The Israeli-Palestinian conflict is getting worse. As of October 14, 2023, the Palestinian health Ministry said that the current round of Israeli-Palestinian conflict has killed 1,949 Palestinians and injured more than 8,600. Israeli sources put the death toll at more than 1,300 and the number of wounded at least 3,484.
The impact of the conflict has spread to the chip supply chain, and it is reported that production and logistics operations in Israel’s electronics supply chain have also been affected.
Israel, the “tiny country” located in the Middle East desert, is actually a “chip kingdom.” In the local, there are nearly 200 chip companies, and the world’s giant chip companies are carrying out research and development activities in Israel, and there are several fabs in Israel.
What makes Israel the “chip kingdom”?
01. Israel is not a “blessing” for semiconductors
Israel, two-thirds of which is desert, has a population of less than 10 million.
Such a small country with poor conditions has nearly 200 chip companies, bringing together the research and development centers of giants such as Apple, Samsung, Qualcomm, and relying on high-tech industries to become the only developed country in the Middle East.
How did Israel do it, and what happened to its semiconductor industry?
More than 3,000 years ago, the prophet Moses led the Jews out of Egypt to Canaan, between the Nile and the Euphrates, which they believed was God’s “Promised Land” of milk and honey.
After being conquered by the Roman Empire, the Jewish people began to wander for more than 2,000 years. It was not until 1948 that the state of Israel was established, a mostly Jewish state was finally established, and the Jews returned to their “Promised Land.”
But Israel had no milk and honey.
It is the only country in the Middle East without oil and gas, with an area of only 25,700 square kilometers, poor land, lack of water, geopolitical instability, and the conflict between the surrounding Arab countries has not been settled, it can be said that Israel’s innate conditions have no advantages.
However, Israel is the only developed country in the Middle East, with a per capita GDP of $54,710 in 2022, ranking 14th in the world.
Careful analysis of Israel’s industrial structure, in 2022, the tertiary industry accounted for 70% of the total GDP, of which high-tech service industry is significantly higher than the traditional service industry. With high-tech exports accounting for 54% of Israel’s total exports in 2021, it can be said that the high-tech industry is the backbone of the Israeli economy. The semiconductor industry, which accounts for 16 percent of high-tech exports, is a bright spot.
The history of Israel’s semiconductor is not early, but it has developed rapidly, and has become the world’s leading semiconductor region in a short period of time.
In 1964, an American telecommunications equipment manufacturer set up the first semiconductor research and development center in Israel, marking the beginning of the semiconductor industry in Israel.
In 1974, the world’s second largest semiconductor company, headquartered in Santa Clara, California, was persuaded by its Israeli employees to open its first R&D center outside the United States in Haifa, Israel. Since then, Israel’s semiconductor industry has taken off.
Decades later, today’s Israeli semiconductors have become a force to be reckoned with. In a population of less than 10 million, there are more than 30,000 chip engineers and nearly 200 chip companies, which directly or indirectly drive employment.
02. Israel is a start-up kingdom of semiconductors, but there are no giant chip companies from Israel
Israel is a small land area, desert, poor resources, is not a resource country, can not produce semiconductor materials. Subject to geographical conditions, Israel’s semiconductor industry has unique characteristics: first, chip design; Second, most of them are small and medium-sized enterprises, without local giants; The third is to find ways between China and the United States and focus on business.
The reason for the chip design is very easy to understand, can not make bricks without straw! The land of Israel has no resources, and it can only rely on the bright minds of the Israelis to take the high-end design route.
Chip design is the soul of Israel’s semiconductor industry. According to statistics, Israel has about 8% of the world’s chip design talent and research and development companies. In addition, in 2021, a total of 37 multinational companies in Israel are operating in the semiconductor industry.
Israeli manufacturing plants are few, but not absent. Israel currently has five wafer foundries. In semiconductor equipment, there are multinational companies as well as local companies.
Therefore, the current composition of the Israeli chip industry chain is mainly composed of fabless chip design companies, research and development centers of multinational companies, semiconductor equipment companies and a few wafer factories.
However, so many chip giants are in Israel layout, why Israel has not born such a giant?
Much of this has to do with the way Israeli businesses are used to operating.
Israel is a super-entrepreneurial country. With more than 7,000 innovative technology companies, Israel has the highest concentration of startups in the world, equivalent to 1 entrepreneur for every 1,400 people, and the per capita start-up ratio is basically unrivaled.
In the semiconductor industry, in 2020, Israel ranked second in the world in terms of the number of semiconductor startups, after the United States.
Because they like innovation and “new adventures” too much, the semiconductor elites in Israel have set up their own semiconductor companies, looking at so many local chip giants, not to become or surpass, but to acquire!
Therefore, the path of most Israeli semiconductor companies is like this: set up a startup – breakthrough in a field – acquired by a giant – start the next round of entrepreneurship.
