacity to the Asia-Pacific region and 2) Major cost reductions by IDMs and SATS worldwide. According to Gartner Research, during the past five years, electronics packaging, assembly and test capacity has increasingly shifted from IDMs (such as Intel, NEC Electronics, Toshiba, Resesas and Spanslon) to SATS (such as Powertech Technology Inc., Chipbond Technology, Amkor, Nakaya Microdevices, etc.)⁵². Gartner Research also reports that 15 of the 18 planned facilities that were scheduled to begin production between 2009 and 2010 are located in the Asia-Pacific region, including six in China⁵³.

The movement of electronics production to the Asia-Pacific region is primarily driven by cost structures. Industry structure and global investments in electronics are largely driven by costs. Costs are going to be even more important in the short-to-medium term, given that the recent global recession has had a deeply negative impact on the electronics industry globally. According to Gartner Research, in 2008 and 2009, the semiconductor industry as a whole, including foundries and SATS companies, was expected to lose more than $22 billion⁵⁴ (versus $10 billion lost in 2008). Manufacturing costs are the largest determinant of overall profitability in the Electronics sector, and can run as high as 80% of revenue in sub-sectors such as memory semiconductors, 50% in non-memory semiconductors and 70% in foundry and SATS operations⁵⁵. Furthermore, within manufacturing costs, variable costs such as raw materials, chemicals and power are also moderately scalable, with economies-of-scale advantages accruing to facilities with high production and capacity utilization rates. The recent deep recession in the electronics industry has shown that companies are reluctant to cut labour costs in the short term, given that labour force investments represent considerable outlay for training and development. In contrast, electronics IDMs and SATS are more than happy to cut R&D spending during downturns, as a short-term cost-saving measure⁵⁶.

All of these factors suggest to us that when it comes to core manufacturing capability, western Canadian centres such as Edmonton and Vancouver are competing directly with global centres such as Shanghai and Taipei. Without a major reduction in costs in Western Canada, we do not think that global IDMs or SATS would consider investing in western Canadian centres. Western Canadian centres also lack the deep cluster of suppliers necessary to attract semiconductor manufacturing capability.

Given the current negative impact of the global recession on the electronics industry, we think that past trends of cost reductions and strategic acquisitions of IP in this industry will continue to accelerate over the next two to five years. A study by Gartner Research showed that over the past three years (2006-2009), out of 191 companies that Gartner identified as private semiconductor companies, only 19 (or 10%) were established after 2006⁵⁷. While we think that this number is low on a global basis, it does point to the fact that the competitive dynamics of the industry have resulted in fewer global players at the top of the electronics value chain. It is these large players that have a great deal of power over smaller technology companies, including in Western Canada, and will have a key role to play in the funding and technology direction of electronics start-ups worldwide.

Gartner’s study also found that approximately 25% of investment examples included funding from larger device and services vendors or OEMs. There are many examples of these types of investments in Western Canada, which we highlight above. Significantly, Gartner’s study found that for 2008 and 2009, the total disclosed amount invested in semiconductor companies was $756 million, with wired and wireless communication semiconductor companies, RFID, and power management companies attracting significant investments. Again, we think that this figure is low, but the trend of investments and strategic acquisitions in the communications sub-segment of the semiconductor industry portends well for foreign strategic acquisitions in Western Canada.

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Photovoltaics: A Possible Game-changer for Western Canada

In our view, the North American photovoltaics (PV) market is entering a growth phase, primarily driven by legislative changes in the United States. In 2009, the U.S. federal government passed the American Recovery and Reinvestment Act (2009), which provided important incentives for investments in many aspects of renewable energy generation. While the press in Canada was focused on the “Buy American” provisions affecting the construction and steel industry, the Act provided for a plethora of measures that have an impact on solar power, including renewable energy grants, manufacturing investment credits, loan guarantee programs, subsidized financing, renewable energy bonds and funding for smart grid technologies. In addition to this, in 2008, the U.S. Congress passed legislation to extend the 30% federal investment tax credit for solar installations to eight years and removed restrictions on utility projects and qualifying residential projects.

In addition to the above federal initiatives, there is a significant amount of state-level engagement in PV (particularly in California). The California Solar Initiative, the Multifamily Affordable Solar Housing (MASH) Program and the New Solar Homes Partnership now have combined multi-year multi-billion-dollar budgets.

The implications for Western Canadian firms of this new focus on PV in the U.S. could be significant. PV has a significantly different value chain structure, compared to the traditional semiconductor-focused electronics industry. Given that ingot/wafer production, cell production and module production, and systems integration have a wide variety of niche applications that do not require large capital investments in Fab plants, R&D spending, etc., we think that western Canadian firms in the PV industry are well-placed to take advantage of this recent shift in U.S. solar power policies.

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Foreign Direct Investment Implications: Partnering with Downstream PV Customers

Our analysis, above, of the western Canadian electronics industry shows that investments by foreign firms have been limited to strategic acquisitions of niche IP portfolios developed in Western Canada. We feel that this trend will continue into the future and any future investments by global players will be limited to strategic IP-related acquisitions or funding of IP development activity of start-ups by global players in areas such as nanotechnology.

As in the Aerospace sector, we feel that the western Canadian value-added electronics industry needs the presence of a large global IDM or a SATS company to anchor the sector. However, current cost structures in Western Canada and the absence of major electronics OEMs in any of the electronics sub-segments (such as PCs, mobile devices, etc.) tell us that this is not likely to happen anytime soon.