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March 23, 2001/Adar 28, 5761, Vol. 53, No.25
Nasdaq's plunge takes toll on high-tech firms
AVI MACHLIS
Jewish Telegraphic Agency
JERUSALEM - When Amir Aharoni quit his job as a senior executive at the Israeli high-tech firm Optibase to establish a start-up called Mobixell Networks, being a technology entrepreneur was a far more promising endeavor than it is today.
True, share prices on the Nasdaq, where Optibase trades, already were falling last December, and dot-com companies were collapsing by the dozens. Yet Israeli entrepreneurs felt somewhat insulated from the technology turmoil.
They had been spared the worst of the dot-com carnage, since the Israeli industry focused on creating infrastructure technologies for Internet and telecom firms instead of on consumer Web sites, which lacked solid business models and were the first to collapse.
Furthermore, even though investment in Israeli start-ups slowed toward the end of 2000, it had been a record year for the sector, which in recent years has fueled Israeli economic growth.
But things have changed for the worse this year:
- Blue-chip technology companies like Intel and Cisco are reporting profit warnings and laying off employees by the thousands.
- Information technology spending in the United States - where many Israeli firms sell their products - is growing at a much slower pace than expected.
- By mid-March, the Nasdaq stock index had plunged by 63 percent from its high of 5,049 one year ago.
No longer insulated, Israel's high-tech sector is feeling the shock waves of these developments.
"We have to be concerned," said Aharoni. "Even though I think that the uniqueness of our team and the background of our people puts us in a better position, we still have to be careful."
The high-tech industry's fall already has affected Mobixell's day-to-day operations, Aharoni said.
The company is being very cautious about spending.
As increasing numbers of Israeli tech companies fall victim to the turbulence, officials are concerned about the potential for a broader battering of the Israeli economy.
PricewaterhouseCoopers, the international accounting firm and consultancy group, reported that Israeli start-ups attracted $3.2 billion of investment from venture capital funds during 2000. According to a recent Finance Ministry report, that accounts for 2.9 percent of Israel's gross domestic product.
In the United States, by contrast, start-up investments accounted for only 0.7 percent of the economy last year.
The slowdown has contributed to the Finance Ministry's sharp reduction of economic growth forecasts for 2001 from about 4.5 percent to about 2.5 percent - and the worst may be yet to come.
The Finance Ministry report warns that if the start-up sector slows by 25 percent or more compared with last year - a possibility given the current climate - Israeli economic growth may fall below 2 percent. That would be the slowest growth rate in more than a decade.
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