Elron Electronic Industries Holds Water

Mar. 9.07 | About: Elron Electronic (ELRN)

Elron Electronic Industries Ltd. (Nasdaq: ELRN) is one of the few companies exploiting local water technologies as a global water crisis looms.

In the midst of all the commotion surrounding the "collapse" of the markets in the last two weeks, a commotion whose connection between it and economics is entirely coincidental, and which doesn't actually exist, several good things have happened. One was that several opinion makers among the younger generation, who have been making insane commando raids into the capital market and then out again, took a real pummeling and got burned. The second good thing that happened was that for several stocks, the fall made them once more companies with economic values. Another good thing that could come out of this pandemonium is that less trust will be placed in latter-day experts who wax lyrical to investors on matters that they understand nothing about, but I wouldn't bank on that happening.

The world is now awakening to the realization that the acute shortage of water for drinking and agricultural purposes is fast turning into a catastrophe. "If no drastic action is taken," writes leading climate change expert Justin Mundy of the UK, "the Chinese will face an incredible water-stressed economy," adding that Shanghai would be particularly vulnerable unless drastic action is taken quickly. Water will become a much more acute problem than energy in the near future, not just because of the shortage but also rapidly spreading pollution.

Israel, for anyone who doesn't know, has the largest concentration of technologies for treating water for various uses than anywhere else worldwide. But as in previous instances, this tremendous potential is slipping out of Israel's grasp and finding its way overseas to places where they recognize the importance of financing water technologies.

Elron Electronic Industries Ltd. is the only Israeli company that offers the public an opportunity to invest in water, and apparently the management of this veteran investment company really does believe in these technologies. I have already written about one of Elron's portfolio companies, Beit Shemesh-based Atlantium Ltd., which it has invested in together with Morris Khan's investment company, Aurum Ventures MKI. Yesterday it was announced that Mekorot National Water Company has signed an agreement with Atlantium. Under the agreement, which was reached under Mekorot's WaTech program for supporting water technology solutions, the two companies will jointly test Atlantium's technology for sterilizing membranes at brackish water desalination facilities.

It has also been reported that Elron will acquire 30% of another water treatment technology company AqWise Ltd. from Polar Investments Ltd.. The sale by Polar leaves Israel Chemicals as the key shareholder in AqWise alongside Elron and the entrepreneur group. AqWise, which specializes in biological methods for waste water treatment, won a significant contract at the beginning of the year in Spain, where they have a far more serious attitude towards water and alternative energy technologies than they do over here, and in Mexico.

Another significant announcement by Elron concerned another of its portfolio companies, ChipX Inc. in which it holds a 29% stake. ChipX acquired the U.S. ASIC business assets of Oki Semiconductor Company, a division of Oki America Inc. ASIC is a designated printed circuit, as opposed to all-purpose printed circuits, and it is used for chips designed for operating cellular devices and advanced cameras. It is widely used the world over in the security, defense and medical industries, and in many other areas, and the demand for these chips will only increase with the progress in technology.

The U.S. acquisition will open an entire world for ChipX, but what's more, the agreement will give it access to Oki's laboratories and library.

Founded in 1989, ChipX, which is actually a U.S. company, is headed by president and CEO Amnon Fisher, who joined the company in 2003 from semiconductor company Genesis Microchip Inc. (Nasdaq: GNSS), and has extensive experience and know-how in engineering and computers. Incidentally, bringing back senior Israelis from overseas is another tremendous contribution by Elron, which does this at every possible opportunity. Elron president and CEO Doron Birger serves as chairman of ChipX, and the other investors include leading venture capital funds such as Californian-based VantagePoint Venture Partners, which manages assets worth $4 billion, New York-based Wasserstein & Co LP, the fund run by Bruce Wasserstein which has $1.5 billion in assets under management; Taiwanese semiconductor foundry UMC, Needham Capital Partners, Parker Price Venture Capital, and Newlight Associates - a most impressive and experienced group.

I have said repeatedly that Elron is the most interesting ETF that Israel can offer an investor today, and the fact that the stock is currently trading at 10% below its annual high will merely enable investors to get in cheaper.

ELRN 1-yr chart

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.