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E&Y partner Bar-On: Crisis creates high-tech opportunity

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Thursday, May 13th, 2010

As reported in IVC:

While revenue may be hit by currency fluctuations, greater productivity in Europe will support Israeli IT firms.

The chaos in European markets will affect Israeli high-tech companies, says Ernst & Young partner Oren Bar-On, who is responsible for high-tech and venture capital at the firm.
Traditionally, Israeli high-tech companies focus on the US market, and their exposure to Europe is about 20-25% of sales. However, Bar-On says that the crisis affects the Israeli companies at several levels. “Most Israeli companies operate in dollars, even when they sell to companies in Europe, payment is converted from euros to dollars. There is an automatic blow when the euro falls against the dollar. Both sales volume and profits from these sales are falling. This is the first and clearest harm.”

Israeli companies with euro balance outstanding face another problem if they’ve closed a deal but have not yet seen income from it, and their profits will be worth less. Bar-On says, “I assume that we’ll also see customers who owe money but cannot pay, although at lower levels. I don’t think that we’ll see a significant amount of doubtful debts.”

“Globes”: In which sectors do we see exposure of Israeli high-tech companies to the European market?

Bar-On: In general, the exposure is not great, and it’s in communications, IT, and pharmaceuticals. Pharmaceuticals may record greater damage than the other two sectors.”

Bar-On advises not to get depressed, since the crisis in Europe also creates opportunities for Israeli high-tech companies, albeit in the longer term.

What opportunities are we talking about?

“I also see opportunities, especially in IT sectors. There will be countries that will leave the euro market, such as Greece, and this process will create many opportunities for software companies, just as there were opportunities in the years when the countries joined the bloc. In the longer term, we’ll see extensive streamlining in European countries, and this process will also use new technologies that the Israeli market has to offer.”