Global chip shortages, giants are betting on Israel

Chip out of stock israel

By the first half of 2021, 37 multinational companies have established semiconductor branches in Israel.
American technology companies have rushed to Israel to set up chip research and development centers, and Israel's semiconductor industry has ushered in the spring. Although Israel has many talents, there is still a big gap. In March, Google appointed Uri Frank, a former Intel executive, as vice president of server chip design engineering and head of the Israeli team. This move means that Google will double its bet on custom chips.
Since 2005, Google has established a research and development branch in Israel, and has teams in Haifa and Tel Aviv. They focus on machine learning, AI, natural language, and machine perception research. Uri Frank's appointment means that the Google Israel team will advance toward chip design and research and development.
Israel is quietly changing, and less sexy semiconductors have become a new hot spot.
Google, Microsoft, Facebook, Intel, and Nvidia have all expanded their chip design departments in Israel. In 2019, Nvidia acquired Mellanox Technologies for $7 billion. Company founder Eyal Waldman said: "Israel has many advantages, we have rich experience, and we have a good position in the industry."
The global chip is seriously out of stock, there is demand but no supply.
Former Intel executive David Perlmutter said: "Chips (semiconductors) are very important to the data world, as fuel is to industry." He also said: "There are hundreds of chips in cars. Because the chips are out of stock, automakers have to cut production. Ten years ago, chip shortages had less of an impact on the industry. Today everything is built around chips."
Before the pandemic, many technology companies had begun to design and manufacture their own chips. Customized chips can better meet the needs of enterprise products, and can also meet complex requirements, such as the requirements of AI.
Perlmutter said: "Chips are becoming more and more complex, and the speed of evolution is unprecedented. When I joined Intel in 1980, even the most advanced chips had only 30,000 to 40,000 integrated transistors. What about today? There are today’s advanced chips. 50 billion."
Israel’s advantage is not manufacturing, but design. Perlmutter said: "Development of chips may be the most complex task in the world. The level of complexity is quite high. When doing projects, hundreds of people use computing tools to program and simulate with supercomputers." Perlmutter also said that through chips, you touch the digital world. The bottom and most important nerve.
The world is shifting to cloud computing, and AI is becoming more and more important. These are new directions. Therefore, companies must design new chips to process massive amounts of data at a faster speed.
It takes many years to train engineers. It takes engineers to get a degree. It takes years to understand complex chip design.
Perlmutter said that technology giants have realized that all their AI and cloud activities are based on chips, and they are convinced that they can find the best talent in Israel.
In addition to Google, there are several important companies entering Israel, and they allow Israel to play a more important role in the chip industry.
When Intel’s new CEO Pat Gelsinger visited Israel, he said that Intel will expand in Israel, invest US$200 million to build a new park, develop chips, and recruit 1,000 new employees locally.
Nvidia also said in March that it plans to recruit 600 engineers in Israel to focus on AI research.
Microsoft has also expanded the Israeli chip design team, and Facebook is said to be preparing to build a chip research and development center in Israel. Amazon acquired Israel's Annapurna Labs in 2015, which is now Amazon's chip research and development department.
Before 1974, only California's Silicon Valley produced chips in the world. In that year, Intel set up a research and development center in Israel, and the industry began to take off.
Some of Intel’s top processors were developed by the Israeli Haifa team, which is Intel’s largest R&D team outside of the United States.
Subsequently, National Semiconductor, AMD, and Motorola all entered Israel.
Perlmutter believes that the reason why technology companies are expanding in Israel is mainly because Israel has the ability to design complex chips.
According to statistics from the IVC Research Center, by the first half of 2021, 37 multinational companies have established semiconductor branches in Israel, compared with 33 in 2017.
Waldman, the founder of Mellanox, said that the world needs faster and more powerful storage capacity, and there are still many technical problems to be solved. Semiconductor design centers in other regions are also expanding. For example, in Europe, Perlmutter said that Europe is also very capable of designing chips, but it is still not as good as Israel; China is very close to India, but Israel still has an advantage.
