Blue chips drive DataMirror's fortunes
Firm's software tracks product movement Upturn in U.S. needed to boost sales prospects

By: Corey Goldman
From The Toronto Star, Monday, June 16, 2003

MONTREAL - Keeping track of what was coming and going into a warehouse or off a store shelf used to mean whipping out a pencil and paper and tallying up what came in, what went out and what was left. Missing items and lost orders here or there were part of business.

For the corner variety store owner or local shopkeeper that still works okay.

But for multi-national corporations that move and sell millions of dollars worth of goods each year, keeping track of what's coming and going is crucial.

Which helps explain in part why a company most people have never heard of, DataMirror Corp. has been doing very well lately.

In the first three months of the year, the Markham, Ont.-based software maker added no less than 29 new clients to its roster, including the likes of Royal Bank, TD Bank and U.K. mobile phone giant Vodafone.

Other clients include Federal Express, GMAC Commercial Mortgage, Union Pacific Railroad, Tiffany & Co., the French Navy and the London Stock Exchange. The company posted a profit of $663,000 (Canadian) for the quarter ended April 30, or 6 cents a share, compared with a loss of $947,000, or 8 cents a year earlier. For the second quarter, DataMirror is forecasting net income of 8 to 12 cents a share.

"It is still not the most stellar environment for business spending on software, but what businesses still really need is software that can help them better track and manage everything that their computer systems are doing," said DataMirror chief executive Nigel Stokes. "There is a lot more hesitation to get the technology in than their used to be, but there is still demand for it, which has been positive for us."

Indeed, DataMirror's stock price has reflected investors' penchant for companies that have been able to boost their sales in an otherwise dismal business-spending environment. From a 52-week low of $7.50, its shares have edged as high as $12.75 on the Toronto Stock Exchange, and closed the day Friday up 24 cents at $10.90.

On Friday, shares of DataMirror closed the day up 24 cents at $10.90 on the TSX.

The company's share price many have benefited from renewed interest among investors for business software companies, touched off in no small part by Oracle Corp.'s surprise $5.1 billion hostile bid for rival business software maker PeopleSoft Corp. Just days earlier, PeopleSoft had tendered an offer for Denver-based J.D. Edwards.

While DataMirror likely won't feel any effects of who ultimately merges with whom, it should stand to benefit in the near-term as companies involved in the same line of work receive renewed scrutiny from investors.

Shore has a "buy" rating on the stock, with a one-year target of $12.75.

Other business software companies that have also seen their share price rise in the past two weeks include Corel Corp., Cognos Inc., Geac Computer Corp., Hummingbird Inc. and Open Text Corp.

DataMirror produces a variety of different software products and tailored software packages that give companies the plumbing, if you will, to allow different kinds of software programs and servers to communicate with each other within the same company. It's like having a water pipe in your home that connects the flow between the bathtub, the shower and the washing machine.

It means that Office Depot can track to the last eraser how much inventory is at its stores, how much is sitting in its various distribution centres, how much of a product its clients might order on a given day and when those products might be available- from anywhere in the world. And it means that kids' clothes maker OshKosh B'Gosh can track exactly how many pairs of those little overalls it has in stock, how many are on back order, what sizes are needed and when they will be delivered- to within the hour.

At the heart of what DataMirror does is something it calls LiveBusiness. In the world of high-speed real-time Internet access, where information is expected to be online, in real-time and constantly up to date, DataMirror helps companies keep up with the pace- not only in terms of making sure the information is up-to-date, but also in ensuring the system keeps running smoothly should a virus attack the company's server, for instance.

One of its software packages, called "Go live for $55K," purports to be "everything you need to integrate your incompatible computer systems, applications and databases."

DataMirror targets other areas: data audit, which records a virtual paper trail for companies that need to keep track of who is making changes to what and when, and data capture, which allows workers using wireless handheld devices out in the field to input and extract information to and from a computer.

The company has alliances with some of the leading business software firms- IBM, Microsoft, Oracle, Sun Microsystems, Siebel Systems and J.D. Edwards. Such alliances help it provide some of its products in combination with some of theirs, and vice versa.

Yet DataMirror isn't the only one making software that helps companies keep track of their goods and protect their information. Others such as Cognos, Hummingbird, Open Text, Geac and Corel are all working on taking a slice of the same pie, though analysts point out that each has managed to carve its own particular niche in the market.

There are still concerns about the vitality of the U.S. economy, and whether business spending will pick up again, which would help sustain DataMirror's business. More than 55 per cent of its revenue comes from the United States, just 5 per cent from here in Canada. The other 40 per cent comes from the U.K., Asia, the Middle East and Africa.

But analysts believe that DataMirror holds a particular spot in the market that no other company has- a specialty type of software that makes it cheap and easy for companies to improve their systems without having to invest in huge amounts of technology.

"For $55,000 (U.S.), a guy at a company can decide whether they want DataMirror's product without going through a bunch of red tape," said Steven Li, an analyst with Raymond James Canada in Toronto.

Li has an "outperform" rating on the company's shares, with a one-year target of $15 (Canadian).

DataMirror too is looking at taking over other companies to broaden its customer base and give it a stronger presence. A year ago it made a bid for its biggest competitor, Idion Corp., which owns and operates business software maker Vision Solutions.

Even though DataMirror owns a large chunk of Idion shares, the bid failed because the chief executive of the company as well as two major institutional shareholders weren't interested in being bought out. Vision Solutions is based in Irvine, Calif., but its parent company's shares trade on the South African Stock Exchange.

A year later, DataMirror is considering a second attempt.

"The reality in today's market is that there is a lot of capacity out there; we're trying to do some of this consolidation ourselves," said Stokes. "We can be synergistic with all of these players regardless of who ends up owning the assets at the end of the day. If Oracle wants to roll it all together then we think that's a positive thing."