A Fresh Look at Water

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IDE also has won major contracts in the past year in Cyprus, India, and Australia. That has helped drive strong growth: Revenues jumped 60% in 2007, to $116 million, and net profits doubled, to $21 million. The company won't comment on its growth prospects for 2008, but Israeli newspapers have been filled recently with IDE job ads in search of qualified engineers.

Expertise in Two Processes

According to Ryan Conners, a water sector analyst at Philadelphia investment bank Boenning & Scattergood, one of IDE's competitive advantages is that it has expertise in both major kinds of desalination technology—thermal and reverse osmosis—which together account for 90% of the market. "Most companies focus only on one or the other," Conners says.

In the thermal process, ocean water is boiled in large brine-heaters to produce vapor that condenses as fresh water. Reverse osmosis technology uses permeable membranes to capture and separate salt from seawater. It has gained popularity in recent years because of improved membrane technology and better energy efficiency that has brought down production costs.

Going Public?

IDE claims its patented thermal technology gives it a cost advantage over rivals. Proprietary technology is less of a factor in reverse osmosis since the dozen or so players in the sector all buy membranes from the same makers, which include companies such as Dow Chemical (DOW), Toray Industries, and Hydranautics. The real competition in reverse osmosis facilities comes from the knowhow in integrating and optimizing systems to reduce the price of desalination at any given site.

In anticipation of future growth, IDE has opened offices in the U.S., China, and India. And in November, its joint owners, Israel Chemicals (ICL.TA) and Delek Group (DELKG.TA), announced plans to take IDE public on the London Stock Exchange, though current conditions on financial markets have led to a postponement.

The delay in going public is likely a minor setback. In the age of global warming few would dispute that water scarcity is a problem that's here to stay. That should provide companies like IDE tremendous growth potential for years to come. As Felber sees it: "You can't stop drinking water, even in a recession."

Sandler is a correspondent for BusinessWeek in Jerusalem .