Israel, on what basis has it become the "kingdom of chips"?
The Palestinian-Israeli conflict has intensified. As of October 14, 2023, Palestinian health authorities said that the current round of the Palestinian-Israeli conflict has killed 1,949 Palestinians and injured more than 8,600. Israeli sources said that the death toll on the Israeli side exceeded 1,300, and the number of injured reached at least 3,484.
The impact of the conflict has spread to the chip supply chain, it is reported that Intel and Tower Semiconductor's wafer fabs in Israel have begun to partially shut down, and the production and logistics operations of the Israeli electronics supply chain have also been affected.
Israel, a "small projectile country" located in the desert of the Middle East, is actually a veritable "chip kingdom". Locally, there are nearly 200 chip companies, giants such as Broadcom, Qualcomm and Samsung have carried out research and development activities in Israel, and Intel and Tower Semiconductor also have several fabs in Israel. In the first half of this year, Intel announced that it would spend $25 billion to build a new factory.
Israel, on what basis has it become the "kingdom of chips"?
In order to help you better understand the Israeli semiconductor industry, we will share with you again the original article "Israel, the semiconductor myth in the desert" by Xinshi Xiang:
01 Israel, not a "blessed land" for semiconductors
Israel, as small as one-third of Chongqing, has two-thirds of the desert coverage and a population of less than 10 million.
Such a small country with harsh conditions, but with nearly 200 chip companies, gathering Apple, Samsung, Qualcomm and other giants R & D centers, relying on high-tech industries to become the only developed country in the Middle East.
How did Israel do it and what has its semiconductor industry gone through?
More than 3,000 years ago, the prophet Moses led the Jews out of Egypt to the Canaanite region between the Nile and the Euphrates, believing that it was God's "promised land" for the Jewish people, full of milk and honey.
After being conquered by the Roman Empire, the Jewish people began their wandering for more than 2,000 years. It was not until 1948, when the state of Israel was established, that a predominantly Jewish state was finally established, and the Jews returned to their "Promised Land."
However, Israel does not have 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 conflicts with surrounding Arab countries have never subsided.
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.
Carefully analyzing Israel's industrial structure, the tertiary industry will account for 70% of the total GDP in 2022, of which the high-tech service industry is significantly higher than the traditional service industry. Moreover, Israel's high-tech exports accounted for 54% of its total exports in 2021, and it can be said that the high-tech industry is the backbone of the Israeli economy. The semiconductor industry, which accounts for 16% of the export of high-tech products, is a pearl of attention.
Israel: economic activity and labour market indicators for services; Source: OECD
The history of Israeli semiconductors did not start early, but it developed rapidly, and in a short period of time, it became the world's leading semiconductor region.
In 1964, Motorola opened its first semiconductor R&D center in Israel, marking the beginning of the Israeli semiconductor industry.
In 1974, Intel persuaded 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.
In Israel, the world's first IBM personal computer based on the Microsoft operating system 8088 processor, Intel's first Pentium CPU, TI's Bluetooth chip and so on were born.
Decades later, today's Israeli semiconductors have become a force to be reckoned with. Among the population of less than 10 million, there are more than 30,000 chip engineers and nearly 200 chip companies. Apple, Broadcom, Qualcomm, Samsung, Huawei, Texas Instruments, LG, Hitachi, Marvell, KLA-Tencor and other giants are all conducting R&D activities in Israel.
Israeli semiconductor landscape in 2022; Source: Intel lgnite, Cardumen C., UCT | 2022
Intel, the first batch of settlers, is now the largest "owner" in Israel.
Currently, Intel has 4 R&D centers and 2 fabs in Israel:
Intel's R&D centers are located in four cities, Haifa, Yakum, Jerusalem, and Petatikva, employing more than 10,000 people. Since then, the first computer processors, Pentium, Celeron, Core, SNB, Ivy Bridge and other major CPUs have been completed in these R&D centers in Israel. The new fab is expected to begin operations in 2027, operate until at least 2035, and employ thousands of people.
Tower Semiconductor, which was almost acquired by Intel, owns Israel's second-largest wafer fab after Intel, with a 200mm production capacity and 150mm diameter wafers.
Under the huge layout, Intel has directly and indirectly employed more than 50,000 people in Israel, and nearly 6 out of an average of 1,000 people in Israel have a direct or indirect relationship with Intel.
In 2022, Intel's exports to Israel reached $8.7 billion, accounting for 1.75% of Israel's GDP and 5.5% of total high-tech exports. Some even commented: "Intel is Israel, Israel is Intel." ”
This astonishing hegemony seems familiar in East Asia. Intel is to Israel what TSMC is to Taiwan.
02 The start-up kingdom of semiconductors, there are no local giants
Israel is a small country, desert and resource-poor, and is not a resource-rich country that cannot 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, and there are no local giants; The third is to meet the source between China and the United States and concentrate on business.
The reason for the chip design is easy to understand, and it is difficult for a woman to cook without rice! The land of Israel has no resources, and can only rely on the smart minds of 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 talents and research and development companies. In addition, in 2021, a total of 37 multinational companies in Israel operated in the semiconductor industry, and large enterprises such as Apple, Broadcom, Qualcomm, Samsung, Huawei, Texas Instruments and other large enterprises carried out R&D activities in Israel.
There are fewer Israeli manufacturing plants, but not none. Israel currently has 5 wafer foundries, which are basically covered by Intel. In semiconductor equipment, there are also multinational companies including Applied Materials and Kulicke & Soffa, as well as local companies such as Orbotech, Sela and Jordan Valley.
