Israel Trade Commission website

ISRAEL TRADE COMMISSION

Commercial News from Israel
May 2006

Israel Trade Commission
6/37 York Street
Sydney, NSW 2000
Tel: +61-2-9262 3943
Fax: +61-2-9262 5242
E: info@israeltrade.org.au

Dear friends and colleagues,

There are very positive signs in the Israeli economy today - high economic growth (6.6%), extensive Foreign investment, growth in the real estate market, major capital reform and positive trends in the Tel Aviv stock exchange. The forecast for 2006 is positive and the market is expected to continue its strong growth.

Probably the most prominent development was the purchase of Israeli company ISCAR by Warren Buffet, the worlds top investor. An investment which we hope is the first of many more. Please see below for more details.

Last week Israel concluded another very successful Agritech conference with over 4,000 foreign visitors from all over the world. Towards the end of May, Israel will hold it's annual Biomedical conference in Jerusalem and in November it's Telecom 2006 exhibition, which will showcase one of Israel's dominant sectors. Senator Helen Coonan, Minister for Communications, Information Technology and the Arts will lead a business delegation from Australia to the Telecom exhibition in Israel, which will take place from the 5-11th of November. This delegation will give business people a wonderful opportunity to experience the High tech revolution that Israel is currently enjoying.

To join the delegation or for any more inquiries please contact us or the Australia Israel Chamber of Commerce.

Nili Shalev
Israel Trade Commissioner

SUCCESS STORIES

WARREN BUFFETT BUYS 80% OF ISCAR FOR $4 BILLION

The deal is the largest ever acquisition by Buffett outside the US, and makes the Wertheimer family the wealthiest in Israel. Warren Buffett's investment company Berkshire Hathaway Inc. and Israeli company Iscar, Ltd. announced that Berkshire Hathaway had agreed to acquire 80% of the Iscar Metalworking Companies in a transaction that values Iscar at $5 billion.

The Iscar Metalworking Companies, owned by the Wertheimer family, has operations worldwide, and is an industry leader in the metal cutting tools business. Upon completion of the transaction, Berkshire will own 80% of the business and the Wertheimer family will own the remaining 20%.

The deal looked set to raise awareness among foreign investors about the potentials of the Israeli economy, which grew 5.2 percent in 2005 and is forecast to expand 4-4.5 percent this year on the heels of global growth and a shift to free-market policies.

"This is certainly a vote of confidence in Israel and reduces the risk factors that some investors might associate with investing in Israel. Some investors view Israel as a risky place but Buffett is not a risk taker by any means," said Richard Gussow, a senior analyst at the Excellence Nessuah brokerage in Tel Aviv.

It turns out that Warren Buffett was not satisfied with one Israeli company. Berkshire Hathaway's subsidiary CTB Inc. recently acquired a 60% controlling interest in Israeli company Agrologic Ltd. Agrologic designs and manufactures integrated systems for agricultural use including climate controllers, feed and poultry weighing systems. The amount of the transaction was not disclosed.

CEO Jan Lichten and development manager Johanan Hershtik founded Agrologic in 1988, and each owns half of the company. Their holdings in the company will fall to 20% each following the acquisition by CTB.

BILL GATES INVESTS $75 MILLION IN ISRAELI SECURITY SOFTWARE COMPANY

Microsoft is purchasing the Israeli start-up Whale Communications, specializing in application access and security for USD $75 million. The purchase is another step by the software giant in turning Microsoft's Israel division into a research and development center. The purchase is said to bolster enterprise network security for Microsoft's customers.

Whale Communications was founded in 1998. The company provides secure Virtual Personal Network (VPN) services using SSL encryption. It has turned its focus to the communications market, and is offering enterprises solutions for secure access to knowledge systems and enterprise applications.

Whale has over two million users, including employees, business partners, government and public organizations, and customers, including a few fortune 500 companies. Whale customers include the U.K's governing Labour Party, utility firm E.ON, Virgin Atlantic Airways, Krispy Kreme and the Sumitomo Mitsui Banking Corporation.

