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Amid Global Shortage of Microchips, Israel Emerges as Investment ‘Battleground’ for Tech Giants

avatar by Sharon Wrobel

Cars drive past US chipmaker Intel Corp’s “smart building” in Petah Tikva, near Tel Aviv, Israel December 15, 2019. Photo: REUTERS/Amir Cohen.

As the global economy struggles with a shortage of semiconductors, threatening auto factories and toaster ovens alike, US chip giant Intel on Sunday announced multi-billion dollar investments to develop the “chips of the future” in Israel. It was just the latest indication that the world’s biggest tech companies — including Facebook, Amazon and Google — increasingly see Israel as a cornerstone of their strategy in the highly competitive field of microchip development.

Intel, which in 1974 opened its first development center outside the US in Israel, is planning to set up a “mega chip” design campus in Haifa to the tune of $200 million, which will employ 6,000 software and hardware engineers. Another $10 billion will be spent on building a new chip plant to boost manufacturing capacity at its Kiryat Gat factory in the south of the country, where it produces 10 nanometer chips.

The tech giant’s CEO Pat Gelsinger said during a one-day visit to Israel on Sunday that the investments “promise a vibrant future for Intel and Israel for decades to come.”

“Intel seems to be almost like Forrest Gump in their uncanny ability to be there at a critical juncture in Israel’s tech development,” Jon Medved, the CEO of OurCrowd — an Israeli venture capital firm with about a dozen semiconductor companies in its portfolio — told The Algemeiner. “If the chips are down, Intel is all in on Israel.”

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Intel is also injecting $400 million in Mobileye, a Jerusalem-based maker of self-driving technologies, which it bought for $15.3 billion in 2017 in what marked the largest-ever purchase of an Israeli high-tech company. The investment will go towards Mobileye’s new research and development campus. In addition, Intel plans to recruit another 1,000 new employees in 2021.

Intel is the largest employer in Israel’s high-tech industry with almost 14,000 workers across the country. During what marked a challenging COVID-19 year, the US tech giant’s Israel exports rose to a record $8 billion last year from $6.6 billion in 2019, representing 14% of high-tech exports in the country and 2% of GDP.

“Intel has invested $50 billion so far in Israel over the last several decades. Not just for chip design but also chip fabrication around Kiryat Gat, its most advanced manufacturing facility,” Medved said. “Plus their continued purchasing of Israeli startups and bolting on. So really Intel’s logo could easily be changed to Israel inside.”

The competition for tapping Israeli talent has gained momentum as the world’s largest tech giants, from Google to Amazon, have increasingly sought to develop their own semiconductor chips with better services and performance. All are banking on the country’s knowledge of and experience with silicon. Google, Amazon, Facebook, Microsoft and Apple — companies who are in one way or another competitors — are now each on course to develop chips in Israel.

“Israel has a base of talented people and engineers and the knowledge and experience in the design of chips,” said Shlomo Gradman, chairman of the Israeli High Tech CEO Forum and CEO of ASG Ltd. “The multinationals are coming to Israel not only for the talent base but they are also acquiring technologies by buying up local companies.”

In March, Google hired Intel veteran Uri Frank as its VP of Engineering for server chip design to help “build a world-class team in Israel,” to “double down” on designing and building custom chips. During the same month, Intel arch-rival Nvidia — the gaming and computer chip giant which last year completed the acquisition of Israeli chipmaker Mellanox for about $7 billion — said it is on the hunt for 600 hardware and software engineers as well as chip designers at a variety of levels in Israel to work on its artificial intelligence-based chip technologies.

Just a month later in April, Israeli AI chip company Habana Labs, which was snatched up by Intel for $2 billion, said that it is hiring 400 people.

“Each of them [Intel and Nvidia] keep on visiting this country. It’s like this has become the most interesting sort of battleground for these two giants, as they are tussling with each other for international chips supremacy,” said Medved. He also raised a concern that the competition for Israeli engineers by the “big guys or the four new Internet giants is going to make it a little harder for local startups to compete to recruit people, because these guys offer huge salaries, except that they also buy them.”

US tech giant Microsoft is reportedly planning to invest at least $1 billion on a new data center in Israel to expand its chip research and development activities. Facebook is the latest tech giant, which is said to be eyeing to open a chip design center in Israel.

The investments into Israeli talent and engineers comes as chips are becoming more integral to making smarter electrical appliances and devices. Meanwhile, the outbreak of the coronavirus pandemic and the related shutdowns of semiconductor factories means that some manufacturers are running into difficulties supplying computers, smartphones and televisions, as well as household appliances, from washing machines to toasters and cars. At the same time, the pandemic-related lockdowns also boosted the demand for home gadgets.

“The chip industry is a major part of the high-tech industry, as no digital equipment can operate without a chip,” said Gradman.

The chip supply crunch during the past year was also exacerbated by US-China trade tensions with the introduction of American export policies that limited the sale of US-made chips to some Chinese buyers.

At the moment, given the world’s dependence on semiconductors for the next wave of technology, whether it be 5G or artificial intelligence or agritech or medical devices, all of them depend on advances in chips,” said Medved. “Israel has the power in the design of the chips and the knowhow in manufacturing because of Intel is very important because it provides sort of a soup to nuts understanding of the whole problem including the application knowledge.”

“The fact that Israel has that full stack of knowledge is what makes it almost irresistible for these huge giants. That’s the reason the huge giants are here,” he said.

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