Semiconductor Industry in Israel accounted for 16% of high-tech product exports in 2020

Israel is one of the advanced countries in the Global Semiconductor Industry. This sector had the highest total per-company exports of any Israeli high-tech sector. Israel offers a plethora of opportunities to SMEs and Start-ups in the Semiconductor Industry due to the increasing pile of Foreign Direct Investments into the segment of Semiconductors.

Definition / Scope
Market Overview
Market Risks
Market Drivers
Market Restraints
Industry Challenges
Technology Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

Israel is one of the world’s leading nations in technology innovation today, with one of the largest per capita venture capital investments. It’s a high-tech environment that annually draws billions of US dollars in funding.

In Israel, multinational companies such as Microsoft, IBM, Intel, Samsung, Cisco, Siemens, and SAP are investing in research centers and start-ups, with Tel Aviv ranked among the world’s top technology and innovation clusters.

In the semiconductor industry, Israel has long been regarded as a leading force. In many other markets, including microprocessors, data and voice communications, wireless, IP and networking communications, medical, consumer, automotive, defense and more, semi-conductors continue to drive growth.

Israel currently operates five semiconductor plants for manufacturing (fabs). Intel has three plants and two are maintained by Tower Semiconductor. About 150 fabless semiconductor firms, R&D facilities and design centers are also in Israel.

Several companies design and produce equipment for semi-conductor manufacturers. At the Technion-Israel Institute of Technology, the world’s first nano-wire (three times thinner than those used in microchips) was developed.

Israel is offering a plethora of opportunities for SMEs in the semiconductor segment mainly fueled by the burgeoning investments flowing into the segment.

Although the semiconductor renaissance is undoubtedly a global phenomenon, a special financing environment is enjoyed by Israeli startups and SMEs.

In terms of semiconductor domain investment in 2019, the country now ranks #3 in the world, behind only the US and China, with 42 percent of the US’s total semi-investment and 69 percent of China’s total investment. There are a few industries in which Israel spends about as much as the two superpowers of the world.

Market Overview

In the semiconductor market, Israel has long been regarded as a leading power. In many other markets, including microprocessors, data and voice communications, wireless, IP and networking communications, medical, consumer, automotive, defense and more, semi-conductors continue to drive growth.

Israel currently operates five semiconductor plants for manufacturing (fabs). Intel has three plants and two are maintained by Tower Semiconductor.

About 180 fabless semiconductor companies, R&D facilities and design centers are also in Israel. Several companies design and produce equipment for semi-conductor manufacturers. The world’s first nano wires (three times thinner than those used in microchips).

With the second or third highest concentration of design houses, the Israeli semiconductor industry is one of the world’s most advanced. This sector accounted for 16 percent of Israel’s high-tech product exports in 2020 and had the highest total per-company exports of any Israeli high-tech sector.

The semiconductor industry in Israel consists mainly of three types of firms.

Multinational design centers and fabs, fabless. Multinational companies such as Intel, Marvell, Freescale (Motorola), Texas Instruments and Broadcom, as well as existing local companies such as Mellanox, DSP Group, EZchip and Broadlight and, among others, start-ups such as Siverge, Siano, Altair, and Anobit include Fabless companies and design centers. Fabs are processing plants, only five of which are located in Israel. These fabs are owned by Intel, Micron and Tower Semiconductor, an independent plant based in Migdal Ha’emek.

Businesses that include manufacturing tools are related to fabs. International tool manufacturers in Israel include Applied Materials, Kulicke & Soffa, and local companies such as Orbotech, Sela and Jordan Valley.

Though global developments have led to less investments in fabless companies these days, the Israeli fabless industry is alive and kicking. Israel’s fabless industry was able to draw 18 percent of the overall VC cash invested in the Israeli high-tech industry last year. The semiconductor share rose by 48 percent in 2018 and is expected to hold a similar share in 2020.

Israel’s semiconductor industry generated revenues of $19.8 billion, according to figures published by market research in 2020, up from 2016 by 31 percent. Projected semiconductor market in 2025.

For the first time in history, sales are projected to cross $40 billion and hit record revenues of $41.6 billion. In many industries, including data and voice communications, wireless, IP and networking communications, medical, industrial, automotive, nanotechnology and security, semiconductors are expected to continue to drive growth and Israel has long been recognized as a leading force in the semiconductor industry, local fabless companies will benefit greatly from the global expansion of the industry and expected to expand into new and exciting horizons.

