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SPECIAL REPORT / ISRAEL at 50

Ancient Land Looks to a Cutting-Edge Future

Highly skilled workers with creative, entrepreneurial zeal help spark a technological revolution that is redefining the nation and its industry.

April 12, 1998|REBECCA TROUNSON | TIMES STAFF WRITER

TEL AVIV — Gil Shwed spent the summer of 1993 in a sweltering apartment in this coastal city hammering away at a computer for 10 hours a day. At the end of each fevered shift, partner Shlomo Kramer took Shwed's place at the keyboard and kept pounding.

Shwed and Kramer, both in their 20s at the time, had served together in the Israeli army, setting up and linking computer systems with different levels of security clearance, and they saw a golden opportunity in the growth of the Internet. They were out to create a prototype for a computer network security system better and faster than anything on the market.

Now, Check Point Software Technologies Ltd., the company they launched with a third partner that summer, commands about 40% of the global market for network firewall systems aimed at protecting corporate computer networks from intruders. Sales for Check Point, which has a Silicon Valley-based U.S. subsidiary, totaled $83 million in 1997, up 160% from the previous year.

Innovative, young and driven, Check Point's founders are at the forefront of a booming high-tech industry that Prime Minister Benjamin Netanyahu and other Israeli leaders hope will help propel the nation into an economic power.

The rise of high technology in Israel has been fueled, in large part, by the skills of army-trained computer engineers such as Shwed and Kramer, by technologies developed in the defense industry and converted to lucrative commercial products, and by an American-style entrepreneurial zeal.

It has also been boosted by the arrival in the last decade of thousands of highly educated immigrants from the former Soviet Union. Largely on the strength of that influx, Israel now boasts the world's highest percentage of engineers and scientists, with 135 for every 10,000 citizens, compared with 85 in the United States.

"High tech is our future," said Industry and Trade Minister Natan Sharansky, the former Soviet dissident who is a strong advocate of a free-market, technology-based Israeli economy. "We are doing everything we can to accelerate its growth."

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For now, the dream of becoming a regional and global power is hampered by the stalled Middle East peace process and a slowdown in overall economic growth. But as it celebrates its 50th anniversary, Israel is being swept up in a technological revolution that is redefining its industry and, to some extent, the state itself. This ancient land is suddenly cutting-edge.

Consider the evidence:

* Israel, a country slightly smaller than New Jersey, boasts more than 2,000 established high-technology companies, about 1,000 start-ups and 200 more projects under development in government-funded "incubators." Israel is second only to the U.S. in the number of technology start-ups.

* More than 100 Israeli companies, virtually all of them in the high-tech sector, are traded on the stock exchanges in New York. Only the U.S. and Canada have more.

* High tech accounted for nearly a third of all Israeli exports in 1997--$6.2 billion of $20.7 billion overall. Last year, for the first time, overseas sales of electronics surpassed the figure for polished diamonds, the largest of Israel's traditional exports. And software exports, while still relatively low, are rising quickly--from $198 million in 1994 to $500 million last year--and are particularly strong in network security, data communications and Internet products.

* Venture capital is flooding in, attracted by the growing reputation of companies here for innovations in telecommunications, software, electronics and biotechnology. In 1991, Israel had one venture capital firm, with $35 million to invest in young companies that have good ideas. Now, nearly 70 venture capital firms operate here, with a combined pot last year of $700 million.

"What we see today is a clear recognition, in Israel and worldwide, that high tech is our instrument for growth, and it's changing our image in the world," said Uzia Galil, 72, the chairman and CEO of Haifa-based Elron Electronic Industries Ltd. and a pioneer in the field.

Jacob Goldman, a former head of research and development at Xerox Corp. and now a Connecticut-based venture capitalist and consultant, agreed.

"Israel has one of the most vibrant high-tech communities in the world these days," said Goldman, who has studied Israeli high tech through frequent consulting trips and personal visits here. "It's a great deal like Silicon Valley 15 years ago. Israel, per capita, is producing an awfully large number of good technical people, and just about every major banking and venture capital concern has a branch there."

That was not the case in 1962, however, when Galil, the former chief of the Israeli navy's electronics division, launched his first company. Many people were skeptical of Galil's vision of turning advanced military technologies into commercial products.

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