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TORONTO (GlobeinvestorGOLD) — Every industry has its share of impenetrable jargon, but the technology business tends to be one of the worst. Trying to understand JDS Uniphase's description of an optical transducer or Wi-Lan's discussion of orthogonal frequency-division multiplexing can make any investor's head hurt. Even in that kind of company, however, Toronto-based Certicom Corp.'s business can be particularly headache-inducing. A software company specializing in cryptography, its forte is something called "elliptic curve cryptosystems" or ECC for short.
Is it important that you know how elliptic curve cryptosystems work, or that they are derived from a complicated mathematical conundrum known as the elliptic-curve discrete logarithm problem? Probably not. What is important to know is that most experts in the field believe that this kind of cryptography has a number of benefits over traditional cryptography (which is based on factoring large numbers). One of the benefits is that such systems pack the same amount of cryptographical power into less space, which makes them particularly handy for use with mobile or handheld devices. They also tend to be faster, and can be more economical than the traditional version.
Those types of benefits have drawn many customers to Certicom's door over the past several years, since the company is one of the leading practitioners of elliptic curve cryptosystems. With more secure transactions taking place using handheld devices such as cellphones and PDAs, there has been an increasing interest in using ECC software because memory and computing power on such devices is at a premium. Although it is still a fairly small business, it is growing rapidly: Certicom had revenue of $34.5-million in 2005 (U.S.), up more than 230 per cent from the previous year, and the company swung to a profit of $17.2-million from a loss of $4.9-million in 2003.
The biggest proportion of the company's revenue jump was made up of a $24.9-million contract from the National Security Agency, the U.S. department that is involved in cryptography and other security-related enterprises that affect the U.S. government. The NSA selected Certicom's ECC software as the exclusive standard for use with all sensitive (but unclassified) government communications, and Certicom said that it hoped this would "drive the proliferation of ECC in the government and commercial marketplaces."
In fact, just last month Certicom signed a deal with a U.S. company — Intelligent Recognition Systems — that is filling a contract with the U.S. Special Forces and Army Rangers to build and supply handheld devices. The president of the company, Joyce Brykman, said that these systems will communicate with remote centres "which could be located anywhere in the world, so not only does the security have to be strong, it has to be small and fast."
In January, Certicom licensed its ECC software to General Dynamics, one of the largest shipbuilders for the U.S. Navy. The deal allows the company to use Certicom's algorithms in any commercial or defence products for the next 15 years, and pays the Canadian software company both a lump sum and an ongoing royalty. Last year, handheld maker Research In Motion licensed the company's ECC software for use in its BlackBerry devices, and Certicom has also licensed its software products to Motorola, Palm and Pitney-Bowes.
The company's ECC software could become even more attractive after an announcement earlier this month that it has improved the speed with which it can verify digital signatures using elliptic curve technology. According to Certicom, a new algorithm means they can be verified in almost half the time. "We expect that both new and old customers will be interested in licensing this technology due to the performance enhancements provided," BMO Nesbitt Burns analyst David Wright said in a note to clients.
At $4.50, Certicom's shares may have fallen from the great heights they reached during the technology boom of the late 1990s, when they hit a peak of $120, but many security industry analysts believe they have the potential to do well, as businesses of all kinds increasingly move into the mobile and wireless world.
Mathew Ingram joined The Globe and Mail's online news team in June of 2000, after spending four years as the Western business columnist, based in Calgary.