Market Risks

Some of the major risks posing as threat to the growth of the Semiconductor Industry in Israel are

Rapid Product Commoditization

Through the transition to digital technologies and the use of modular designs, rapid product commoditization has resulted in a decline in product life cycles, from 24 months to as low as 9 months. Companies must meet strict time-to-market criteria, have procedures that improve agility in making changes, and allow flexibility in configuring or localizing goods while meeting regulatory requirements unique to the country.

Fragmentation of Value-Chain

Globally, business value chains are fragmented, with core activities scattered in locations as varied as Silicon Valley (design), Taiwan (foundry), Bangalore (software), and Malaysia (assembly & testing). Globalization, powered by emerging economies such as China and India, has also initiated a shift in the consumer mix and created diverse product requirements. More complex processes, procedures, and organizational structures have resulted from this diversification and fragmentation.

Top Market Opportunities

The top opportunities for SMEs and Startups in the Semiconductor Industry in Israel are

AI and smart transportation

AI and smart transportation are virgin territory that the business giants have yet to conquer, leaving entrepreneurs in Israel and around the world with unusually lucrative prospects.

AI chips are the hottest area of the chip industry today. They are processors designed to perform the most advanced AI tasks, including image, sound and text recognition, translation and data extraction from large volumes of data. They are the key making the self-driving car a reality.

Next-Gen Datacenters

In this segment, there has been major consolidation. Hyperscalers are rising and generating large markets for hardware. But they don’t only grow as clients, they also grow as designers. Companies such as Amazon and Google set up world-class design teams of their own, leading them to compete with server OEMs and chip vendors.

Start-ups would need to have a longer-term outlook to compete and succeed in this market. They will need to achieve 10x+ changes only to gain market traction, which will lead to semi startups with higher risk profiles and needing more capital. Simply beating the existing market solutions would not cut it.

The Automotive sector

IHS Markit’s 2020 market research study found that the Semiconductor M&A sector’s Automotive Electronics segment will rise at the highest rate of ~9.8 percent in 2020, followed closely by industrial electronics (both at ~6 percent CAGR).

At the moment, the automotive industry is experiencing big changes: it is also seeking to combine modern digital capabilities with a need to power vehicles in response to climate change.

Automotive chips now account for about 8% of total semiconductor revenues, and current forecasts indicate that by 2020, they will see about 6% annual growth, higher than the 3 to 4% growth projected for the industry as a whole. That would put yearly revenues from automotive semiconductors in the $39 billion to $42 billion range.

Market Drivers

The Key factors driving the growth of the Semiconductor Industry in Israel are

Rising consumer electronics products use

Together with the rapidly growing population and increasing urbanization, rising household disposable income levels are generating massive demand for daily and advanced consumer electronics products.

In order to operate efficiently and correctly, IC (Integrated Circuit) chips are integrated into many electronic devices, including smartphones, washing machines, TVs, and refrigerators. Several big brands of consumer electronics, including Samsung, Apple, etc.

Huawei and Huawei are making major investments in the launch of new devices to meet the rising demand for advanced devices from customers, fostering the growth of the semiconductor industry in Israel.

2020

Market Value of Healthcare Devices Market in Israel	US$ 3 Billion
Growth Rate (%)	4.5%
As (%) of Healthcare Expenditure	5.8%
As (%) of world Market	0.3%
Supplied by Imports (%)	74.6%

The Penetration of Implantable Medical Devices in the Healthcare Sector

The total revenue of implantable medical devices in Israel was estimated to be $3 billion in 2020. This resonates with the fact that medical devices, have become important for healthcare delivery in the country.

The key takeaway was that in the future, the number of medical devices worldwide will increase. Medical devices are now integrated with semiconductor chips, one of the semiconductor market’s main driving forces.

Market Restraints

The Primary Factors hindering the growth of the Semiconductor Industry in Israel are

Consumer market dominance

Nearly 70% of semiconductor production is now accounted for by the consumer market segment, affecting any business in the high-tech value chain.

The category of customers is very competitive and highly price-sensitive. Success in this segment depends on being able to handle fickle customer preferences, trends in fashion, promotions, seasonality, and complementary services and content availability.

