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midastouch017

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midastouch017

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Sunday, 10/23/2005 7:59:09 AM

Sunday, October 23, 2005 7:59:09 AM

Post# of 3562
“The bubble won’t be back”

The market's sane again, says Motorola's Elisha Yanay, who's set a $30 billion 5-year output target.

Hadas Manor 23 Oct 05 11:11

Motorola Israel general manager Elisha Yanay, who also serves as chairman of the Israel Association of Electronics and Information Industries, does not think that the bubble will return. He also thinks that Israeli high-tech will achieve 15% growth a year, and will double its activity within five years.
“The high-tech industry doesn’t disappoint,” said Yanay. “In 2005 it is returning to what it was in 2000, in other words, over $15.5 billion in output, including $13.5 billion in exports, and with an impressive growth rate of 15% and more. We can say with certainty that the potential exists, which is why we’ve set a target of $30 billion in output within five years. Israel’s domestic market, which is small, will continue to account for only $2-3 billion, so growth will come from exports.”

Yanay has an unusual explanation for the bursting of the high-tech bubble. “The bubble burst because of the prices communications ministries worldwide charged for 3G licenses. The aggregate cost to the industry was over $300 billion, including $70 billion in the US, $65 billion each in the UK and Germany, $22 billion in Italy, and $150 million in Israel. This greatly affected the market caps of wireless operators, which drastically cut demand for equipment, to the point of eliminating it altogether. Shares of wireless operators and telecommunications companies collapsed, and that dragged down telecommunications equipment vendors in their wake.

“Under these circumstances, the idea of providing Internet services gratis diminished. When the ISPs have no money, they say, ‘Leave me alone’. Everyone is then in the business of survival, and doesn’t develop further. This also affected Internet. Everyone sought a model for Internet sales in which they would not be provided for free, but first tried to get as many users as possible. Users relied on wireline or wireless systems, but because of the awful tax imposed on telecommunications for licenses, it went into a freeze. This was the high-tech tsunami that then brought down the Internet.”

“Globes”: What’s happened since then that leads you to assume that the bubble won’t return?

Yanay: “We’re about to enter a five-year growth period, and we’re seeing a lot of sanity in the global market. Communications companies have recovered from the damaging license costs. In 2004 and 2005, we saw the emergence from the crisis, while the global situation is much more regulated, and company managers are much more cautious. Israeli companies with $15 billion in sales in a $3.5 trillion market are operating in an industry that isn’t running amok, but has reverted to a normal business model.”

Yanay is convinced that the most important condition for achieving growth is the human factor. “The personnel situation in Israel is very good, with 7,000 to 8,000 graduates a year in engineering, mathematics, software and so on. I hope that we’ll increase that number to 12,000 in five years.”

What should Israeli high-tech companies do to continue to grow?

“Strategy should focus on small companies or activities of $20-50 million each. I don’t object to large companies, but anyone wanting to be big while continuing to operate in Israel should carry out a lot of small-scale activities under one roof. The moment one activity grows big, global competition will greatly reduce the chances of a business staying in Israel. In addition, we should focus on sophisticated, not simple, things, because that will make it harder for the world to take them from us. Taxes in outlying areas are low, so it’s cheaper for a company to operate without having to cut the net wage per employee. We greatly hope that the government will bear 15% of the labor cost.

“If we succeed in lowering the cost of a development person in Israel from the current $100,000 a year to $60,000-70,000, we’ll be much more competitive internationally, and it will be much less worthwhile for Israeli companies to leave for India, for instance, where costs are significantly lower. As a result, we’ll simultaneously strengthen our global standing while achieving the national interest of developing the Galilee and Negev. At the same time, we’ll complete the deployment of colleges and universities throughout the country, instead of being only in the center.”

What about Israeli companies transferring production to the Far East?

“As Israeli companies, we have no chance of competing against the production centers in countries like China and India. We must therefore formulate a new strategy and find a way to anchor production in Israel. That will happen only when production in Israel becomes economically viable. We can achieve this by concentrating on producing complex and unique things in very small series, while exploiting the proximity of development and production.”

What are you doing to promote these goals?

“At the Association of Electronics and Information Industries, we’re formulating a joint program with the Office of the Chief Scientist, the Israel Venture Association, and the Manufacturers Association, which Economic Models Israel is evaluating, that will submitted to the prime minister and minister of finance for approval by the cabinet. The plan includes incentives to attract multinational companies, the strengthening of technological education, job assistance, and export assistance for small companies.”

How much will this program cost the state?

“The program will generate immense added value. Experience shows that for every shekel the government invests, it will get back NIS 15 in exports. This will also solve job problems, while boosting GDP per capita by $2,000 to $4,000.

“The government jobs program has already been allocated NIS 500 million over three years. I think it should be NIS 500 million a year. It is also necessary to raise the salary ceiling for support from $6,000 a year to $12,000, because that is insufficient for high tech; bring forward the increase in the Chief Scientist’s budget promised in 2007 to 2006; and permit aid for R&D without imposing the current restrictions on firms. In general, it’s necessary to understand that high tech is the nation’s growth engine, and act accordingly.”

Published by Globes [online], Israel business news - www.globes.co.il - on October 20, 2005

http://www.globes.co.il/serveen/globes/DocView.asp?did=1000021751&fid=980

Dubi




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