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The Israel High Tech Industry

Elisha YanaySr. VP Motorola IncGM Motorola Israel

former Chairman Israel Association of Electronics and Software Industries (IAESI)

NOV 26 2008

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ISRAEL• Population: 7.3 M • Households: 1.8 M • Urban Population: 91.5% • Area - grand total 22,145 sq. km • GDP(ppp): US $ ~$195,308m • GDP Per Capita: US $ K$31,767

• Unemployment 6.8% • Fixed line Telephone Subs – 2.9M • Mobile – 7.7M (106% penetration) • Internet Users: 2.5M (BB): 1.5M)

4

5,48

02,

320

6,70

02,

280

8,05

02,

330

9,13

02,

400

13,0

002,

500

12,2

502,

500

10,7

402,

300

10,8

702,

300

13,4

002,

400

14,2

002,

500

16,0

002,

700

17,7

002,

900

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sales

Export

ISRAEL ELECTRONICS & SOFTWARE INDUSTRIES SALES & EXPORT (M$)

$40Bn

5

Aerospace & Defence

IndustrialConsumer

CommunicationsComputer Hardware

Security Applications

Semiconductor Transport

Aftercare

Medical

6

ISRAEL ELECTRONICS & INFORMATION INDUSTRIES2007 - 20,700 M$ISRAEL ELECTRONICS & INFORMATION INDUSTRIES2007 - 20,700 M$

Civilian Comm. & Telecomm.

Components

IndustrialEquipment

22.9%

13.4%17.8%

13.4%

DefenseSystems

23.7%Software

8.8%

MedicalSystems

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Fiberoptic & Photonic Systems SDH, SONET Access – XDSL ATM, Frame Relay IP Networks – Voice, Video, Data, Multimedia Routers, Load balancing Test Equipment, Quality Monitoring of Networks 3G Applications Home Networks Storage Area Networks Wireless Local Loop, Microwave VPN, Firewalls WiMAX Video-Compression, Video-Conferencing & Video Networks

TELECOMMUNICATIONS EQUIPMENTTELECOMMUNICATIONS EQUIPMENT

23%

CHECKPOINTSCOPUS

OPTIBASEZORANTELRAD

ECITADIRAN

RADGILAT

MOTOROLAALVARION

etc..

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Missiles and Guided Weapons Anti Aircraft and Anti-Missiles Systems Radars - Airborne, Naval, Ground EW Equipment Fire Control Systems Command, Control, Communications and Intelligence Systems Avionic Equipment Platforms (Aircraft, Tanks…) Retrofit and Upgrading Navigation and Positioning Equipment Tactical Airborne, Naval and Ground Communications Sights and Night Vision Simulation and Training Equipment

MAJOR MILITARY SYSTEMSMAJOR MILITARY SYSTEMS

13.7%

ELBITIAI

ELTAELISRAMAGAL

NICETADIRANRAFAEL

AERONAUTICSBVR

etc,…

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Computerized Production Equipment

Computerized Control Systems

Test Equipment

Training and Education Systems

Consumer Products

Security Equipment

MAJOR INDUSTRIAL EQUIPMENTMAJOR INDUSTRIAL EQUIPMENT

13..4%

Kodak-CREODegem

MER GroupLIPMAN-Verisign

M-SystemsNDS

ORBOTECHRAPAK

VISONICCROW

KP electronicsMotorola

Magaletc…

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Imaging and Diagnostic Equipment

Surgical and Treatment Equipment

Monitoring Systems

MAJOR MEDICAL EQUIPMENTMAJOR MEDICAL EQUIPMENT

8,8%

ELRONGiven Imaging

LumenisPhilips

CADENTBioViewAlgotec

GERimedOridionetc…

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SEMICONDUCTORS Design Centers Manufacturing Facilities PASSIVE COMPONENTS Resistors & Networks Capacitors Transformers Batteries P.C. Boards ACTIVE COMPONENTS Tubes Power Supplies Oscillators Detectors Microelectronic Components Microwave Components

ELECTRONIC COMPONENTSELECTRONIC COMPONENTS

13,4 %

EltekNDS

VishayIntel

FreescaleTexas Instrument

ZoranDSP group

Analog Devicesetc..

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INTERNET

MULTIMEDIA

SOFTWARE – PRODUCTS

SOFTWARE – TURNKEY PROJECTS

SOFTWARE - SUBCONTRACTING

SOFTWARESOFTWARE

23.7%

AudioCodesBVR

CyOpticsECI

CheckpointIBM

FormulaRadware

ComverseAmdocs

etc..