Increasing supply prices of raw materials

The advent of new players and the growth of already existing players means that raw material supply costs are rising and will have an effect on the bottom line and making it more difficult to compete without ensuring a long-term supply of raw materials.

In addition, a diversification of devices is coming that will make it more challenging for one player to compete in all related markets (from a logistical and organizational point of view).

Industry Challenges

The major challenges faced by the Players in the Semiconductor Industry in Israel are

Security concerns

With IoT being one of the semiconductor industry’s biggest growth drivers, security issues surrounding connected devices pose a major challenge to semiconductor firms.

These include systems for home automation, wearable devices, and products for industrial automation. Therefore, semiconductor devices, especially those used in medical electronics and industrial automation, will need to concentrate more on the production of secure chips.

Increasing product complexity

Products are becoming increasingly complex, combining apps, embedded systems, digital material, and advanced components and services to drive differentiation. To achieve this convergence, businesses must work with multiple ecosystem partners.

Technology Trends

Technology plays a key role in High-tech segments such as Semiconductor, some of the significant technology trends in the Semiconductor Industry in Israel are

Trend #1: Autonomous vehicles

The onset of level three autonomous vehicles on the road is one of the important potential developments in the semiconductor industry. For automotive semiconductors, the increasingly growing automotive market offers a huge opportunity to support battery efficiency in EVs, enhanced sensors, improved connectivity, and other technologies.

Some of the emerging SMEs involved in the manufacturing of semiconductors for autonomous vehicles in Israel include Arbe Robotics, Autotalks, Innoviz and Vayavision.

Trend #2: Internet of Things (IoT)

The semiconductor sector is driving the advancement of technologies such as the Internet of Things (IoT). In addition to multiplying the market for semiconductor chips, the IoT revolution has moved value capture to software and solutions.

The semiconductor industry needs to adjust device engineering, sales, marketing, and product creation methods and re-define monetization and go-to-market strategies to capitalize on this new market opportunity.

Such future trends can, marginally, enable semiconductor manufacturing companies to improve their profitability.

Some of the top Israeli SMEs involved in the manufacturing of semiconductors IoT include Wiliot, CoreTigo, Celeno, PLSense and Altair.

Regulatory Trends

The Key Regulations governing the Semiconductor Industry in Israel are

Trend #1: Taxation

The Israeli government has entitled international investors to a corporate income tax rate of 10%. Investors are also eligible for a two-year exemption if the company is founded in central Israel. Based on that tax. In the event that the business is based, a 10-year full tax exemption may be granted

Outside of Israel Central taxation laws make it possible to completely deduct R&D expenditure, including capital expenditure, in the year in which the expenditure is incurred. In addition, the organization is eligible for grants ranging between 20 percent and 50 percent of R&D expenditures through a qualified R&D plan.

The amount of local production and the contribution of R&D to Israeli research depend on the grants. Non-Israeli residents are eligible for full capital gain tax exemption for the sale of shares in an “intensive R&D company.”

Trend #2: Investment Programme

Some of the programme for investment by the Government of Israel into the semiconductor industry of Israel are as in the below table

Funding Programme	Funding Amount	Stage of SMEs and Startup (Funding)
Technological Incubators Programme (“Hamamot”)	US$ 500,000 for a period of 2 Years	Pre-Seed
Tnufa programme	US$ 60,000	Early Stage
Nofar	US$ 100,000 for 1 Year	Pre-Seed
Magnet	Up to 50% of a total of US$ 1.8 Million	Generic R&D
Magneton	Depends on Project	Generic R&D
Industrial R&D Fund	Overall budget of US$ 200 Million	Competitive R&D
ISERD	Depends on Project	International co-operation projects
Bi-National Funds and Agreements	Up to 50% of project costs	International co-operation projects
Matimop	Depends on Project	International co-operation projects

Other Key Market Trends

Impact of COVID-19 on the Semiconductor Industry in Israel

The exponential spread of COVID-19 worldwide has adversely affected the semiconductor industry by temporarily shutting down manufacturing facilities, leading to a major production slowdown.

With many supply chain participants moving their production facilities outside China, the outbreak could lead to disruption in the ecosystem, thereby reducing their over-reliance on China.

In the aftermath of the Covid-19 outbreak, lockdowns imposed by governments have not only impacted manufacturing but also decreased market demand for semiconductor products.

