ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the July 2000 issue


Summer Time and the Going is Easy!
Looking ahead to the Rest of the Summer


As is our custom in recent years; after the publication of this July issue, we will take our summer vacation and resume publication with the September 2000 issue. It used to be that the hot summer months of July and August were generally devoid of newsworthy developments in the Israel's universe of investments and high-technology. What was once true is no longer the case today. The most probable reason was voiced at the recently held Oracle conference in Tel-Aviv. Moshe Horev, Israel Managing Director of Oracle Israel, in introducing keynote speaker Mark Jarvis, Senior Vice- Marketing Manager of Oracle Corporation said, "every day in Israel three new startups are born". The "three a day startup birth" cycle is not startling news. It began a number of years ago. The number of startups has been mushrooming and these, once having progressed beyond the fledgling stage, are nearly daily making their presence felt. For them the battleground may be to obtain the next financing round. After obtaining funds they go back to work, but for us it becomes news. It may be a new technology breakthrough. That is also news! We, who faithfully try to record these events for the investment community, lately find ourselves, more often than ever before, dusting off our databases and updating what was once mentioned as the birth of a hopeful high-tech company. But that is not all! True enough, Initial Public Offerings will be few and far-in-between. But even in that area there are signs of surprises and some revival. The Israeli company Click Software has just raised $28 million and is to be followed by Accord Networks and Precise Software Solutions.

Precise, which develops e-business and enterprise application performance management solutions for Oracle-based environments, is planning to raise $63 million. The company's value according to the IPO price is expected to be about $250 million. Accord, which develops network equipment for video conferencing, also plans to issue its IPO on Nasdaq The company aims to raise about $55 million, at a company value of $220 million. We are beginning to identify a trend toward mergers and acquisitions and these deals are likely to be the future "big" news. The startups of yesteryear have grown and are now sufficiently large to gain ranking as players in the megadeal category. Deals of several tens of millions of dollars are not considered as newsworthy. Now it is big time "M & A". With each new announcement observers are tempted to speculate whether this is the last of the megadeals or just a respite before the next new big buck record is announced. A case in point is that of Chromatis Networks Inc, which a few short weeks ago announced that it had accepted a $4.5 billion takeover offer from Lucent Technologies Inc. This created a new record in terms of sheer size for an Israeli company. Chromatis, makes optical equipment for urban areas. Its products allow voice, data messenger and video traffic to travel efficiently along crowded urban networks and let customers use optical wavelengths only where and when needed. Industry insiders suggest that the Chromatis partners from the very outset worked to fill a gap in Lucent's development program. This is a likely explanation and may yet become a model for others. Lucent was an early stage investor in Chromatis and could easily have guided Chromatis management to concentrate on developing solutions for its own corporate needs. It already sounds like a marriage made in heaven as Lucent has emphatically stated that it expects Chromatis' products to generate sales of "several hundreds of millions of dollars'' next year.

Yet though the purchase price for Chromatis was the highest ever paid for an Israeli-associated start-up - it reflected the development of a unique product for the fast-growing optical networking, where a new market is created with a new technology, and from a start up that is positioned to lead that new market. The Lucent-Chromatis deal may result in an acceleration of the trend of U.S. companies looking to Israel for technology talent and products. So as we ready for our vacation we do so with the full confidence that there will be an abundance of news and developments to report in our September 2000 issue.


Reprinted from the Israel High-Tech & Investment Report July 2000

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