Microsoft Israel is also set to make substantial changes to its R&D activities in Israel. The company has appointed former IPTV division VP Moshe Lichtman as R&D president in Israel. Lichtman will oversee the expansion of Microsoft Israel’s technological investments and R&D activities in the Israeli market. He will also head Microsoft Israel’s new R&D center in Tel Aviv, in addition to overseeing activities at the existing R&D center in Haifa.

ISRAEL AIRCRAFT INDUSTRIES TO SUPPLY QANTAS

Israel Aircraft Industries Bedek Aviation Group will supply Qantas Airways Ltd with B737-300 Passenger to Freighter conversion kits and technical support for four aircraft. The B-737-300s will be converted in-house by Qantas using Bedek’s Supplemental Type Certificate.

IAI’s Bedek Aviation Group is a full service provider of aircraft, engines and components to airlines and cargo industries. Bedek is a leading modification center for a wide range of narrow and wide-body aircraft, including B737-300SF, B737-300QC, B767-200SF, and 747-100/200SF conversions. Israel Aircraft Industries is a recognized leader in the aerospace and defense industry and Israel’s largest industrial exporter.

ECONOMY AND INVESTMENT

GROWTH IN THE FIRST QUARTER of 6.6% IS THE HIGHEST SINCE 2000

The Israeli economy grew 6.6% in annualized terms in the first quarter of the year, compared to the last quarter of 2005. Compared to the parallel quarter last year it grew 5.7%. The business sector expanded during the same period 10.6% compared to the previous quarter, and by 7.8% compared to the first quarter of 2005. The rapid growth in the first quarter, the highest rate since 2000, was a result of a significant expansion in domestic demand: private consumption grew 10.3% in annualized terms, and investment in fixed assets rose 16.3%, again in annualized terms. Total growth for 2006 is expected to be between 4.5-4.8%.

*Courtesy of Bank Leumi, Melbourne.

ISRAEL RANKS 3RD IN GLOBAL VC INVESTMENT

A joint study by Ernst & Young and VentureOne states that Israel ranks third in worldwide venture capital investment in the first quarter of 2006, amounting to $437 million. Only California and New England in the US outranked Israel.

The study says that venture capital investment in the first quarter in both Israel and the US was higher than in all corresponding quarters since 2001. Venture capital investment in Israel was 30% higher in the first quarter than in the corresponding quarter of last year.

The largest single venture capital investment in Israel in the first quarter was $23 million in Netanya-based Siano Mobile Silicon Ltd., a developer of processors for mobile television broadcasts.

SECOND LARGEST FRENCH BANK TO OPEN ISRAELI BRANCH

French bank BNP Paribas has been granted a license to open a local branch in Israel. BNP Paribas was founded 140 years ago and is the second largest bank in France with operations in 85 countries. BNP Paribas will be the third foreign bank to open a local branch after Citigroup and HSBC. It joins a list of 20 foreign banks currently operating in Israel including Deutsche Bank, UBS and UBP.

NY STATE TO INVEST $100 MILLION IN HI-TECH

The New York State's pension fund, the second biggest public pension fund in the US after California announced plans to establish a new investment fund in Israel. The $100 million designated to the fund, is in addition to $200 million already invested recently in Markstone Capital. The new fund will invest in hi-tech companies involved in biotechnology, internet, telecommunications and military technology. "We are long-term investors," NY State Comptroller Alan Hevesi said. "We see a very positive future for Israel. Israel has a stable democracy, a stable currency, a very supportive legal system, a government that favors privatization and an impressive regulatory system."

AMDOCS WINS MAJOR RUSSIAN BILLING SOLUTIONS CONTRACT

The billing and CRM solutions provider announced that Russian telecommunications provider Vimpelcom chose Amdocs to replace its billing and customer relations management (CRM) solutions at all affiliates throughout the CIS. No details were given regarding the value of the deal, although it is believed to be worth tens of millions of dollars.