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ISRAEL ELECTRONICS & INFORMATION INDUSTRIES 2006 - 18,700 M$ISRAEL ELECTRONICS & INFORMATION INDUSTRIES 2006 - 18,700 M$

36% 39%

5% 20%

ROW

ASIA

USAEUROPE

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$11B

2003

2003

$2,7T

$8,6T

2017

2017

We have the human resources necessary

$40B

2003 2017

X2

X2 ??

The new challenge to 2010

The Challenge

2007

$21B

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Academic Year

Number of 1st Year Students

Number of Graduates

Retraining Total % of Universities

1st Year Students

% of Colleges 1st

Year Students

Until 1994

1,200 1,000 100% 0%

1998 4,860 2,280 3,905 6,185 73% 27%

1999 5,800 2,500 4,870 7,370 62% 38%

2000 6,653 4,040 5,238 9,278 54% 46%

2001 8,030 4,300 3,970 8,270 45% 55%

2002 8,000 5,000 3,475 8,475

2006++ 8,000++ ~8,00021,458

46% 54%

HIGHER EDUCATION IN ISRAELELECTRICAL & COMPUTER ENGINEERING & COMPUTER

SCIENCES

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Engineers graduates per year in 2006

•Israel 8000 engineers /year (pop 7.2M) 0.11%•France 30 000 engineers/year, (pop 64M) 0.046%•UK 25 000 engineers/year (pop 60M) 0.04%•USA 74 000 engineers/ year (pop 300M) 0.024%•China 600 000 engineers/year (pop 1.3Bn) 0.0046%•India 400 000 engineers/year (pop 1.1Bn) 0.036%•Japan 90 000 engineers/year (pop 127M) 0.07%

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Foreign Investments in Israel

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Foreign Investment in Israel 2006/7

4,000$M

800$M

300$M

150$M

150$M

140$M

90$M

4,500$M

1,500$M

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Foreign Investment in Israel 2006/7

90$M

76$M

Med Impuls50$M

40$M

12$M

20

245$M

54$M

100$M

75$M

Foreign Investment in Israel 2006/7

50$M

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Largest Recent M&A Transactions Of Israeli Companies

Israel continues to attract leading US corporations, looking for established small/mid-cap companies with superior technology and a niche market.

(1) Transaction size and multiples include target company cash and debt when avaialble.(2) Adjusted Revenue multiples based on TTM value.Sources include Jefferies Broadview estimates, IVC Resource Center, Capital IQ and selected press releases.

Adjusted AdjustedDate Transaction Revenue

Announced Target Name Buyer Business Description Size ($m)(1) Multiple(1,2)

7/25/2006 Mercury Interactive HP Business technology optimization solutions $4,500.0 5.7x5/5/2006 Iscar Berkshire Hathaway Precision carbide metal working tool provider 2,500.0 2.8x

7/31/2006 M-Systems SanDisk Corp. Data storage products 1,550.0 1.9x3/17/2005 Agis Industries Perrigo Generic pharmaceutical product provider 818.0 2.2x

4/10/2006 Lipman Electronic Engineering VeriFone Holdings Online payment solutions 660.5

2.8x7/18/2006 Cramer Systems Group Amdocs Operational support systems software 375.0 3.8x4/4/2006 Passave PMC Sierra System-on-a-chip solutions 300.0 N.A.

4/18/2006 Qpass Amdocs Digital commerce software 275.0 6.5x12/21/2006 Disc-O-Tech Medical Technologies Kyphon Developer, manufacturer and marketer of implatable devices 240.0 N.A.8/11/2005 Scitex Vision HP Wide-format printer manufacturers 230.0 1.6x1/13/2005 Verisity Cadence Provides software used to verify electronic system designs 229.0 4.4x

1/4/2005 Tecnomatix Technologies UGS Manufacturer of process management software 212.8 1.9x4/28/2006 Tekelec (IEX Corp) NICE Systems Workforce and performance management software 200.0 N.A.10/24/2006 PowerDSine Microsemi Integrated circuit provider for ethernet power implentation 182.8 5.4x4/10/2006 NetCentrex Comverse Technology Inc Voice and video telecommunication solutions 167.0 3.3x11/8/2006 Topio Network Appliance Software developer for enterprise application 160.0 53.3x7/11/2006 ColBar LifeScience Johnson & Johnson Biosurgical products 159.0 N.A.5/9/2006 Kashya EMC Enterprise data protection solutions 153.0 N.A.

3/27/2006 Identify Software BMC Software Problem resolution application software 150.0 6.0x3/17/2006 Sightline Technologies Stryker Corp. Endoscopic solutions 150.0 N.A.2/9/2005 Modem Art Agere Systems Developer of system-on-a-chip solutions 145.1 N.A.