In Herzliya, Israel, the Microsoft R&D Center employs more than 2,000 employees. Ohad Jassin, who manages AzureEdge & Platform at Microsoft Israel R&D Center, said that developing chips is a strategically important part of Israel's activities. Nevertheless, many of the chips used by Microsoft come from partners, including Intel, ARM and AMD.
The chips designed by the Microsoft Israel team are mainly used in computing, edge applications, and cloud data centers. Ohad Jassin believes: "Israel has experience, it is a veteran in the chip field, and universities have nurtured many talents." He also said that Microsoft views Israeli startups as potential investment or acquisition targets.
There are already several startup companies in Israel developing chips, memory cards and processors. Perlmutter said: "Israel has an ecosystem, which is very interesting. They can interact with large companies." Large companies invest in Israeli companies, acquire them, and move technology engineers from one place to another. This is important for the technology ecosystem. It is very important.
Venture capital and companies have also invested heavily in the semiconductor industry. They used to look down on semiconductors. In contrast, software and social apps are more attractive than semiconductors.
In 2017, Israel Mobileye sold itself to Intel for $15.3 billion, which is the largest sale of a technology company in Israel to date. There are also some acquisitions worthy of attention. For example, in 2018, KLA-Tencor acquired Orbotech for US$3.4 billion; in 2019, Nvidia acquired Mellanox Technologies for US$7 billion. Also, in 2019, Intel acquired Habana Labs for US$2 billion.
Perlmutter said: "Going back to 6-7 years ago, it was quite difficult to finance chip technology. A lot of money went to software because the chip development cycle was too long. But with the need for AI and high-speed data communications, the situation has changed." Nevertheless, the money invested by companies and VCs in semiconductors still accounts for a small share of the overall technology investment.
In the first half of 2021, Israeli semiconductor startups raised US$588 million, with 13 transactions; in 2020, there were 24 cases, with a total amount of US$141 million more than in 2021. In the first half of 2021, the total financing of Israeli technology companies was US$11.9 billion.
Perlmutter said: "The semiconductor industry is undergoing a renaissance, and a lot of money is being invested in it, and so is Israel. The renaissance is good for the Israeli economy and good for the entrepreneurial ecosystem."
The data also shows that in 2021, three Israeli semiconductor companies will raise US$100 million, and there will be three in 2020 and none in 2019. The amount of each round of financing is also climbing, with an average of 45 million U.S. dollars in the first half of 2021, an average of 30 million U.S. dollars in 2020, and an average of 15 million U.S. dollars in 2019.
Perlmutter analyzed that the financing and exits we are currently seeing are just the tip of the iceberg. Intel Design Engineering Group executive Shlomit Weiss also said that Israel’s hardware silicon engineering has ushered in the spring.
Data show that Intel is the most active investor in Israel's semiconductor industry, having completed 15 investments from 2017 to the first half of 2021. Shlomit Weiss said that operating in Israel is good for Intel because there are great engineers; doing so is also good for Israel and can help Israel develop its economy; it is also good for engineers, because engineers will have more opportunities and competition will be more intense.
Looking to the future, there are still many challenges, mainly the lack of engineers and programmers, because competitive wages have also risen a lot, and multinational companies and local startups are vying for talent. In Tel Aviv, the average monthly salary of a software engineer is about US$7,300, compared to only US$4,000 in other regions.
According to Israeli statistics, at the end of 2020, the Israeli technology industry is short of approximately 13,000 high-tech employees. Perlmutter said: "The number of engineers trained by college students is not enough, and the industry must make strategic adjustments. The government must focus on cultivating more engineers in the short and long term."
There is also one thing worthy of Israel’s vigilance: the number of newly established startups has decreased. why? Because entrepreneurs avoid entrepreneurial risks, they are attracted by the high salaries of multinational companies or new unicorns.
According to IVC data, there are no new semiconductor startups in Israel in the first half of 2021. Three companies were born last year and 12 companies were born in 2017. Perlmutter said: "This is not good for our industry and is a major threat to growth. Entrepreneurial energy must continue. Without new startups, the ecology is unhealthy."