CryptoCell, which can be added to mobile devices at the chipset level, protects the processor of a mobile device by isolating it from other parts of the computer.Just when you thought you had protected your PC to the hilt, a new threat has emerged on the horizon – an attack on your mobile phone or PDA.

Though virus, hacker, and Trojan horse attacks on mobile devices have been rare and limited in scope up to now, hitting only an estimated 70 million devices, Guy Salomon, the CEO of Discretix, an Israeli specialist in embedded security technology for mobile devices, predicts that by the end of 2006 or the start of 2007, virus and hacker attacks on mobile devices will become as prevalent as they now are on the PC.

It is a gloomy prognosis. Currently about 100 million PCs are sold every year around the world, but last year alone, some 700 million mobile phones reached the market, and this year, the figure is likely to rise to $750m. “This is a huge market and a huge problem,” Salomon told ISRAEL21c. “The potential damage is enormous and could run into billions and billions of dollars.”

For telecom companies themselves, this also spells disaster. Computer viruses can be stopped by anti-virus software, or by formatting the hard disk. Cell phones, however, do not have the processing power required to run anti-virus software. Instead, cell phone users must take the infected phone to the operator’s service station where it will be fixed, or in some cases replaced. This threatens to be extremely time consuming for the operator in terms of both resources and expenses, and also means that until the problem is solved, the operator will not be making revenues from each telephone.

“This is a double penalty for the operator,” says Salomon. “Not only does he have to fix your phone, but he also does not even enjoy the usual income he receives for telephone services.”

Salomon believes that Netanya-based Discretix has the answer. The company has developed a security solution for mobile handsets called CryptoCell, which protects sensitive information against damage from malicious attack.

CryptoCell, which can be added to mobile devices at the chipset level, protects the processor of a mobile device by isolating it from other parts of the computer. This enables it to live in a separate environment, protected against external attack. The solution, which incorporates both hardware and software components, is transparent to the user.

Discretix also provides protected against content transmitted between phones through its product, CryptoFlash, a digital rights management (DRM) system. CryptoFlash encodes and decodes content being sent between phones in order to prevent it from being copied.

Discretix was established at the start of 2000 by three former employees from DSP Communications, which was acquired by Intel in November 1999. With the Internet bubble still in place, Discretix raised $8m. from local VCs in its first round of financing and started work with great enthusiasm. Six months later, the market crashed, and Discretix was left floundering, wondering where on earth its market had suddenly disappeared.

“It’s embarrassing to look back on our first business plan and see what we predicted then,” admits Salomon. “At that time everyone thought this was going to be the next big thing, and that within a matter of a year or two, 3G would be everywhere. Then suddenly we were in crisis. I believed in our market and in our technology and we had money in the bank, but many people felt it was hopeless and that the market was dead.”

The company struggled on for another year, surviving on its initial offering, and then in December 2001 signed an agreement with Ericsson to embed its technology into Ericsson’s chipset and create a security platform for Ericsson’s 3G mobile phones. The agreement was only worth about $500,000, but Salomon hoped that the deal with a top tier telecom manufacturer would prove a breakthrough for the start up.

When life did not get easier, the company began moving into the flash card market. Today about 60% of the company’s business comes from telecom, and 40% from flash.

The CEO of Ericsson brought Discretix to the attention of Accel Partners, a large US VC. At the end of 2003 Accel invested $9.5m. in Discretix with Israeli VC, Pitango Venture Capital. This proved to be the real turning point. In the wake of this, and as business began to pick up in the telecom field, Discretix has signed contracts with companies like Sony-Ericsson, Samsung, LG, NEC, Philips, Mitsubishi, and other giants. In the DRM field, Discretix has entered into a contract with SanDisk.

“We have more deals coming in now,” admits Salomon. “We are growing like crazy, and the company is in extremely good shape.”

Today Discretix is the largest embedded security company in the world, recognized as the market leader by research firms, IDC and Gartner. The company employs 52 staff in Israel, and a further 13 around the world. It has been profitable for the last three quarters, and this year expects to make an estimated $10m. in sales.

“I was the only one that believed the market was there for us,” says Salomon. “We were very stubborn and persisted when many other companies in the same field gave up or went under.”

The upturn in the telecom market has brought increasing interest in this space. Over the last 18 months, the competition has been growing, and Discretix’s rivals today are not small, emerging companies, but often large publicly traded organizations that have been specializing up to now in the security field.

“People have recognized that this is a very sexy market. It’s the largest consumer market in the world,” Salomon explains.

The main rivals on the market today are Maryland company, SafeNet, a Nasdaq traded company that has been working for many years in the information security for customers like the FBI and the CIA. SafeNet, which merged with Rainbow Technologies in March last year to become world’s seventh largest information security company, moved into the mobile security field three and a half years ago, and now employs 300 people in the sector. It has annual revenues of about $200m.

Salomon insists that though Discretix is a smaller company with the additional disadvantage of coming from Israel, when its main markets are in the US and the Far East, its technology is unique, fast, and stable. To maintain this advantage, Discretix focuses heavily on R&D. and is already planning to introduce a third new product, offering security for personal devices.

Salomon is extremely ambitious. Over the next three years, he hopes to turn Discretix into a $100m. company, with profits of almost 80% of that figure. If all goes well, there is talk of a public offering in 2007, the year that Salomon predicts will see the mobile security market take off. “We are in a great and promising market and already have the largest chunk of the market share. If we are smart enough we can now use this market share and our knowledge to create something even bigger,” he says.