Dot.IL’s Can’t Compete with CNN’s War Reports

[JERUSALEM] This week saw continuing carnage among
“dot.ILs,” but it is not just startups who are struggling for survival; as the
Nasdaq plunges, publicly traded Israeli companies are wondering how to
persuade CNN-watching investors that Israel’s political situation is not
affecting business – yet.

“The American institutional investors fear that the war-like situation is
threatening the operational status of Israeli companies traded on the Nasdaq,
many of which, although their management is in the U.S., have research and
development centers in Israel,” said Rami Rosen, a technology analyst with
Oscar Gruss in Tel Aviv.

For example, edutainment company Multimedia K.I.D. said this week that it
has run out of operating funds and will cease trading.

Those companies who seemed to be flying high above all of the turmoil have
proven to be just as vulnerable. Gilat Communications (GICOF) , a leader in
satellite connectivity, was trading Thursday at $2.68, down from a 52 week
high of $45.75. Integrated messaging company Commtouch was down to
$4.50 from a high of $68.50.

Even Israeli stalwart Check Point Software, the firewall market leader, which
was ascending as Nasdaq plunged, had dropped Thursday from a 52-week
high of $177.88 to $122.43.

While Israeli companies on Nasdaq suffer from the same current investor
insecurities over impending profit warnings as everyone else, this additional
concern over the effects on business of political instability and violence –
although it may be unfounded – only adds to their worries.

“In an extreme situation, if Israel was at war with seven Arab countries, they
would be affected,” said Rosen. “But with the situation we are experiencing
right now, I don’t think there is any effect at all.”

However, trying to calm investors who spend all day watching international
news on television is an impossible task, Rosen said.

“In this battle, the public relations battle, [Israeli companies] have lost,” he
said. “Not because they cannot do good PR, but because the impact of CNN
is much more significant.”

This is affecting the private arena, too.

Membiz, which reported just two weeks ago was looking
for investors for its online peer-to-peer trading platform, appears not have
found them. The company laid of five out of nine staff members, local press
said this week.

Other casualities of the dot-bombing include text-mining startup Expertease
and online music distribution company MusicMarc. Neither company
responded to requests for comment.

Internet advertising technology company Adwise said that it was downsizing
in Israel, but in the same breath anounced the appointment of new vice
presidents for global marketing and for North American sales.

Investment firm Tri-United Technologies, is also cutting staff in its Jerusalem

“Tri-United has let go seven of its 18 employees in Israel,” said company
press spokesman Ido Atiya, owner of the DoubleClick public relations agency.
“With the situation as it is here, Tri-United, which has U.S. offices in Chicago,
has decided that it will not be focusing so heavily on investing in Israeli
companies and is therefore cutting back the local team.”

The situation is epitomized in an announcement appearing in an Israeli high
tech e-mail newsletter published by Dolev and Abromovitch on Thursday:

“A chief financial officer from a hi-tec

h company is becoming
available.seeking interesting opportunities either in a hi-tech company or in
the investment sector.”

Many more such senior executives will shortly be “becoming available,” it

However, on a more positive note, Oscar Gruss’ Rami Rosen is not ready to
write off the high-tech sector yet.

Despite the downward motion, he still highlights several Israeli companies,
such as Audiocodes, as buy recommendations, despite the fact that the
company’s stock is trading at $10.81, down from a 52-week high of $76.

“Even if we are entering a slowdown in demand, Audiocodes’ field, IP
telephony hardware, is just going to develop,” he said. “It is OK for companies
to have a period of slowdown. That’s life – ups and downs.”

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