Israel?a powerhouse for technology
Ask Yossi Vardi, the father of Israel's Internet industry, to describe the mood of Israel's high-tech industry today, and he says it's one of "sober exuberance." Sober, because nobody can forget that just five years ago the industry was in a serious recession with no end in sight, but exuberance because the industry has now come full circle and is stronger and more successful than ever before.
"There's a better understanding of what's going on today, and players are more solid, but we still see lots of enterprise," says Vardi, who was the founder and chairman of ICQ, the Israeli instant messaging service purchased by America Online for $400 million. "We are in a very good period, which will continue. The industry now is celebrating."
Vardi is not alone in his excitement.
"The last five years have been recovery years," Eli Reifman, founder and CEO of Emblaze, told ISRAEL21c. "When the bubble burst, people found themselves without jobs, moving their careers from high-tech to completely new areas. Now it's all coming back in a dramatic way. High tech is hiring once more and people are exploring new frontiers. The high tech industry still has its child-spirit, which it needs to be creative, but there's experience as well now. People are doing things differently. They are basing decisions on what they know works."
"Those companies that survived the recession learned a lot about how to behave in the good times so as not to fall into the trap in the bad ones," adds Yossi Sela, managing partner at Gemini, citing companies like Starhome, Mellanox, Pcube, and Saifun as examples. "Today they are stronger, more agile and more interesting than usual. It's survival of the fittest."
Certainly interest in Israeli companies from abroad is higher than ever. Foreign investment in Israeli companies is growing every year, as are mergers and acquisitions. Since the start of 2006, foreign investors have acquired more than 30 Israeli companies, including startups, at a value of more than $10 billion. The Manufacturers Association of Israel expects that direct foreign investment will grow to between $12 billion-$13 billion by the end of the year, compared to $5.6 billion in 2005.
In July, in the middle of the Lebanon war, personal-computer giant Hewlett-Packard purchased Mercury Interactive for $4.5 billion in the largest-ever acquisition of an Israeli high-tech company. This was followed almost immediately afterwards by the $1.55 billion purchase of Kfar-Saba based M-Systems, a pioneer in flash disk technology, by SanDisk Corp. EMC purchased three Israeli start-ups this year, Kashya ($153 million), nLayers, and Proactivity. Xerox acquired XMPie for $54million.
Vardi quotes figures that show that in 2005, venture capitalists invested $1.34 billion in Israeli companies, making the country the second-highest destination for VC capital after the U.S. The U.K., for example, a country of 60 million, compared to Israel's 7 million, came in at third place with $1.29 billion in investment.
The World Economic Forum recently published its yearly 2006-2007 report in which it ranked Israel first for availability of scientists and engineers, second for venture capital availability, third for technological readiness, and seventh for innovation.
In addition, over the last few years an increasing number of international technology giants have opened or expanded development centers in Israel, names like Microsoft, Motorola, and Intel, which developed its next-generation microprocessor at its Israeli facility. Google and IBM both announced in October that they are expanding their R&D operations in Israel. Software giant Microsoft, which recently purchased Israeli start-ups, now employs over 400 people in Israel, in its largest development center outside the U.S.
On a visit to Israel in October 2005, Microsoft chairman, Bill Gates, said, "People in high tech are very aware that Israel–compared to its small size–has some amazing technological achievements. There is a greater concentration of talented high-tech manpower here in comparison to other countries–almost to the extent of Silicon Valley."
In March, U.S. healthcare giant Johnson & Johnson announced plans to invest in Jerusalem's Hebrew University.
Foreign VCs have also flooded in, opening offices and hiring permanent staff.
Today top-tier U.S. and European funds like Sequoia, Benchmark Capital, Greylock, Battery Ventures, Accel Partners and Hyperion have all set up offices here. "You can be sure they are not operating for patriotic or Zionist reasons," says Sela. "These are the top tier of U.S. and European investors. Some are coming for the first time, others to increase their commitment to Israeli high tech. Clearly Israel holds a very serious place on the map of high tech investment globally."
Israel's real strength lies in its innovative technologies. Today Americans use Israeli innovations in every sector of their lives, from health to defense, homeland security, the Internet, communications, biotech, medical devices, and semi-conductors:
Americans suffering gastroesophageal reflux disease are now diagnosed using a miniature camera on a pill developed by Israeli company, Given Imaging.
New York City police are helping to protect the streets of Manhattan with cameras developed by Vigilant Technologies.
The American military uses Israeli technology to protect them in the field, and to dress their wounds after an attack.
Israeli expertise is protecting airports and strategic locations across America.
You can mow your lawn with an Israeli robotic lawnmower, or shop online with the help of comparison shopping site, Shopping.com, an Israeli start-up purchased by eBay for $620 million.
What is particularly interesting about Israel's high-tech success in the last five years is that it comes against a backdrop of extremely difficult times in the country's political life. For the first few years, the intifada was in full swing, and this summer the country was at war with Lebanon. "High tech is a world on its own," explains Reifman. "It has no geographic boundaries. Problems at home were never an inhibitor. We live with it, we are used to it. This is just the way we are."
So what comes next?
Internet, Internet, Internet," says Reifman categorically. "We have barely scratched the surface of this new way of life and communication. Nothing else will be as hot as this. For five years investors stayed away, but now it's the hottest item on the table."
Sela agrees and adds that companies in the medical equipment and healthcare fields, and those in the consumer technology sector are likely to see huge growth.
"These companies are mushrooming," he says.
Ranan Grobman, a principal at Jerusalem Global Ventures, believes that Israel will see more development in the areas of clean and green technologies like solar power and water, homeland security, and semiconductors and mobile technologies.
"If we continue working on the trajectory that we have maintained over the last five years, the future will be very good," says Sela
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