The Rush to Exit in Startups and SMEs

Some of the significant exits by VCs and Investors in the Semiconductor Industry in Israel are as in the below table

Acquired Company	Buyer	Year	Price
Habana Labs	Intel	2019	US$ 2 Billion
Mellanox	Nvidia	2018	US$ 6.9 Billion
Orbotech	KLA	2018	US$ 3.4 Billion
Mazor Robotics	Medtronic	2018	US$ 1.6 Billion
Mobileye	Intel	2017	US$ 15.3 Billiion

Market Size and Forecast

The Market Size of the Israel Semiconductor Industry based on sales by Israeli chip makers is valued at US$ 19.8 Billion in 2020 accounting for 18% of total sales of Israel ’s industrial electronics sector (IMA). The segment is expected to witness CAGR of 16% to reach a market size of US$ 41.6 Billion in 2025

Israel’s fab-less sector is third after the USA and Taiwan.

The revenue generated from Design of Semiconductor Chips is estimated at US$ 5.93 Billion in 2020 and is expected to grow at 12% to reach US$ 10.45 Billion in 2025

Market Size based on Component Type

Memory, with US$ 6.67 billion in 2020 and annual growth of 18.4 percent, was the largest semiconductor segment by revenue. Sales of DRAM products increased 36.4 percent within the memory segment, and sales of NAND flash products increased 14.8 percent.
Logic devices accounted for revenue of US$ 4.6 billion and micro-ICs accounted for US$ 2.83 billion in sales, a group that includes microprocessors.
Power transistors (14.4 percent growth and total sales of US$ 608 billion) and analog products (10.8 percent growth and total sales of $ 2.48 billion) were other fast-growing product segments in 2020. Sales of all other products combined increased by almost 8 percent in 2020, even without memory products.

Market Size based on Application

The Israel semiconductor market is forecast to grow to around than 19.8 billion U.S. dollars in total market size in 2020. Data processing and communications applications are projected to take up the largest share of the overall market with 7.28 and 6.5 billion U.S. dollars respectively.
The Industrial segment is the third largest segment accounting for US$ 2.41 Billion of the total market size in 2020.
Automotive and Consumer Electronics segments are the fastest growing registering CAGR of 25.6% and 18% respectively which constitutes market revenue of US$ 843 Million and US$ 1.7 Billion in 2020.

Market Outlook

Israel is at the pinnacle of a new age of technology: autonomous vehicles, computer assistants operated by AI, and even refrigerators that know what food is stored inside them which soon become the daily household’s standard features.

Smart glasses that conform to your vision, whether you are near- or far-sighted, and surgically implanted bioelectrical devices that battle inflammatory diseases such as rheumatoid arthritis, are other developments.

In miraculous ways, these inventions would help mankind and none of them would be possible if not for the semiconductor market.

All signs indicate that the outlook for the semiconductor industry in Israel is highly positive due to the rise of fantastic innovations and the key role of semiconductor production in their growth. Currently, for investors, it may be the most enticing sector. As more technologies grow that need more and better semiconductors, capital investment in this sector will increase.

Distribution Chain Analysis

The Supply Chain of the Semiconductor Industry in Israel is as in the below image

Competitive Landscape

The emergence of dominant players holding important market shares characterizes the industry. It is noted that key players are opting for strategic alliances, collaborations, and mergers and acquisitions in order to gain the requisite semiconductor manufacturing capabilities and greater market share.

Key Market Developments

In May 2020, Intel acquired mobile-application software supplier Moovit for about US$ 900 Million.

In December 2019, Intel completed the purchase of AI chip maker Habana Labs for US$ 2 Billion.

Competitive Factors

The Key players in the Semiconductor Industry in Israel are involved in R&D, New Product Launches, Mergers & Acquisitions, Strategic Partnerships and Expansion and have implemented them as strategies for their businesses.

Some of the Key strategies adopted by the Major players in the Semiconductor industry in Israel are

Broadcom Inc. announced the availability of 3*3 Wi-Fi 6 chip called BCM6710, specifically built for WLAN applications and set-up boxes. This is a highly optimized chip integrated with RF power amplifiers that paves the way for 4K UHD video streaming, augmented reality (AR) 0, and many more for high bandwidth, low-latency applications. In the current scenario, Broadcom Inc. relies on the strategy of integrating best-of-breed technology to provide large business and government consumers with comprehensive technology-based goods.
Similarly, Qualcomm Technologies, Inc., a Qualcomm Incorporated subsidiary, launched the system-on-chips ‘Qualcomm QCS410’ and ‘Qualcomm QCS610’ in July 2020.