Therefore, the current composition of Israel's chip industry chain is mainly fabless chip design companies, multinational R&D centers, semiconductor equipment companies and a few wafer fabs.
However, so many chip giants are deployed in Israel, why is there no such giant born in Israel?
This is mainly related to the operating model that Israeli businesses are accustomed to.
Israel is a country that loves entrepreneurship. Israel has more than 7,000 innovative technology companies, which is the highest concentration of startups in the world, equivalent to 1 entrepreneur in every 1,400 people, and the per capita entrepreneurial ratio is basically unmatched.
In the semiconductor industry, in 2020, Israel ranked second in the world in the number of semiconductor startups, after the United States.
Because they like innovation and "new adventures" too much, Israel's semiconductor elites, after establishing their own semiconductor companies, look at so many local chip giants, not thinking about becoming or surpassing, but: seeking acquisition!
Therefore, the path of most Israeli semiconductor companies is this: set up a start-up - make a breakthrough in a certain field - be acquired by a giant - and start the next round of entrepreneurship.
Some important acquisitions of the Israeli semiconductor industry; Source: Enagawa Research Institute
That's why most of Israel's hundreds of semiconductor startups are focused on polishing technology rather than business and operations.
Also, take a closer look at Israel's semiconductor market. Storage accounts for the largest share of the Israeli semiconductor market, followed by power management ICs, logic chips, OSDs (On Screen Display), and analog chips.
Source: Reogma
The largest market for Israeli semiconductors is data processing, followed by communications, industrial, consumer electronics and autonomous driving.
Source: Reogma
After Israel Semiconductor has found its way, it has grown steadily every year, and it is expected that the revenue of the Israeli semiconductor market can reach 1.14 billion US dollars in 2023. It is worth mentioning that China is the largest consumer market for Israeli semiconductors.
Speaking of which, Israel also knows how to do business, and in today's geopolitical instability, it chooses to "go left and right" between China and the United States.
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 shows that China is still the largest exporter of Israeli chips in 2021.
Doing chip business with China, what should the United States do if it has an opinion? Don't ask, ask is the "periphery" of the Wassenaar Agreement, even if it is not quite. Israel may be tempted on the edge of some regulations, but it is not against the United States.
If both sides are not guilty, this business will not be done.
03 Sufficient talents and funds to support Israeli semiconductors
Israel's "innate conditions" are so poor, why can Israel still develop into a chip kingdom?
To sum it up simply: there are rich and there are people.
No matter what the industry. 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 lead to results, and it is a high-return and high-risk industry. It is not easy for start-up semiconductor companies to survive, and one mistake may be lost, and the error tolerance rate is very low.
At this time, the role of venture capital is very important. Venture capital refers to the investment in which investors with financial strength sponsor entrepreneurs with specialized technology and good market development prospects, but lack start-up capital, and bear the risk of investment failure in the start-up stage.
The cradle of global technology, Silicon Valley, the key to its success lies in the mature venture capital ecosystem, which greatly improves the fault tolerance rate of startups, and provides shelter for startups.
Tel Aviv, the capital of Israel, is a venture capital gathering place, and the activity of technology deal flow (project flow of innovation and technology ecology) is extremely high, second only to Silicon Valley. According to reports, 11% of global VC investment in the entire Industry 4.0 sector went to Israeli companies. In 2021, Israeli venture capital reached $10.8 billion, 28 times that of the United States per capita, and reached $8.1 billion in 2022, although it declined.
In addition to the massive influx of capital, the Israeli government has also provided protection laws and funding for startups.
As early as 1984, Israel passed the Encouragement of Industrial Research and Development Law ("R&D Law").
Under this law, research and development projects that meet certain criteria and are approved by the Office of the Chief Scientist (OCS) Research Committee 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 to OCS regarding royalties payable, and OCS has the right to inspect the recipient's books.
In terms of taxation, Israel also gives preferential policies to high-tech enterprises. Israel's corporate tax rate was 61% in 1985 and has dropped to 23% by 2022. 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 specific laws to encourage R&D and innovation, and also monitors where funds go and the effectiveness of projects. Give money generously, and the money can still be spent on the blade, and the result is twice as effective with half the effort.
The government's "generous" subsidies and the large venture capital industry make Israeli semiconductor companies "not short of money".
In addition to having 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 emerges.
It is difficult to say whether the Jews are really genetically prominent, but it is true that many of their highly educated talents are a reality.
According to the mainland's Ministry of Commerce, Israeli scientific researchers account for 6% of the country's population, with 135 scientists and engineers per 10,000 people, more than 85 in the United States, ranking first in the world. Seventy-seven per cent of Israel's population has more than 12 years of education, 20 per cent of the population has a university degree, and there are nearly 200,000 university students in the country.
In addition to the emphasis on education, Israel also hosts a large number of highly educated immigrants.
The Jews have their own unique "dream of restoration", so after the establishment of the State of Israel, the Law of Return was promulgated, that is, any Jew in the world can obtain Israeli citizenship once he immigrated to Israel.
Jewish immigrants from developed countries and the former Soviet Union brought a lot of science and technology to Israel and played a big role in Israeli innovation. These immigrants generally have high education and many excellent engineers, and these talents have played an indispensable role in the development of Israel's high-tech industry.
04 Summary
The ancient Canaanite region, the legendary "Promised Land" and the reality of Israel, had almost "nothing."
In the middle of the Middle East, which is full of deserts, small Israel has made up for its natural disadvantages and innate shortcomings with its innovation, capital and other strategies, and has become a place in the attention of the world's semiconductor industry in a short period of time. Obviously, behind Israel's semiconductor "myth" is not God's promise, but thousands of Moses and his descendants.