Ma’ariv Conference

Joel Maryles

Citigroup / Salomon Smith Barney

2

Fundraising by Public and Private Israeli Companies

Private IsraeliCompany Fundraising

550

2,325

1,715

4,016

10

20

28

6

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

19

98

19

99

20

00

20

01

YT

D

US

$ in

Mill

ion

s

0

5

10

15

20

25

30

No

. of T

ran

sactio

ns

US$ in millions Number of Transactions Source: IVC High Tech Survey Sep 2001

1,012

3,092

1,154

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

19

99

20

00

20

01

YT

D

US

$ in

Mill

ion

s

Public IsraeliCompany Fundraising

3

How does this compare to the US experience?

2000 Financing by US Technology Companies $272.3 Billion

2001 YTD Financing by US Technology Companies $84.7 Billion

Percentage decline in 2001 69%

2000 Financing by Israeli Companies on NASDAQ $4.0 Billion

2001 YTD Financing by Israeli Companies on NASDAQ $1.7 Billion

Comparable percentage decline in 2001 57%

Its always darkest before the dawn…….

Its always darkest before the dawn…….

Stock markets generally anticipate events six months in advance.

We predict an economic rebound in the second half of 2002.

6

Global Economic DownturnY/Y Percent ChangePercent Change from Preceding Quarter (SAAR)

2000.3 2000.4 2001.1 2001.2 2001.3 2001.4 2002.1 2002.2 1998 1999 2000 2001 2002

History ForecastHistory Forecast

Real GDP 1.3 1.9 1.3 0.3 (1.1) (1.3) 0.8 3.7 4.3 4.1 4.1 1.0 1.2

Personal ConsumptionExpenditures

4.3 3.2 3.0 2.5 0.7 (1.9) 0.3 3.1 4.8 5.0 4.8 2.5 1.1

Fixed Private DomesticInvestment 2.6 0.5 1.9 (9.7) (9.5) (5.7) (2.4) 3.2 11.4 7.8 7.6 (2.1) (2.0)

Interest Rates

Federal Funds (%) 6.52 6.47 5.59 4.33 3.47 2.33 2.25 2.25 5.35 4.97 6.24 3.93 2.25

10-year Treasury Bond (%) 5.89 5.57 5.04 5.28 5.00 4.65 4.88 5.20 5.58 5.87 5.94 4.99 5.50

Corporate Earnings

S&P 500 Earnings Pre-writesoffs ($/shares) 14.33 13.67 12.34 11.72 10.00 10.44 10.60 11.45 44.33 51.02 56.31 44.50 46.50

S&P 500 Earnings Pre-writesoffs (yr/yr) 11.0 (2.0) (9.5) (20.1) (30.2) (23.6) (14.1) (2.3) (1.6) 15.1 10.4 (21.0) 4.5

Source: Salomon Smith Barney Economic & Market Analysis

7

Dow Jones and S&P 500 Declines

1) 12/13/1961 06/26/1962 (27.11)% 134

2) 02/09/1966 10/07/1966 (25.21)% 167

3) 12/03/1968 05/26/1970 (35.93)% 367

4) 01/11/1973 12/06/1974 (45.07)% 481

5) 09/21/1976 02/28/1978 (26.87)% 363

6) 04/27/1981 08/12/1982 (24.13)% 333

7) 10/02/1987 10/19/1987 (34.16)% 12

8) 07/16/1990 10/11/1990 (21.16)% 62

9) 07/17/1998 08/31/1998 (19.26)% 32

10) 01/14/2000 09/21/2001 (29.75)% 422

Average (excluding current period) (28.77)% 217

Peak Trough%

Decline# of Trading

Days

Significant Dow Jones Industrial Average Declines Significant S&P 500 Industrial Average Declines

1) 12/13/1961 06/26/1962 (27.97)% 135

2) 02/09/1966 10/07/1966 (22.18)% 167

3) 11/29/1968 05/26/1970 (36.06)% 369

4) 01/11/1973 10/03/1974 (48.20)% 436

5) 09/21/1976 03/06/1978 (19.41)% 366

6) 11/28/1980 08/12/1982 (27.11)% 430

7) 08/25/1987 12/04/1987 (33.51)% 71

8) 07/16/1990 10/11/1990 (19.92)% 62

9) 07/17/1998 08/31/1998 (19.34)% 32

10) 03/24/2000 09/21/2001 (36.77)% 373

Average (excluding current period) (28.19)% 230

Peak Trough%

Decline# of Trading

Days

Source: Salomon Smith Barney

8

How have Israeli stocks held up?

AprMayJunJulAugSepOctNovDecJan2001

FebMarAprMayJunJulAugSepOct

Pric

e as a P

ercent of B

ase P

erio

d (%

)

DAILY DATA: MARCH 01, 2000 THROUGH OCTOBER 26, 2001

40

60

80

100

120

140

SSB Israel Index NASDAQ Composite Index

Source: Salomon Smith Barney sb434693.wmf

Don’t Worry, Be Prepared

Because……….

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What Initially Attracted Foreign Investors to Israel?

Israel’s natural resource is brainpower

Foundation for Israel’s intellectual capital is the country’s military & academic institutions and the wave of immigration in the 90s that brought it to Israel an influx of scientists and engineers

Israeli entrepreneurial spirit

Israeli companies are consistently on the leading edge of technological innovation

NONE OF THIS HAS CHANGED……..

Companies should focus on:

12

Upcoming Opportunities

The need for technology Is not going away

Productivity in global economy driven by adoption of new technologies

Although the weaker are disappearing, the leaders are also getting weaker

Inevitable consolidation will create gaps which will present opportunities

BE PREPARED!

Make sure you are ready when the market rebounds

Use the current downturn to add depth to your management team

13

Alternatives to Capital Market Fundraising Various kinds of foreign investment - increasing trend towards

Mergers & Acquisitions (corporate-to-corporate)

Cash-rich corporations are taking advantage of lower valuations

Industry Consolidation

– Israeli companies acquiring international companies in order to increase market share and distribution channels

– International companies acquiring Israeli technology as a source of revenue-generating solutions

Examples of Israeli M&A activity in Israel in 2001:

Marvell’s acquisition of Galileo Technology

BreezeCom / Floware - Merger-of-Equals

Amdocs announces acquisition of Clarify

Hewlett Packard announces acquisition of Indigo NV