from the May 2006 issue

The Promise of Tomorrow is here Today

Israel remains an unparalleled concentration of technological and entrepreneurial know-how. It has survived the messy explosion of the bubble at the turn of the century and is forging ahead, and creating new businesses while building value. Just like the lyrics of a Broadway song "June is busting out all over" the same could be said of Israel's technology sector.

The New York Times, Business Week and Forbes have all noticed the renaissance of high-tech in Israel. In recently published articles they point to the massive level of foreign investment that has exceeded $10 billion in 2005. Intel, alone is funnelling several billion dollars in building a new chip wafer plant in Kiryat Gat.

Even more impressive is the individual ingenuity. In this month's report we mention Israeli student Uri Alon whose advanced text search algorithm was bought by Google.

International companies such as Sun Systems are setting aside large sums of money for acquisition of Israeli companies.

Helping the growth has been the willingness of investors to buy new issues. The London AIM Market appears to be a bottomless pool of capital. Our only concern is that there is little supervision and little liquidity. More mature companies are finding Nasdaq a more convenient place for capital raising. Mergers and acquisitions continue. A case in point is the recent acquisition of Lipman Electronics by VeriFone, a deal worth $793 million.

Almost unnoticed has been the participation of foreign companies in venture capital. Nearly half of the $1.2 billion raised has come from outside of Israel.

Moreover, the nature of the industry has noticeably changed. In the early years large companies such as Comverse, CheckPoint and Teva were created. In the last decade the overwhelming majority of successful companies have reached the level of about $300m. and were promptly picked up by foreign concerns. It is almost as if the local entrepreneurs sought out missing niches. We were always aware that it is easier and less expensive to acquire a technology then to begin a research and development program, which does not always guarantee success.

Homeland security and defense, the hottest field in Israeli high-tech, have caught the attention of defense administrations around the globe, as the growing threat from international and domestic terrorism, proliferated worldwide. Hot issues are border defenses, surveillance of coastlines, transportation security, including railways, shipping, airports and airlines; protection of cargo, sensitive economic infrastructure objects, and command, control and coordination between first responders. These all are receiving high priorities on current and projected national security programs. Israel has dealt with terror attacks since its establishment. At a recent exhibition held in Jerusalem the novel CornerShot, a James Bond type rifle, that shoots around corners while protecting the shooter from enemy fire, attracted great attention. A new communications technology, is a wrist watch sized unit that delivers video to a receiver one-fifth the normal size and allows Israeli troops to see what may be just over the hill or around the next corner. Israeli exports of homeland security equipment have grown at an annual rate of 22 percent since 2002, reaching $300 million in 2005.

Despite continuous threats over the years from its neighbors, Israel maintained its national security by the evolution and employment of comprehensive counter-terror planning, which utilized sophisticated means to secure borders and sensitive installations, gather, process and disseminate vital intelligence in order to intercept, disrupt and apprehend terrorists before they reach their targets.

Spring marks a season of hope and optimism and we believe that the months ahead will bring with them even greater achievements.

Reprinted from the Israel High-Tech & Investment Report May 2006

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