Turmoil Threatens Israeli High-Tech Bubble
By Guy Rolnik
Special to TheStreet.com
Originally posted at 3:57 PM ET 10/4/00 on RealMoney.com
Editor's note: Guy Rolnik is editor-in-chief of TheMarker.com, an Israeli Web site that focuses on high tech and business news. TheStreet.com is an investor in the site, along with Ha'aretz.
What do Givun Imaging, Surf Communications Solutions, Mind CTI (MNDO:Nasdaq - news), BATM Advanced Communications, Charlotte's Web Networks, Trellis Photonics, Helioss Communications and FibroLAN have in common?
All Israeli-based high-tech companies, you say? Yes. All hit the headlines after raising substantial sums in private placements and issues? Also true. All have foreign investors? Of course, foreigners are funding most of Israel's high-tech industry, whether as financial or strategic investors.
Some have another feature in common, namely that they work in the hottest field in today's technology world -- optics-based communications, hence their astronomic valuations, utterly detached from their financial results.
But they all have another common feature. Something not usually mentioned in the press releases or in the breathless news features about their stratospheric valuations. It's their location, the place their workers go every morning.
The stereotype Israeli start-up maintains headquarters in a classy neighborhood, say Herzliya Pituach, or maybe a tree-lined neighborhood in north Tel Aviv, or a cushy high-tech park. The stereotype high-tech zone sports 15 trendy cafes surrounding 30 gourmet restaurants and a large gym.
Not these companies. No, those are all located in Yokneam, 13.5 miles from Faradis Intersection.
Conflicting Opinions
What is Faradis Intersection, you may ask? It's a junction between highways that was blocked to traffic for three hours after residents of the Israeli Arab village of Faradis began to stone Israeli policemen and burn tires. They also ignited a bus at the entrance to the village. The riots only quieted after the policemen began to fire rubber bullets.
Nor did the events described happen during the War of Independence in 1948. They happened last week. The nationalistically motivated violence quelled by rubber bullets was happening just a few miles from a major high-tech center.
American journalists would have loved the story. It would suit their stereotypes perfectly. The editor would come up with a perfect lead, and demand photos of Arab youths throwing stones next to pictures of computers.
OK, so the journalists would love it. But how would foreign investors react? The people who finance the start-ups, the people without whose strategic involvement as customers, suppliers, distributors, partners in development -- the people without whom most of Israel's high-tech start-ups wouldn't make it.
A Short Break
Well, for a change, we don't think their reaction to the rioting in the territories and inside Israel itself will be as dramatic as one may have surmised. We're deep into a process that began seven years ago, a process that is turning Israel into a legitimate target -- for investments; a country with which to do business. It's a powerful process that won't be brought to a halt, or reversed, so quickly.
But if you think that the Israeli high-tech bubble -- the New Economy state inside the State of Israel -- is immune to the bloodshed and pervasive bitterness elsewhere, you're simply not looking in the right direction. It's time to understand that the great danger Israeli high-tech faces isn't what foreigners will say, it's what the Israeli engineers and programmers will feel.
Any of the companies we chose at random in the opening paragraph could pack up, pick up and move to Silicon Valley tomorrow. Charlotte's Web, to pick one, already has a parent company in California and a fat cash balance that could easily pay for plush offices in Palo Alto, Calif. The only reason most of these companies stay in Israel is that this is where most of their engineers want to live. It's their country, it's their home, this is where they want to work. But just as foreign investors can't be taken for granted, neither can they.
It isn't only the high taxes and the awful quality of municipal, education and health services weighing on the Israeli engineer and family. Security and the political environment are as much as a concern when deciding whether to stay in Israel, and travel each morning to Yokneam via the Faradis junction, or to "take a break" in California for a few years and take U.S. Highway 101 each dawn to San Jose.
Almost all of them are patriotic. Almost all of them did their army service and prefer to live in Israel. But the high-tech industry's demand for engineers is enormous. They could easily find jobs abroad. And the companies have plenty of good reasons to move their operations overseas too.
The high-tech bubble is fragile.
--------------------------------------------------------------------------------
Guy Rolnik, is Editor-in-Chief of TheMarker.com. He invites you to send any feedback to guy.rolnik@themarker.com.
TheMarker is a leading source for technology and business news information in Israel. The site is a venture backed by the Israeli daily Haaretz and TheStreet.com. For more stories from TheMarker, go to themarker.com. |
