Startup Makes Home in Palestine

Life for any startup these days isn't easy. But Exalt Technologies Ltd. is fighting a particularly tough battle for survival.

The tiny 28-person optical startup is headquartered in one of the most widely publicized war zones in the world, the occupied territory of the West Bank. The company, which had been part of the optical division of Siemens AG (NYSE: SI; Frankfurt: SIE), spun out on its own 10 months ago. Since then, Exalt's been working in stealth mode to deliver a suite of metro optical transport products.

While its relationship with Siemens lends technological legitimacy, the company still faces many challenges as Israelis and Palestinians struggle to find peace.

Located in Ramallah, about nine miles north of Jerusalem, the company’s HQ is just a 15-minute car ride from where Palestinian President Yasser Arafat has been holed up for the past two years of Israeli occupation. Despite bombings and raids by Israeli troops throughout 2001 and 2002, Tareq Ma'ayah, founder and managing director of Exalt, says the city of hilltop homes, shops, and refugee camps is relatively safe today.

"If we had the political stability, I’d say that this is the best place in the world to live," Ma'ayah says. Though media coverage paints a dismal picture of Palestine, he maintains that it’s actually an ideal location for a technical startup: Real estate is cheap, and there's access to an almost unlimited supply of well-educated engineers from Birzeit University, located north of Ramallah.

"We would never be able to do what we are doing now in Germany or in the U.S. without raising a lot of capital. We’re going through a nice self-financed stage," he says.

Ma'ayah first began doing contract work for Siemens in 1997. Eventually, Siemens took an interest in Exalt, which developed a demarcation device used to monitor the quality of traffic traveling from one carrier network to another. Siemens later became the majority shareholder in Exalt.

But the bursting of the telecom bubble forced Siemens to make cuts to its optical division (see Siemens Restructures ICN). As a result, it divested its interest in Exalt, and Ma'ayah took over the investment himself. For the past ten months, Exalt has been operating on its own, mostly with money left over from its contract days with Siemens and cash invested in it by Ma'ayah.

While he wouldn't talk about specifics related to the products or the current funding, Ma'ayah says that the company is well positioned financially and should finish product development by the end of the year. It is already contracting with Flextronics Corp. (Nasdaq: FLEX) to outsource its manufacturing.

Like other businessmen in the region, Ma'ayah downplays the current political situation and its impact on his company, but he admits to some inconveniences. Checkpoints in and out of Ramallah and throughout the West Bank make traveling difficult and time-consuming. To alleviate this problem, the company has built a bunkroom upstairs from its office, where engineers can live days and weeks at a time.

There are other challenges that could threaten the company’s survival. Importing components and equipment used in development of products has proven difficult, as many of these items get stuck in customs awaiting security clearance.

The problem has been widespread among technology and telecom companies in Palestine, Ma'ayah says. The Palestinian Information Technology Association (PITA), an organization that represents over 60 technology companies in Palestine as well as Palestinian representatives of international companies (such as Siemens), filed complaints earlier this year alleging that Israeli customs has been withholding communications equipment and computers worth millions of dollars.

At least one analyst says these problems need not hamper Exalt's success in the long run, particularly if the company can form solid partnerships like the one it had with Siemens. "Technology is agnostic to political situations," Michael Howard, founder and principal analyst with Infonetics Research Inc.. "Even though it’s more challenging for them than other startups, if they have the intellectual property, they could still make headway with a Cisco, an Ericsson, or a Nortel."

— Marguerite Reardon, Senior Editor, Light Reading

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OpticOm 12/4/2012 | 11:34:10 PM
re: Startup Makes Home in Palestine How can R&D be done amongst tanks, suicide bombers and guns?
I suppose they are just burning some (stupid)VC money and that's it...
Belzebutt 12/4/2012 | 11:34:10 PM
re: Startup Makes Home in Palestine LR, I had no idea they did this kind of work in Palestine. Thanks for expanding our horizons.
mtd 12/4/2012 | 11:34:07 PM
re: Startup Makes Home in Palestine
By your remarks, you show how shallow your knowledge is!

Palestinians are well educated people, and they give a lot of importance to education just like Israelis. It is just unfortunate that can't live in peace with each other. I am sure, left to themselves, they would have achieved some kind of peace (without the Western interference).

BTW, I am not a Palestinian or an Israeli.
Jukke 12/4/2012 | 11:34:01 PM
re: Startup Makes Home in Palestine Before you answer you should read the article! No VC money, only own capital.

Very dummy your answer. We must be from western side of the Atlantic, right?

BobbyMax 12/4/2012 | 11:33:40 PM
re: Startup Makes Home in Palestine The following are needed for start-ups:
-- Enough Capital
-- Experience in technology management skills
-- Experience in people's management skills
-- Clarity on what needs to be done
and how it needs to be done
-- Excellent marketing skills
-- Is the product really needed?
-- First rate engineers with experience in
developing products
-- Ability to show increamental development
-- Anility to control and monitor quality

The reson I am stating these points is that in the US, none of the above points are cocerned and the people are seldom hired for their merits. It is because of this about 80% of the start-us fail
in the US.
chechaco 12/4/2012 | 11:33:38 PM
re: Startup Makes Home in Palestine What a figure of speach being used in regard to the Midle East problem "can't live as good neighbors"? This is huge lie. The reality is that one side is still denies right to exist to another. What you live would be if your next door neighbor does everything to drive you out of you home - shoots at you and your loved ones, throws grenades? And community leaders tell you to embrace him?
Scott Raynovich 12/4/2012 | 11:33:38 PM
re: Startup Makes Home in Palestine can we try to keep this thread on the topic of startups in the Middle East, please
chechaco 12/4/2012 | 11:33:38 PM
re: Startup Makes Home in Palestine Do you feel lucky today? Do you really wanna pick up this argument here on LR? Who for 55 years was denying right to exist? Who unleashed its armies in '48? And who forced UN to retreat in '68? On which TV stations you see only hatred against neighbor nation? Dare to give answer?
Marguerite Reardon 12/4/2012 | 11:33:37 PM
re: Startup Makes Home in Palestine You're absolutely right, any mention of the Middle East stirs up a firestorm of political debate. But the politics of the Middle East have been debated all over the mainstream press for a very long time. I think it would be more interesting to hear what people have to say about startups in this region. Do they stand a chance? Or will the political climate/violence crush them?
crackbaby 12/4/2012 | 11:33:37 PM
re: Startup Makes Home in Palestine Hey, you guys decided to write a story about the Middle East and were sure to sprinkle in several references to conflicts, political instability, Yassar the Terrorist and the Israeli's closing down trade. Plus, there is no Palestine in the Middle East that is recognized as a sovereign state.

Most of the posts here are, in fact, on topic given the above referenced issues that your colleague elected to include in the story.

Secondly, talking about the Middle East will always draw people in with strong personal opinions.
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