STRAIGHT FROM THE JERUSALEM BOARDROOM #113, May 18, 2007
1. ISRAEL ECONOMIC PERFORMANCE. Israel has been admitted into the ORANIZATION OF ECONOMIC COOPERATION AND DEVELOPMENT (OECD), which consists of the 30 leading economies in the world. The decision is expected to improve Israel’s credit rating, which would yield a substantial reduction of risk premium for the financing of the coming multi-billion dollar infrastructure projects. It is also expected to further increase the flow of overseas investments to Israel.
IMF projects a 4.8% GDP growth for 2007, one of the highest in the industrialized world, trailing Hong Kong and Singapore at 5.5% and Ireland’s 5%, ahead of So. Korea’s 4.4%, UK’s 2.3%, Japan’s 2.3%, US’ 2.2% and Germany’s 1.8%. Inflation is projected to be at 0.1% deflation(!), while the average industrialized countries’ average is 1.8%. Unemployment is projected to decrease to 7.5% from 9% in 2005 and 8.4% in 2006, still one of the highest among industrialized countries, trailing Germany, France, Belgium, Spain and Greece (Globes, April 11).
BANK OF ISRAEL ON 2006 INDICATORS: GDP growth – 5.1%, compared with 3.1% in the EEC and 3.3% in the US. GDP per capita rose by 3.3%, compared with 2.3% in the US and EEC. GDP per capita – $19,900 ($18,700 in 2005, $18,000 in 2004, $17,200 in 2003, $16,600 in 2002 and $19,200 in 2000 before the burst of “The NASDAQ Bubbleâ€), compared with $34,000 in the EEC and $43,000 in the US. Inflation – minus 0.1%, compared with 2.1% in the US and 2.3% in the EEC. Unemployment – 7.7% (trending downward), compared with 7.4% and 4.6% in the EEC and the US. Public Debt – trending downward to 88% of GDP, compared with 73% and 61% in the EEC and the US.
$4.4BN all-time record sales by ISRAEL’s DEFENSE INDUSTRIES, 75% to foreign markets. Previous record was achieved in 2002 – $4BN (Jerusalem Post, Jan. 2, 2007).
2. ISRAEL IS WHERE PEOPLE GO SHOPPING FOR TECHNOLOGY. FINANCIAL TIMES (April 27, 25): “Almost one Israeli in 10 works in the high tech sector…Last year, some 3,500 start ups were created in Israel, population 7MN, second in absolute numbers only to the US…The Lebanon War knocked less than one percentage point off forecast growth in gross domestic product, which reached 5.1% last year. High tech exports rose 20%…Israeli high tech companies raised $1.62BN last year, up 21% from the previous year…Between 1985 and 2005 a revolution took place here in terms of the openness of the economy, foreign currency supervision and budgetary policy…Israel’s high tech industry is confidently promoting itself to investors as an alternative to Silicon Valley rather than as an appendix to the US market…Over 90% of venture capital comes from investors outside of Israel, mostly from the US…Israel has caught the eye of US VCs. They’ve been setting up offices here or at least sending scouts…Silicon Valley Greylock Partners opened an office last year, managing a $150MN Israel-dedicated fund…Israel is where people go shopping for technology…57 Israeli technology companies were sold last year to overseas buyers for a total of $9BN, nearly 4 times the dollar value in 2005 and nearly six times that of 2004…The time to success is shorter here…â€
MICROSOFT is hiring 150 R&D persons for its second Israeli R&D center, in addition to its 200 persons R&D center in Haifa (April 18).