VimpelCom aims to standardize its billing and CRM systems since currently, each VimpelCom affiliate relies on a different system. The system consolidation and upgrades will enable VimpelCom to create a uniform system for billing and customer care and management. In addition, VimpelCom’s affiliates will also deploy other Amdocs solutions, such as automated contact centers enabling sales force automation, as well as ordering and service fulfillment.

TELKOM KENYA AWARDS GILAT SATCOM $1.5M INTERNET DEAL

Gilat Satcom, a subsidiary of Satcom Systems, has signed a new $1.5 million contract to become the main provider of Internet to its existing customer Telkom Kenya. Telkom Kenya is that country's national telecommunications provider and the sole provider of landline phone services in Kenya.

Gilat Satcom has supplied satellite broadband internet services to Telkom Kenya since 2002. Under the new agreement, Gilat Satcom will become the main internet connectivity provider to Telkom Kenya which, in turn, will distribute internet services through its landline telecom infrastructure.

Gilat Satellite Networks, is also expanding its operations in Mexico. The company announced that it had been chosen by Mexican company Integradores de Tecnologia to provide an 8,500-site SkyEdge very small aperture terminal network serving 17,500 Mexican public-school classrooms. The deployment of the network hub and terminals has already begun. Gilat did not disclose the size of the deal although market sources estimate it to be worth $8-9 million.

Six weeks ago, Gilat announced it had also been selected by a consortium of leading Mexican technology firms to provide a network of nearly 7,000 SkyEdge VSATs serving 16,000 classrooms. The project includes computer-based tuition software and a portal to assist teachers with their daily activities.

COMVERSE WINS BILLING AND SERVICES CONTRACT WITH POLAND'S P4

Comverse Technology subsidiary Comverse announced that it had been selected to supply a broad array of solutions and services from its Total Communication(SM) portfolio to P4, Poland's new 3G mobile operator. No details were given about the value of the contract although market sources estimate it to be worth several tens of millions of dollars.

The solutions to be provided to the Polish company also include Comverse’s Converged Billing solution as well as the company’s various multimedia and messaging platforms. The Converged Billing Solution will provide P4 with a convergent system that enables provides real-time customer management for both prepaid and postpaid users.

IBM ISRAEL WINS $1M PROJECT FOR RUSSIA'S STROM MEDIATEL

IBM Global Systems Israel, the local services arm of IBM, will carry out a $1 million IBM customer relations management (CRM) consultancy project for Russian telecommunications company Strom MediaTel.

IBM says IBM Israel’s staff is participating in what they call an “exchange of know-how” project. Six IBM Israel employees will analyze systems at Strom MediaTel’s centers, including its billing system, and will make them compatible with the company’s new computerized strategy. In the past two years, IBM Israel has led enterprise computerization projects, mostly for telecommunications companies, including India’s Bharati Telecom, Poland’s Telekomunikacja Polska SA, Russia’s VimpelCom, Romania’s MobilFon, and China Telecom and China Mobile.

M-SYSTEMS REVEALS ITS BREAKTHROUGH

According to M-Systems, its x4 technology will enable utilization of 4-bit/cell NAND flash, revolutionizing NAND flash manufacturing economics, increasing fab profitability with no changes to manufacturing processes, and fuelling new generations of multimedia-rich, consumer electronics devices. The company said 4-bit/cell NAND flash, had been considered to be a practical and physical impossibility.

M-Systems estimates that NAND flash manufacturers will realize over 30% cost savings in comparison with the most advanced 2-bit/cell multi-level cell NAND flash wafers manufactured to date through equivalent lithography. This announcement was the culmination of five years of dedicated research and development efforts.

SWEDISH PRICER BUYS ISRAELI ELDAT FOR $40 MILLION

Swedish electronic display and information supplier Pricer AB is set to acquire Israeli based Eldat Communications Ltd. Eldat's solution uses infra-red technology to deliver fast and accurate pricing information to the shelf edge. The companies are the only providers of bi-directional broadband electronic shelf label (ESL) communication. The merger is expected to form the world's principal provider of ESL systems for retailers.

