To judge from the Tel Aviv Stock Exchange, we have turned into a country of oil barons and financiers

Where Israeli money fears to tread

US investment institutions have shown greater boldness and steadfastness in investing in Israeli tech companies than their local counterparts.

17 June 13 17:07, Shlomi Cohen

After the great joy of the sale of Waze for over $1 billion, the local stock market can now celebrate the new make-up of the Tel Aviv 25 Index. Only one technology company makes it into the top flight: NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE), which is not nice at all the technology sector apparently makes no impression on the stock exchange powers that be. Perhaps it’s because “a billion today is not what it was” as a Texan oil tycoon joked 30 years ago when he lost $2 billion in one day.To judge from the Tel Aviv Stock Exchange, we have turned into a country of oil barons and financiers. Half the companies on the leading index represent these two sectors. The elite technology companies from Yokne’am that were on the index, Mellanox Technologies Ltd.(Nasdaq:MLNX; TASE:MLNX) and EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), have been shown the door for one reason or another, not to mention the dozens of companies that are only traded overseas.

When will the Tel Aviv Stock Exchange, or, more importantly, the regulators in Jerusalem, realize that something is fundamentally wrong with the way things are done here? How is it that a company like Check Point Software Technologies Ltd. (Nasdaq: CHKP) is not listed in Israel? A $10 billion company that perfectly exemplifies Israeli technological entrepreneurship in the new digital age? A company that, by the light of its founders’ vision, dozens of “Wazes” have grown up here, not to mention that it is located ten minutes from the stock exchange building in Ahad Ha’am Street?

Imagine that the glory of Korean technology, Samsung Electronics, was not listed on the stock exchange in Seoul, but only in New York? Samsung, incidentally, is not listed on any main US stock exchange.

The absurdity does not end with technology companies. SodaStream International Ltd.(Nasdaq: SODA), for example, has reached a market cap of $1.5 billion within two-and-a-half years of its IPO on Nasdaq. The company is on its way to conquering a large share of the US beverages market, but there is no trace of it on the Tel Aviv Stock Exchange.

So on whom does the success of Waze, and of others like it, make an impression? On US investment institutions, which look for Israeli technologies. Since the beginning of this year, I have discerned pretty impressive growth in purchases of substantial stakes in mid- and small-cap Israeli stocks on Nasdaq. The Fidelity funds raised their stake in Radware Ltd.(Nasdaq: RDWR) to 13% after the warning in April, and a month beforehand Morgan Stanley (MS) reported a 7% stake in the company. The Soros fund raised its stake in ClickSoftware Technologies Ltd. (Nasdaq: CKSW) to 10%, as did the Fidelity funds. A small US fund called Invicta Capital doubled its holding in Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), which slowly but surely is creeping northward again, to 9%. By contrast, Clal Industries, one of the company’s first investors, at one time holding more than 20% of it, continues to sell. Since May, it has no longer been a party at interest, that is to say, it holds under 5%.

Since Asher Levy was appointed CEO of Orbotech Ltd. (Nasdaq: ORBK) early this year, its share price has shot up by over 40%. There too, we find a small US fund, called Mak Capital, which in the past year has raised its Orbotech holding to nearly 10%.

The Rima Management fund, worth around $800 million, is known to the CEO of every Israeli company on Nasdaq. It has been investing in Israeli companies for many years, and is not fazed by geopolitical storms in our region, nor does it run away at times of global crises.

The most significant move by Rima in an Israeli company recently was the raising of its holding in Ceva Inc. (Nasdaq:CEVA); LSE:CVA) in the first quarter to around 5%. The reward came towards the end of last week, when Ceva’s share price jumped 12%.

The jump came in response to an important positive announcement by one of Ceva’s largest customers, Chinese mobile processor manufacturer Spreadtrum Communications (SPRD). Spreadtrum announced that, in the quarter ending this month, it would sell 45% more than in the previous quarter, to March, which means sales of up to $278 million. The market had expected just $228 million, and analysts derived the royalties that Ceva will receive in the third quarter accordingly. The upshot is that, on the basis of this Chinese customer alone, Ceva will be able to meet third quarter estimates. All the other customers, such as Samsung, Broadcom (BRCM), and Intel (INTC), will contribute to upside beyond market expectations.

Of further importance to the continuation of the momentum at Ceva is that Spreadtrum says that the upside it is seeing in demand is not a one-time phenomenon. This is the trend that we had been waiting for, and that will continue for several quarters, as the Chinese switch from old 2G and 2.5G telephones to cheap 3G smartphones. Ceva earns royalties of around $0.05 per handset on 3G processors, compared with just $0.01 for 2G. In addition, from the end of this year and onwards, Ceva will start collecting royalties of $0.10 per handset for 4G (LTE) processors, which it will sell to Broadcom, Samsung’s semiconductors division, and Intel.