By Aaron Katsman
IsraelNewsletter.com

Allot Communications Ltd. (ALLT)  a provider of intelligent IP service optimization solutions for DSL, wireless and mobile broadband carriers, service providers, and enterprises, reported less than stellar Q4 numbers last week and the stock was punished. A year ago the stock was trading at around $10. Today it’s under $3.  The stock IPO’d at $12.

While some investors may look at their cash position and think this stock is a buy, watch out. Correct that they have a higher cash position than their market cap, but the number is misleading. As we have seen with other Israeli companies (See post on Optibase), their cash management style must be questioned. Is Allot a hi-tech company or an aspiring asset manager?

The following was in their earnings report:

“As of December 31, 2007, net of allowance for devaluation of $4.9 million, Allot’s cash and cash equivalents, including short and long-term deposits and investments in marketable securities, totaled $70.8 million.

As of December 31, 2007, the Company had $40.3 million of principal invested in Auction Rate Securities (ARS) ranked AAA and AA at the time of purchase, and there had been no change in their rating, except for one security with a par value of $0.9 million. All securities continue to pay interest in accordance with their stated terms. However, since these ARS have experienced multiple failed auctions due to a lack of liquidity in the market for these securities, based on initial third party indications, the Company has revalued its ARS portfolio. As a result, it has recorded an impairment charge of $3.7 million on the profit and loss statement with respect to ARS of $6.6 million in par value, the devaluation of which is considered “other than temporary.” For the balance of ARS holdings of $33.7 million in par value, the Company has recorded an unrealized loss of $1.2 million in other comprehensive income as a reduction of shareholders’ equity. Based on initial third party indications, the Company currently believes that this impairment is temporary. All of these ARS were classified as long term assets.”

More than $40 million of their cash position is not at all liquid. Isn’t the whole point of “cash” to be liquid? The cash is supposed to help fund business opportunities and to help grow the business. To put such a large percentage of cash into ARS, in order to squeeze out another percentage point or two in yield is flat out irresponsible. What ever happened to risk vs. reward? Great, had this worked out they would have made an extra million dollars on cash in the best case scenario. Big deal. Is the chance to earn an extra $1 million worth  the chance that they would lose sizable amounts of money or worse yet, have no access to the cash? I think not.

I am not signaling out Allot, they just happen to be the latest to get burned. Where is the corporate oversight? Why does this continue to happen without anyone taking responsibility?

As usual, the only losers are investors.

Disclosure: Author’s has no position in any stock mentioned as of 2/18/08.

Please see our Disclaimer HERE.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Using a similar framework to O’Reilly’s Web 2.0 definition, let’s first define what Mobile 2.0 is all about. Once we define what is is, we can discuss applications for social network over mobile.

Mobile 1.0 vs. Mobile 2.0
ringtones, ringbacks <—> Vringo (video caller ID)
reading <—> publishing/participating
pull <–> push
connected to PC enivonment <–> connected to my web environment
411 <–> Google411
GPS <–> Google Maps
p2p <–> p2community
Dodgeball <–> facebook, android
casual gaming <–> networked gaming

(Continue »)

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Not wanting to be remiss in giving an update on Israel Opportunity Investor portfolio member, Alvarion (Nasdaq: ALVR), we want to chime in with our two cents. We’ve been positive on the stock and have seen our thesis — that of further global uptake of fixed mobile services — came to fruition and even surpass what we were expecting. This is a critical lesson for investors: while stocks may perform financially as planned, how they trade is another matter.

We’ve seen the stock essentially pulverized by fear of weak global markets. Telecom spending typically gets pushed out during turbulent times.

That said, Alvarion’s not seeing that yet. In fact, while we continue to think the stock has a lot going for it, we are sensing a rising sense of negativity on the stock, driving it down off of what was ultimately a good reporting season and not too bad guidance in the headwinds of a weak dollar.

An article ran in SmallCapInvestor last week after Alvarion announced earnings and looked at how analysts were sizing up ALVR’s results. The way I read the results and how Susquehanna addressed them?

• Alvarion had a Q4 ahead of estimates and saw WiMAX revenues up over 50% from 2006.
• Higher operating expenses are certainly a negative for the company but the company attributed this to a weak US dollar.

What many investors and even analysts don’t appreciate is that the dollar has fallen like a rock versus the Israeli shekel. Israeli firms like Alvarion that trade in the US and are priced in dollars but conduct R&D/production in Israel are all feeling a squeeze. We’ve heard this from numerous Israeli CEOs. When the time comes that the dollar ultimately strengthens against the shekel, we’ll see a natural reversal in these numbers. My point here is that when numbers like this are clearly attributed to fluctuations in the dollar, earnings gains/misses are not organic changes in the business model.

This same analyst report that SmallCapInvestor disparaged actually comes out pretty positive on Alvarion. Susquehanna likes the Q4 surprise, likes the WiMAX opportunity, and Alvarion’s stable of international customers. Long term investors in Israeli stocks trading in the US will find it somewhat funny to think that a particularly strong shekel is weighing on earnings.

Disclosure: Author’s fund holds a position in ALVR and is long the stock as of 2/8/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

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This interview with an asset manager active in Israeli markets is part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the product and the opportunities we cover at www.israelnewsletter.com

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Can you tell us about your firm?
Marc Lesnick, Fortissimo Capital: Fortissimo Capital Fund is a special situations Israeli-related private equity fund focused primarily on maturing technology companies that are at a point of inflection. We provide transformational capital, taking an active role in assisting portfolio companies with improving fundamentals and facilitating growth. Our initial fund manages in excess of $100 million and is backed by the leading Israeli financial institutions (banks, insurance companies and pension funds). We plan to initiate fund raising for our second fund in the coming weeks. (Continue »)

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