Key Market Players

Some of the Key Players in the Semiconductor Industry in Israel are

Intel

In 1974 in Haifa, Intel established a presence with five employees in Israel. Today, in addition to indirectly supporting the jobs of 30,000 employees in Israel, the organization employs about 10,000 people.

Approximately 60 percent of Intel Israel’s employees are interested in cutting-edge R&D, while half support high-volume microprocessor manufacturing that drives computing devices worldwide.

Intel has four development centers in Haifa, Yakum, Petach Tikva and Jerusalem, as well as plants in Kiryat Gat and Jerusalem linked to manufacturing.

Qualcomm

Qualcomm Israel has two Haifa and Hod Hasharon R&D centers, and both sites are affiliated with Qualcomm Technologies, Inc. Qualcomm’s biggest division, which annually sells millions of chips.

The R&D center in Israel was founded in 1993 and has since been developed to make significant contributions to Qualcomm’s products, technologies and innovation. Qualcomm purchased five Israeli firms between 2010-2016, and continues to grow into leading technologies.

Marvell

Marvell Israel, based in Santa Clara, CA, is part of the Marvell Technology Community and has over 5,700 employees worldwide. Marvell is the world’s third fabless semiconductor firm, shipping over 1 billion chips annually.

Marvell has three branches in Yokneam, Ramat Gan and Petah Tikva in Israel. With the end-to-end production of business, campus and data center networking devices ranging from Ethernet switches and storage networking to server network adapters, Marvell Israel is the leading frontier of Ethernet technology (a.k.a NICs).

Mellanox (Nvidia)

Mellanox Technologies is a leading provider of intelligent interconnection systems and facilities for servers, storage, and hyper-converged networks for end-to-end Ethernet and InfiniBand. By offering the highest throughput and lowest latency, delivering data faster to applications and unlocking device performance, Mellanox smart interconnect solutions improve data center productivity.

Mellanox offers a variety of high-performance solutions: network and multicore processors, network adapters, switches, cables, software and silicon, which accelerate the runtime of applications and optimize business results for a wide range of markets, including high-performance computing, enterprise data centers, Web 2.0, cloud, storage, network security, telecom and financial services

The key SMEs in the Semiconductor Industry in Israel are as in the table below

Company	Domain	Website
DSP Group	wireless chipset solutions	https://www.dspg.com/
IP Light	Optical Transport Network	http://www.iplight.com/
Satixfy	satellite communication systems	http://www.satixfy.com/
Celeno	IoT	https://www.celeno.com/
Nuvoton	silicon-based solutions for PC and Servers	http://www.nuvoton.com
Windbond	serial flash memories	http://winbond.co.il/
Annapurna Labs (now Amazon)	cloud computing infrastructure	http://www.annapurnalabs.com/
Arbe Robotics	autonomous driving	http://www.arberobotics.com
Sckipio	new ITU standard	http://www.sckipio.com/
Valens	multimedia	https://www.valens.com/
Habana (now Intel)	AI	https://habana.ai/
Autotalks	vehicle-to-everything (V2X)	https://www.auto-talks.com
Innoviz	sensors	https://innoviz.tech
Hailo	AI	https://www.hailotech.com/

Strategic Conclusion

When it comes to technology, Israel is far ahead, and it has all the raw materials needed to continue pushing developments across a variety of markets.

But it also has to deal with the geopolitical consequences of trade wars and legislation, which vary from region to region, because of their scale. And regardless of its scale, it has to deal with regional disputes that have for thousands of years been part of the Middle East and the surrounding world.

Nevertheless, economically and technologically, the country appears to be flourishing and, left alone by its neighbors and superpowers, there seems to be little to stop its growth.

Israel remains a powerhouse of start-up technology and entrepreneurship because of its scale, and some day it might create some giant companies that dominate various market segments or large markets as a whole.

References

Appendix

IoT – Internet of Things
AI – Artificial Intelligence
SMEs – Small & Medium Enterprises
R&D – Research & Development