Companies in brief: Week of December 30, 2007

9 Israel on the move

British investors have tended to ignore Israel, but its stock market will be
thrust into the limelight this year when it is promoted from emerging to
developed market status.

FTSE, which creates stock-market indexes, is planning to reclassify Israel in
June, forcing many tracker funds to buy into the market for the first time.
There are more than 20 Israeli companies listed on the London Stock
Exchange. Technology firm BATM Advanced Communications is the biggest: in
2007 its shares fell 5%.

Yani has said several times in the past that he hopes to set up an Israeli Nokia. At the press conference that IBM and XIV held today, he tried to explain the rationale for the sale and for foregoing the dream. "It would have been possible to go it alone, and then it would have taken longer, but with greater potential and perhaps a greater sense of achievement. There was also the possibility of combining with IBM, who are dominant in IT. We joined IBM, and this could further the vision of Intel number two in Israel," Yanai said.

IBM and XIV insisted today on maintaining secrecy about the financial aspect of the deal, the identities of XIV's investors, and how much money has officially been invested in the company. They would only talk about the future, and even then somewhat vaguely.

"What has happened here is what I call the Intel vision," Yanai said. "It’s not a case of the government investing in a bunch of guys at Talpiot (an Israeli army military technology development program. Ed.) and then all the technology going abroad. On the contrary, IBM is bringing its technology here, and there will be a large storage development and production center here."

Yanai added, "It's much more than a few people getting a few dollars. This is one of my aims in this deal." He described himself today as "an IBM person", said he had always dreamt of working at IBM, and he will receive the title "IBM Fellow," given to about 40 senior people in the company responsible for developing its vision and thinking "outside the box."

"I don't have exact figures for how much we will grow," Yanai said in answer to a question about the planned size of the development center, "but it's going to be a serious center, one that will employ a lot of people. The deal will provide IBM with advanced technology with which it will be able to respond to the huge growth in customers' digital databases."

Perhaps Yanai supplied the best comparison to what XIV has done with the following story. "Twenty-five years ago, I moved with my family to Boston, but I make my investments in Israel. The truth is that I could have found brilliant MIT graduates there, but with none of them could I have electrified the ocean." Yanai referred to the legend that Winston Churchill demanded that the German submarines should be hit by applying electric current to the ocean. It was impossible of course, but the idea remains: with Israel's Talpiot graduates, the impossible becomes possible.

XIV is perhaps the classic Israeli dream: a bunch of geniuses, out of an elite army unit, sets up a company that tries to bring about significant change in an important and highly competitive market, pitting itself against international computing giants.

IBM intends to use XIV's technology to cheapen and simplify the management of digital data in the Web era, and of digital information in general. "The data are building up so fast and management and storage of them has become to complicated that the world is marching towards a crisis, one that our technology solves. The acquisition by IBM will show that one plus one equals one hundred. The Web 2.0 market is new, and the amount of data is rising at an exponential rate. There is a serious problem, in that current data storage architecture is an obstacle. The combination with IBM is a winning combination," Yanai added.

For IBM Israel, it's an "exciting event", as Meir Nissensohn, general manager of IBM Israel, described it. The reason is not the fact that IBM has made few acquisitions here, but the significance of this acquisition for the computing giant. It’s not every day that they pay so much money for an Israeli company around which they intend to form a new center. Perhaps this is also the reason why IBM System Storage vice president of mergers and acquisitions Daniel Powers came to Israel. "IBM is the world's largest producer of storage products and wants to stay that way. The acquisition strengthens us. We looked for a long time, all over the world, for someone who works according to this vision, and XIV was the only one in the world that provided it," Powers said.

XIV currently employs 50 people. According to CEO Ofir Zohar, even after years at Talpiot and a start-up company, the transition to an industry giant with a rather grey image is not off-putting. "Our people are very excited at the opportunity. They believe that we can change the world," he said. Some of the employees have become millionaires. The employee options fund owns 6% of the company, according to the Registrar of Companies, meaning that they will receive some $18 million.