MEDICAL

JOHNSON & JOHNSON ACQUIRES ISRAELI COLLAGEN COMPANY

Johnson and Johnson acquired ColBar LifeSciences Ltd., a maker of collagen-based matrices, for $140 million. ColBar was founded in 1995 by Prof. Sandu and Pitaru Prof. Haim Tal of Tel Aviv University. The company’s product is based on artificial collagen matrices for use in implants instead of live tissue.

ColBar has developed two products to date, Ossix for the dental market (for encouraging bone growth in the jaw), and Evolence for the aesthetic market (for treating facial wrinkles). Products in the pipeline are being designed for the urological, orthopedic and other fields. ColBar’s has several million dollars in sales, mostly in Europe.

WATER

ASHKELON PLANT NAMED 2006 GLOBAL DESALINATION PLANT

The Ashkelon Desalination Plant was chosen as Desalination Plant of the Year at the Global Water awards ceremony, which was held in Dubai this year. The plant, which was built with a more than NIS 1 billion investment is the largest and most advanced of its kind in the world. The plant was recognized for being one of the cheapest desalination plants in the world, and for the new global standards that it set in is field.

The Ashkelon plant was built and is operated by the VID Desalination Company. The company is jointly owned by Elran Investments, P.V. Investment House, and Dor Gas, a member of the Dor Alon Group.

ISRAEL NEGOTIATING WATER SUPPLY SOLUTIONS WITH CHINA

The water supply industry is a $400 billion-a-year industry and Israel is an integral part of it. Early this year, the Chinese government decided that water would make or break the country’s economic development, and consequently it is about to invest hundreds of millions of dollars under a five-year development plan for advanced water solutions. The Chinese government plans to invest in a range of water management programs for creating new water sources and improving water quality. China views Israel as a water technology powerhouse. When Chinese Minister of Water Resources, Wang Shucheng opened the Water Expo in Beijing, he was accompanied by only a single foreign dignitary, Mekorot National Water Company chairman Baruch (Booky) Oren.

A delegation of 11 Israeli companies led by Mekorot National Water Company chairman Baruch (Booky) Oren, and Israel’s ambassador and commercial attache to China attended Water Expo China 2006.

The participating companies were Mekorot, Amiad Filtration Systems Ltd., APCC, Arad Technologies Ltd., Bermad Water Control Solutions Ltd., IDE Technologies Ltd., Jordan Valley Water Association, Motorola Israel’s water monitoring division, Nirosoft Industries Ltd., P2W Ltd., and Tahal Consulting Engineers.

China’s Ministry of Water Resources and Mekorot agreed to cooperate on China’s five-year plan at the national and local levels. At the local level, a contract is expected to be signed between Mekorot and Beijing’s water company within three months.. The budget for solving Beijing’s water problems under the five-year plan is $10 billion. An agreement was also reached with China’s electronics capital, Shenzhen, which has 11 million residents and a severe water shortage. The investment budget for water in Shenzhen under the five-year plan is $9 billion.

EXHIBITIONS IN ISRAEL

Biomed Israel 2006 Biotechnology & Medical Devices Jerusalem, May 29-31, 2006.
IsraWinExpo The 1st International Exhibition of Wines Tel Aviv Exhibition Center June 13-15, 2006
The 3rd International Jewelry Exhibition in Israel June 27-28- 2006, David Intercontinental Hotel, Tel-Aviv
Plasto Ispack Visit The Gateway to Plastics, Rubber & Packaging Innovations. The 11th International Exhibition. September 11-14, 2006
The 9th International Laboratory Equipment & Biotechnology Exhibition February 2007 Tel-Aviv Fairgrounds
The 10th International Exhibition for Industrial Processing in Israel February 2007 Tel-Aviv Fairgrounds