3. INTEL-ISRAEL RESCUES INTEL FROM PROFIT PLUNGE. BLOOMBERG, March 28: “The chip Intel is counting on to recover form a battering by Advance Micro Devices, Inc. wasn’t invested in Silicon Valley. Instead, Intel is betting on a group of Israeli mavericks and a design bureau 7,400 miles away…They saved the company. Without those new products, Intel would be in a lot more trouble. Intel’s CEO, Paul Otellini’s bet on the Israelis required a shift in thinking about how processors work, and how Intel markets them…It wasn’t the first time the Israelis had face a challenge and decided to do things their way…In 1981 the Israelis created a cheaper version of Intel’s 8086 processor, renamed the 8088. In 1981 IBM chose the chip to power its first personal computer…Today Israel has more scientists and engineers, proportional to its population, than any other country – 145 for every 10,000, compared with 85 in the US…An Israeli new chip, named Banias, got a break with Intel’s push into notebook computers. It hit the market in March 2003 as part of a laptop package called CENTRINO… Banias anchored three years of 13% annual sales growth at Intel from 2003 to 2005…In one 100 day period last year, Intel introduced more than 40 new processors. Most of them are based on the Israeli design…Now Intel’s digital enterprise division has to deliver a new design, based on the Israeli Core 2 Duo…Intel-Haifa runs Intel design groups around the world…They are developing processors that should carry most of Intel’s revenue…â€
4. ISRAELI VC FUNDS. $125MN raised by Israel’s VC fund, Vintage, from US, Canadian and Israeli PENSION FUNDS (The Marker, April 5).
5. REAL ESTATE. $367MN invested in Israel’s REAL ESTATE by overseas investors, $101MN in March, at a $1.44BN annual rate, similar to 2006 (Globes, April 2007). Dollar deposits by overseas investors have persisted during the early part of 2007 (Globes, April 12).
6. STOCK EXCHANGE. Israel’s AFRICA-ISRAEL raised $1.4BN in the MOSCOW STOCK EXCHANGE (The Marker, May 7). $316MN raised, on NASDAQ, by Israel’s Veraz (The Marker, April 6). Veraz’ IPO is the fifth Israeli IPO in 2007, following in the footsteps of CellCom ($400MN on Feb. 5), Mellanox ($117MN on Feb. 7), Roseta ($30MN on Feb. 26), BigBend ($160MN on March 14) (Globes, April 6). 100 British Pounds raised by Israels’ Delek Global Real Estate (April 5).
7. EXPANSION. VEOLIA has announced a $1BN 7 year expansion of its Israel operations (water and environmental technologies), increasing its current personnel of 1,700 to 8,000 (The Marker, May 8). NOKIA-SIEMENS has announced expansion of their Israeli R&D operations (350 persons), while shrinking global workforce by 15%. Its only non-Finland and non-Germany operations are in the US, China and Israel (Globes, May 9).
8. M&A. BROADCOM has acquired Israel’s Octalica for $35MN (Globes, May 4).
9. PRIVATE PLACEMENTS. 13% INCREASE IN INVESTMENTS IN ISRAELI HIGH TECH COMPANIES during the first quarter of 2007 ($460MN), compared with the first quarter of 2006 (Globes, April 23). $18MN invested, by US institutions in Israel’s Rad-Cilicom (Globes, May 7). INTEL CAPITAL led a $15MN round of private placement in Israel’s Jaja, in addition to its participation in a $5MN 2nd round by Israel’s Aternity and another investment in Israel’s Ceedo Technologies (The Marker, May 10). 3Com’s Chairman, Eric Ben Hammo, participated ($1.5MN) in a $10MN 5th round of private placement by Israel’s Voltaire (The Marker, April 5). BENCHMARK participated in a 2nd round by Israel’s Xeround (Globes, 18). BOSTON SCIENTIFIC invested $5MN in Israel’s Beta-O2 in a long-term joint venture agreement, which could reach a much larger investment, depending on milestones (Globes, May 14). BATTERY VENTURES participated in a $5MN 1st round by Israel’s NeoCleus (The Marker, April 26). ENGLAND’s BLUECREST CAPITAL extended a $5MN bridge-loan to Israel’s Olive (Globes, May 11). BENCHMARK PARTNERS participated in a $5MN round by Israel’s Digital Fuel (Globes, Mar. 30).