For this reason, most of Israel’s hundreds of start-up semiconductor companies are focused on polishing technology rather than business and operations.
Also, take a closer look at the semiconductor market in Israel. Memory accounts for the largest share of the Israeli semiconductor market, followed by power management ics, logic chips, On Screen Display, and analog chips.
The largest market for semiconductors in Israel is data processing, followed by communications, industrial, consumer electronics and autonomous driving.
After finding its own way, Israel semiconductor has grown steadily every year, and it is expected that the Israeli semiconductor market revenue can reach $1.14 billion in 2023. It is worth mentioning that China is the largest consumer market for Israeli semiconductors.
In 2018, when the Sino-US game broke out, Israel’s semiconductor exports to China directly increased by 80%, and semiconductors suddenly became an important part of the economic relationship between China and Israel, and the latest data show that China is still the largest exporter of Israeli chips in 2021.
03. Israel has sufficient talent and capital to support Israel Semiconductor
Israel’s “innate conditions” are so poor, why can Israel develop into a chip kingdom?
The short answer is: rich and well-connected.
No matter what line of work. Capital is always an important factor in the development of enterprises, especially in the semiconductor industry.
Semiconductor is an industry that needs to continue to burn money, and throwing a lot of money does not necessarily have results, is a high-return and high-risk industry. Start-up semiconductor companies want to survive, it is not easy, a mistake may be wasted, the fault tolerance rate is very low.
At this point, the role of venture capital is very important. Venture capital refers to the investment of investors with financial strength to fund entrepreneurs with specialized technology and good market development prospects, but lack of start-up capital, and bear the risk of investment failure in the start-up stage.
The cradle of global science and technology – Silicon Valley, the key to its success is the mature venture capital ecosystem, which greatly improves the fault tolerance rate of startup companies, and provides shelter for startup companies.
And Tel Aviv, the capital of Israel, as a venture capital gathering place, has a high degree of activity in technology deal flow (project flow of innovation ecology), second only to Silicon Valley. According to the report, 11 percent of global VC investment in Industry 4.0 went to Israeli companies. In 2021, the amount of venture capital invested in Israel reached $10.8 billion, 28 times that of the United States, and the amount of venture capital invested in Israel in 2022, despite a decline, reached $8.1 billion.
In addition to the influx of capital, the Israeli government has also provided protection laws as well as funding for startups.
Back in 1984, Israel passed the Encouragement of Industrial Research and Development Law, or “R&D Law.”
Under this law, OCS-approved R&D projects that meet certain criteria and are approved by the Office of the Chief Scientist are eligible for funding of up to 50 percent of approved expenditures. In exchange, the recipient is required to pay OCS royalties. The recipient must submit periodic reports on royalties payable to the OCS, which has the right to inspect the recipient’s books.
In terms of taxation, Israel also gives preferential policies to high-tech enterprises. In 1985, Israel’s corporate tax rate was 61 percent; by 2022, it had fallen to 23 percent. Israel also has a special Angles Law that provides tax incentives to private investors in young companies, especially those with research and development capabilities.
Israel has laws to encourage R&D and innovation, and to monitor where funds are spent and the results of projects. Give money generously, money can also be spent on the edge of the knife, do twice the result.
“Generous” government subsidies and a large venture capital industry make Israeli semiconductor companies “financially viable.”
In addition to the money, someone has to do it.
More than 70 percent of Israel’s population is Jewish. When it comes to Jews, the “stereotype” of their superior intelligence immediately arises.
It’s hard to say whether Jews are really genetically preeminent, but it’s true that they have a lot of highly educated people.
According to data, Israel’s scientific researchers account for 6% of the country’s population, 135 scientists and engineers per 10,000 people, more than the United States of 85 people, the proportion of the world’s first. 77% of Israelis have more than 12 years of education, 20% of the population has a university degree, and there are nearly 200,000 college students in the country.
In addition to valuing the many native talents that education produces, Israel also receives a large number of highly educated immigrants.
Jews have their own unique “dream of restoration”, so after the establishment of Israel promulgated the “Law of Return”, that is, any Jew in the world once immigrated to Israel, can obtain Israeli citizenship.
Jewish immigrants from developed countries and the former Soviet Union brought a lot of science and technology to Israel, which played a large role in Israeli innovation. These immigrants generally have a high degree of education, there are many excellent engineers, these talents have played an indispensable role in the development of Israel’s high-tech industry.
04. Summary
The ancient region of Canaan, the fabled “Promised Land,” and the real Israel, had almost “nothing.”
In the Middle East, which is all over the desert, Israel, with innovation, capital and other strategies, has made up for its natural disadvantages and congenital shortcomings, and has become the focus of the world semiconductor industry in a short time. It is clear that the semiconductor “myth” of Israel is not the promise of God, but thousands of Moses and his descendants.
Post time: Oct-24-2023