Bloomberg News

Allot Declines to Lowest in More Than Three Weeks on Iran Report

December 26, 2011

Dec. 25 (Bloomberg) -- Allot Communications Ltd. fell to the lowest level this month after Bloomberg News reported that the company’s gear was sold to Iran and a lawmaker called for an investigation.

The shares slumped 2.9 percent to 60.87 shekels, the equivalent of $16.10, at the 4:30 p.m. close in Tel Aviv, the lowest since Nov. 29. Allot dropped 5.6 percent to $15.75 in the U.S. on Dec. 23, extending the weekly decline to 8.1 percent.

Hod Hasharon, Israel-based Allot’s equipment for monitoring Internet traffic was sold to Iran via a distributor in Denmark, Bloomberg News reported on Dec. 23. The Jewish state bans trade with Iran, which has called for its destruction. A member of Israel’s parliament called for an investigation, and the Ministry of Defense said it’s examining the report.

“Investors don’t like these kinds of international violations of rules,” said Jay Srivatsa, an analyst at Chardan Capital Markets in New York. “Given the tensions between Israel and Iran, anything like this is probably going to take a little bit of time to see what’s happening.”

The agreement with the distributor, RanTek A/S, said the company could only market its products in Denmark, Allot Chief Executive Officer Rami Hadar said in a Dec. 23 e-mail.

‘Investigating claims’

“We do not believe that any Allot employees were aware of RanTek selling outside of Denmark,” Hadar said. “But, if anyone was, we will take strong appropriate action.”

The company said in a statement that it complies “fully with Israeli and non-Israeli laws, including all applicable export laws and regulations” and is “investigating the claims contained in the Bloomberg article.”

Nachman Shai, a member of the opposition Kadima Party, said in an interview he will ask the Foreign Affairs and Defense Committee of Israel’s parliament to follow up on the report that Allot’s product was sold to Iran.

Three former sales employees for Allot told Bloomberg News it was well known inside the company that the equipment was headed to Iran. Allot officials said they have no knowledge of their equipment going there and are looking into RanTek’s sales.

“We do not authorize any sales to Iran,” said Jay Kalish,executive director of investor relations at Allot. If its products were shipped there by RanTek, it would be a “breach of contract.”

‘Greatest Threat’

Ira Hoffman, an attorney at Shulman Rogers Gandal Pordy & Ecker, P.A. in Potomac, Maryland, said the U.S. could prohibit American companies and individuals from doing business with Allot if it found the company was complicit in shipments to Iran.

“Israel considers Iran quite possibly its greatest threat, and so the Israeli government would come down very strong against any company that exported to Iran,” he said. “Iran is also considered by the U.S. as one of its most strategic threats.”

Daniel Cummins, an analyst at ThinkEquity LLC in New York, said he doesn’t think Allot will face penalties.

“The risk is that there’s going to be more government oversight for more types of networking products,” he said. “It’s not necessarily onerous, but less regulation is always better than more for a business.”

The gear shipped to Iran, called NetEnforcer, can inspect pieces of data moving over a network. It can be used to eliminate spam or help network operators prioritize or block certain types of traffic.

Best Performance

Allot’s technology “is not designed for intrusive surveillance purposes,” the company said in the statement on Dec. 23. “Our equipment lacks any capability to analyze or extract knowledge on the actual content of Internet traffic.”

The company’s U.S. shares have surged 35 percent this year, the best performance on the Bloomberg Israel-US 25 Index. Sanjit Singh, an analyst at Wedbush Securities, told clients in a research note that long-term investors should buy on the price dip.

“We do not envision a scenario where an Israeli-based company would sell network equipment to a nation that is regarded as a state enemy,” Singh wrote. “It is ultimately very difficult to prevent a distributor to funnel sales to hostile nations if it is so inclined.”

--Editors: Susan Lerner, Daliah Merzaban

To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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