As we finally get to see some decent earnings coming out of Israeli companies that trade in the US, it seems that these companies have all read the same ” Prop up your stock” book. Can you say stock buyback? Companies like Commtouch (CTCH), Alvarion (ALVR), AudiCodes (AUDC) are among Israeli companies that posted good earnings, raised guidance and announced share buybacks.

I know that share buybacks are ‘tax efficient’ as well as they fatten EPS numbers, but how about doing something radical for investors?  Something like paying a dividend, or investing in growing the company. Doesn’t a stock buyback just mean that the company has nothing better to do with their money? Give some of your profits back to shareholders. Hey, there is an idea! For a great analysis of the pros and cons of buybacks, check out economist Stefan Karlsson’s blog.

All 3 aforementioned stocks have gotten nailed this year, so why not reward investors by paying a dividend. After all if we are only worried about being tax efficient, then just sell all your losing stock and take the tax loss. BTW nice article over at Bizzywomen.com, explaining tax losses.

After all I guess after the many Israeli companies that have provided lousy earnings results, we should just be happy that these companies beat estimates. That’s reward enough for investors.

Aaron Katsman, IsraelNewsletter.com

Disclosure: Author’s fund has a position in AUDC,ALVR. He has no position in any other stock mentioned as of 7/30/08.

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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Aaron Katsman
IsraelNewsletter.com

Federal Reserve chairman Ben Bernanke’s tough talk on the US Dollar helped support the greenback against the major global currencies, but it caused a minor rally against the Israeli shekel. As a reminder, the shekel has been one of the world’s strongest currencies over the last year, and its strength, while serving as a seal of approval on the state of the Israeli economy, has crushed exporters as well as many Israeli hi-tech’s that sell globally but keep their R&D local, due to the fact that their expense line has increased from the currency differential. (Continue »)

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On the back of the wireless spectrum auction results, I just wanted to share some ideas I had penned, oh about 2 months ago about how to make sense of the rapid changes going on in the wireless industry. More specifically, what I believe is happening is the evolution from Internet and wireless as 2 separate entities to a more unified, Wireless Internet. We’re still just in the putting-the-infrastructure-pieces-together stage.

I think it’s best to describe the trends briefly and then see who stands to benefits from such trends:

The opening of networks
As wireless networks begin to open up (this will take time before it really happens), the carriers should stand to benefit from the ability to monetize their networks via new revenues from non-subscribers. Much like the interconnect fees, the consumer will end up paying more in the short-run and all the open networks will win in 2 ways: you’ll have to open up to compete , monetizing cross network traffic

Apple (Nasdaq:AAPL) right now has made a commitment to only one network in the US. The device is so compelling that it may not matter but if the device ever loses some of its luster, Apple may need to think about making its device work on other networks.

Qualcom (Nasdaq: QCOM) loses. As networks open up, it will be hard for Qualcom to continue to collect its royalties on its closed-technology. Competitive pressures at both the device level and the network level will push Qualcom to find other revenue streams.

Google (Nasdaq: GOOG) wins. I never believed Google was bidding to win wireless spectrum. Instead of owning spectrum, Google has already won by pushing/lobbying the opening of competitive networks. Android and the Open Handset Alliance will allow Google to run the advertising OS of the mobile industry, just like it has become the Web’s Advertising OS.

Sprint seeking a strategy and what’s really happening in WiMAX
I see Sprint’s reworking of its WiMAX strategy as less a call on WiMAX and more specific to the Sprint situation. Sprint has internal issues it needs to shore up before it can think about any new audacious network rollouts. The fact that Ceragon (Nasdaq: CRNT) and Alvarion (Nasdaq: ALVR) are just continuing to knock the ball out of the park in terms of new WiMAX deals won (Alvarion has over 220 plus 40 in mobile WiMAX) shows that the for the rest of the world, WiMAX isn’t going to happen, it’s already started to happen. When WiMAX reaches critical mass, companies like Alvarion are in on the ground floor.

Retail sales move away from Big Box retailers as products unbundled
If the hardware ever is truly unbundled from network service contracts, then I think everything points to retail sales immediately taking to the Internet. Contracts and bundles are so complicated that you need local stores and the Big-Box operators to man sales forces to sell these. Once you can purchase a phone and a network contract separately, look to Amazon to become a major force in wireless sales.

I don’t think Retail sales go away entirely, but you’ll see a chink in the armor once direct sales become more feasible. Ebay and comparison shopping sites should begin to take over this field as they have in other fields where the products are more straight-forward and more commoditized.

Personalization
We’ve seen just the early innings of the personalization movement on the mobile device. Ringtones have become a $6 billion/yr business. The next stage here is video usage (less than 20% of US mobile subs use video on their handset). Private companies like Vringo and public companies like EA, which bought Jamdat (one of the early casual gaming firms focused on the mobile) should benefit. As more value-added services roll-out, companies like Comverse Technologies (OTC: CMVT.PK) (estimated to have almost 50% of world market share in voice mail services) and Amdocs (NYSE: DOX) will play a big role at the carrier level for running the content/technology/billing environments. If services don’t go the carrier route and instead work at the handset level, we’ll see tons of startups in this area.

I think iTunes will play a big role in delivering music to the phone and other products will follow suit, though not nearly as successfully.

Music firms, like Universal, who get it (albeit just a little) will begin to see opportunities for distribution online beyond just selling buckets of ringtones. Companies like Jupitermedia (Nasdaq: JUPM) are assembling large royalty-free libraries of music and this may begin to get interesting.

Hardware
I’m not that knowledgable on the equipment side but I do think Synaptics (Nasdaq: SYNA) will continue to see design wins as the device takes more center stage in the future as we get closer and closer to a true computing+mobile device. Input devices, as clearly demonstrated in the iPhone UI, are getting more creative and more useful.

Disclosure: Author’s fund has positions in ALVR, DOX, and CMVT as of 3/24/08.

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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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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