Big Read: The technology sector's record year

New Zealand's technology sector has cracked $1 billion in growth for the first time, with revenue up 12 per cent in the space of a year.

The twelfth annual TIN100 Report, produced by the Technology Investment Network (TIN), was launched this week and managing director Greg Shanahan says that growth is set to continue, with positive signs across all sectors and regions.

"This is easily the best year in the tech sector that we've ever seen," Shanahan says. "Growth is over 1 billion dollars, which in the context of New Zealand's GDP is massive - and that's up from around $600 million last year.

"In no previous year since the launch of the TIN100 Report 12 years ago has change been so dramatic or widespread," he says.

"This year's data signals that an inflection point has been passed as the industry hits critical momentum, reflecting longer term acceleration of technology growth and a significant closure of the export earnings gap between dairy and tech."

The annual report tallies earnings in three major sectors - high-tech manufacturing, biotechnology and information and communications technology (ICT) - for the year to 2016.

In line with last year's trend, all three sectors are on the rise.

More positively, growth was seen across every region of the country as well as all overseas markets, with seven of the report's 12 secondary sectors reporting double-digit growth.

In the regions, Wellington led revenue growth with 15.3 per cent - thanks largely to activities such as digital media and augmented and virtual reality.

Auckland followed with 12.2 per cent growth. The city also contributed the greatest proportion of technology revenue - $5.4b. Hamilton jumped 11.1 per cent, followed by the South Island with 9.2 per cent.

The technology sector, as measured by the report, brought in total revenue for the year of $9.422b, up 12 per cent on the previous year's $8.412b.

The fastest growing industry group was ICT, which jumped 17.3 per cent. This was followed by high-tech manufacturing, which grew by 9.6 per cent and contributed 61 per cent of total technology revenue, and biotechnology on 7.3 per cent.

Shanahan says the continuing lift across all sectors is positive not only for the technology sector but for the economy as a whole.

"The main message from this is the size, speed and scope of these sectors are getting bigger," Shanahan says.

"Growth is accelerating rather than slowing down and the breadth of the sector continues to grow with more start-ups and early stage companies coming onto the benches and being well funded by New Zealand's angel and early-stage venture community, equity crowdfunding, or rapid growth in direct investment from offshore investors."

Overseas revenue for the year hit $6.87b, with 81 per cent of the sector's growth coming from exports. Technology is now the third largest export sector after dairy, which brings in more than $13.7b each year, and tourism.

Technology's top 100:

This year's report highlights the changing composition of the top 200 companies surveyed by TIN, with a shift from the sector's traditionally dominance by high-tech manufacturing firms, to an increasing number of globally focused ICT companies.

This year Datacom became the second billion-dollar revenue technology company in New Zealand, following Fisher & Paykel Appliances. The number of companies generating revenue of more than $50 million has also increased, up by 40 per cent in the past five years.

Shanahan says he has been surprised at how quickly things are moving, as well as the growing confidence among TIN companies, reflected by businesses in the report acquiring 31 other companies this year.

"That's a really large number," Shanahan says. "A lot of those companies are within New Zealand so that's quite an exciting development in terms of consolidation.

"Strategically buying other companies where it's relevant to growth shows an increasing depth of understanding and experience," he says.

"I think that the single biggest shift I see is one of total confidence. Companies now understand that they can do this stuff and they're good at it. And that confidence is reflected in these acquisitions and I think we'll see more of those."

While the report shows some growth coming through from Asia, the biggest growth market this year was the United States, delivering growth of 25 per cent to bring in revenue of $2.13b. Shanahan says the North American market is becoming an increasingly popular first stop for many Kiwi companies looking to expand overseas.

Australia is still the largest overseas market for New Zealand's technology sector, delivering 26.6 per cent of sales, followed closely by the US, with 22.6 per cent.

Science and Innovation Minister Steven Joyce, who attended the launch, says the Government is working to develop New Zealand as a hub for high-value research and development focused businesses and it is great to see New Zealand's tech sector leading the diversification.

"This year's TIN100 Report tells an impressive story of innovation, growth and exporting success in New Zealand's technology sector," Joyce says. "It's particularly good to see that research and development across the TIN companies grew by a record 16 per cent in the last year to $827 million.

"This is a real investment in the future of these companies, and will help lift overall the investment levels of New Zealand companies in research and development."

While the 2016 top 10 companies list was almost identical to last year, with the addition of Xero and Douglas Pharmaceuticals, the Hot Emerging and Ten to Watch featured a few newcomers. Buckley Systems and Magic Memories this year made the EY Ten Companies to Watch list, with PowerbyProxi, 90 Seconds, Modica Group, Plexure (formerly VMob) and ARANZ Medical all new to the Ten Hot Emerging Companies list.

The total number of employees across the sector increased by 7.9 per cent in the past year, with nearly 3000 new jobs created. The 200 tech companies now employ almost 40,000 people.

The TIN 100:

To qualify for the TIN100, companies must:

• Originate in New Zealand.

• Retain a meaningful presence in this country.

• Operate in the high-tech manufacturing, ICT or biotech sectors.

• Have developed their own technology-based intellectual property.

• Generate at least 10 per cent of their revenue overseas.