12/5/2005 Cyota RSA Online security provider 145.0 12.6x11/28/2006 FolloWap Neustar Communications software for network operators 139.0 5.6x9/26/2006 Gteko Technologies Microsoft IT and enterprise software 110.0 6.1x7/26/2005 Sheer Networks Cisco Systems Intelligent network and services provider 109.5 N.A.1/9/2006 Systinet Mercury Interactive Corp. Application software 105.0 N.A.

7/12/2006 Uri-Dent Denstsply International Dental crowns providers 100.0 N.A.2/25/2005 Oplus Technologies Intel A fabless semiconductor company 100.0 N.A.

2/12/2007 Witness Systems Verint Systems Workforce optimization software provider 781.8 3.8x

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Total $15Bn

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Major Multinational Companies with a Design Center in Israel

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Some of Israel’s Visible Companies

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FOREIGN ELECTRONIC SUBSIDIARIES IN ISRAEL (PARTIAL LIST)

FOREIGN ELECTRONIC SUBSIDIARIES IN ISRAEL (PARTIAL LIST)

Intel * Microsoft IBM Sun Microsystems Cisco 3 Com HP* Texas Instruments* National S.C ST Microelectronics Infineon Analog Devices Vishay* AVX (Kyocera) General Electric Philips MedicalFlextronics*

Motorola* Lucent Technologies Avaya Nortel* Siemens Alcatel Philips Ericsson Nokia ADC Qualcomm Applied Materials KLA - Tencor Kulicke & Soffa* BAE Systems Ind. AstronauticsSanmina-SCI*

Berkshire Alcatel Lucent Verifone*Kodak* Nortel SanDisk EMC Stryker TA associates Google Xerox Sun CA Microsemi AMS PricerEPIXEtc…

* Design & MFG

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Asked how come he chose Israel as his first investment outside America, Buffett's response was:

"Some Americans came looking for oil, so they didn't stop in Israel.

We came looking for brains, so we did stop in Israel."

$4.1 billion !

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CRAIG BART: former Intel CEO ( visiting Israel )

• “Apart from the 6,000 jobs that we have provided here, in my opinion the contribution to Israel lies in the fact that Intel has attracted other companies to invest in Israel and to create an entrepreneurial environment. Globally speaking, Israel is in 3rd place in terms of IP and is a very good place for opening businesses. The level of education in Israel has helped us expand. Israel’s ability to supply very good scientists has helped us, and the government’s positive attitude has helped us attract investments.”

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Ed Zander, Motorola CEO, visit to Israel

• -----Original Message-----From: Zander Ed-AEZ111 Sent: Sunday, November 14, 2004 10:57 PMTo: Yanay Elisha-BCMS54; Nottenburg Richard-arn021Cc: Brown Greg-CGB025Subject: RE: Your visit to Israel

Elisha- I had a great time. You and your team did an outstanding job. I was continually impressed by their knowledge of the business, opportunities and issues and great work ethic. Motorola has a jewel in it it's Israeli operation thanks to you and your senior team. Hope to see you soon. Regards, ed

• ed@motorola.com 847-576-3000

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Bill Gates, Microsoft CEO, made his first trek to Israel

“Considering the density of Israeli start-ups and local successes, Israel is like a bit of Silicon Valley.

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"There are some fabulous, extraordinary success stories of technology

companies here in Israel.”• Ellison had specific advice for Israeli firms, saying that

the country’s technology sector has matured to the point that it needs to begin looking to cheaper sources of research services.

3040

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• Great talent driving Israel ’s success

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Israel Is The Leader Among Non US Countries Listed on NASDAQ

Number of Companies Listed on NASDAQ

71

59

10

9

8

8

7

6

5

3

2

2Germany

Taiwan

India

S. Korea

France

Singapore

Japan

Hong Kong

Netherlands

U.K.

Canada

Israel

0 10 20 30 40 50 60 70 80

Recent Israeli

NASDAQ IPOs

Source: NASDAQ as of September 2007.

Israel maintains the largest number of companies on NASDAQ

Among these countries, Israeli companies accounted for 40% of IPOs on NASDAQ in 2006.

Technology remains the dominant segment

18

33(2006)

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What do we need to continue our success?

• Excel in our education – aspire to being the best in the world

• Keep raising the bar in education• Teach innovation and creativity• Strengthen partnerships between academia and industry• Support sophisticated, small ( 20-50 $M) industries – if

you want to be large, gather together many small…• Government support should match or even exceed other

countries’ incentive plans• $ - Shekel challenge• Keep pushing!