Following the giants, chip upstarts bet on Israel
Latest update time：2021-08-18
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Source: The content is compiled by Semiconductor Industry Observer (ID: icbank) from " timesofisrael ", thank you.
In March this year, US technology giant Google appointed Uri Frank, former Intel executive and vice president of server chip design engineering, as the head of the company's Israeli team, thereby doubling down on the manufacture of custom chips to improve the computing performance of its systems.
Google has been conducting R&D activities in Israel since 2005, with teams in Haifa and Tel Aviv tackling machine learning, artificial intelligence, natural language processing, and machine perception challenges. However, Frank’s appointment marks Google’s first foray into chip design and development in Israel, and new employees will be hired for this purpose.
Beyond the headline-grabbing IPOs, mergers and exits in Israel’s tech world, a quiet revolution is taking place in the not-so-sexy world of semiconductors.
Multinational giants such as Google, Microsoft, Facebook, Intel and Nvidia have all set up or expanded their chip design operations in Israel – cementing the country’s position as a chip powerhouse and its status as a startup nation.
The shift to Israel is being driven by the country’s shift toward digitalization, while industries around the world have been feeling the chip shortage for more than a year, prompting chipmakers and tech companies to start developing their own semiconductors in order to expand their businesses.
“Israel has a lot of strengths and a lot of experience, and we are very well positioned for this,” said Eyal Waldman, founder of Mellanox Technologies, which was acquired by U.S. chipmaker Nvidia for $7 billion in 2019.
Billions of chips, also known as semiconductors, are used in everything from phones and laptops to cars and cloud computing, making them the engine of the tech industry. But without a steady supply, manufacturers can do little.
"Chips and semiconductors are the fuel of the digital world, the fuel of industry," said David Perlmutter, a former Intel Corp. executive who helped develop some of the company's key products during his 34-year career at the U.S. tech giant, including the architecture of Intel's Pentium and Centrino mobile processors.
“There are hundreds of chips in your car right now,” Perlmutter said in a phone interview. “Automakers say they are reducing production because of a lack of chip supply. Ten years ago, a chip shortage wouldn’t have affected the industry much. Today, everything revolves around chip capabilities.”
In fact, long before the pandemic, many technology companies began designing their own chips and then outsourcing production to foundries such as TSMC, Intel and Samsung. As competition intensifies, customized chips can better serve different products. Customized chips can also better meet the complex requirements of artificial intelligence computing because they can handle machine learning algorithms and process images.
“The complexity of each chip has grown in an unprecedented way,” Perlmutter said. “When I joined Intel in the 1980s, the number of components called transistors in a state-of-the-art processor chip was about 30,000-40,000. Today, there are 50 billion transistors in a state-of-the-art processor chip.”
He said Israel's strength lies not in chip manufacturing but mainly in its design. "The research and development of chips is probably the most complex task in the world. The complexity is enormous, and these are projects where hundreds of people use computational tools to program them and use giant computers to simulate them."
With the chip, you can get to the bottom and most important nerves of the digital world, Perlmutter added.
In recent years, the industry's shift to cloud-based computing and the increased use of artificial intelligence are providing more new impetus to the field as they require the design and development of new chips to accelerate the processing of massive amounts of data.
It takes years to train engineers, Perlmutter said, and even after they get their degrees, it can take years for them to “fully understand” the complexities of chip design.
The tech giants understand that all their AI and cloud activities are based on chips. They also believe that “they’ll find the best talent in Israel,” Perlmutter said.
In addition to Google, several other major companies have made moves to give Israel a bigger role in their chip design strategies.
Intel's new CEO Pat Gelsinger said during his visit to Israel this year that the company will invest $200 million in Israel to build a new campus to develop future-oriented chips and will recruit 1,000 new employees locally.
Nvidia, the leading U.S. chipmaker, said in March it planned to hire 600 engineers locally to boost its activities in Israel, especially artificial intelligence.
Microsoft is also increasing its chip design activities in Israel, and Facebook is reportedly seeking to establish an R&D center in Israel focused on chip development. Amazon acquired Israel’s Annapurna Labs in 2015, which is now the chip division of the US company and supports many of its most advanced custom chip projects.
Israel has the expertise
Until 1974, chips were made only in California's Silicon Valley, named for the materials used to make the technology. That year, Intel opened a research and development center in Israel, just as the industry began to take off.
Some of Intel’s fastest processors were developed by its Haifa team, the company’s largest R&D center outside the U.S. National Semiconductor, U.S. chipmakers, AMD, and Motorola all followed Intel’s lead in establishing chip design centers in Israel, fueling Israel’s progress and eventual transition to a startup nation.
Perlmutter said technology companies are expanding their activities in Israel because they know "they know Israel has the capability to design complex chips."
According to data compiled by IVC Research Center, a data company that tracks the local high-tech industry, in the first half of 2021, there were 37 multinational companies operating in the semiconductor field in Israel, compared with 33 in 2020 and 2017.
Mellanox founder Waldman said that as the demand for faster speeds, stronger processing and storage capabilities continues to grow, development needs to solve huge technical challenges. "We have the knowledge and capabilities because we are one of the most advanced countries in the world in this field." Waldman emphasized.
Other semiconductor design centers, including Europe, which is starting to take off, are also good at chip design, but not as good as Israel, Perlmutter said. China and India are “getting closer,” he said. “But Israel still has an advantage.”
Just the tip of the iceberg
Microsoft's R&D center in Herzliya employs more than 2,000 people, and developing its own chips is a strategic and important part of it, said Ohad Jassin, who manages Azure Edge and Platform at Microsoft Israel R&D Center. Even so, he said, many of the chips the U.S. company uses in its products still come from the company's partners, including Intel, ARM and AMD.
Jassin said in an interview that the chips designed by Microsoft's Israeli team are used in computing, edge devices and cloud data centers. "There is experience here in Israel because it is the veterans in the field and there is talent from universities." Microsoft also sees Israeli startups operating in the field as possible investment and acquisition targets, he said.
Locally, there are several semiconductor startups developing chips, memory cards and processors, and it is not uncommon for multinational corporations to acquire local companies or partner with them to expand their chip manufacturing activities.
"There's a really interesting ecosystem here that interacts with the big companies," Perlmutter said. "They invest in these companies, sometimes buy them, and engineers move from one place to another. It's part of a really important tech ecosystem."
Venture capital firms and corporations are pouring more money into the semiconductor industry, which they largely turned a blind eye to for years, lured instead by the easier attractions of the software and social application industries. While the amounts invested in Israeli companies pale in comparison to those in the U.S., there is a clear trend line.
The largest tech exit in U.S. history was the sale of autonomous driving technology and chipmaker Mobileye to U.S. giant Intel for a whopping $15.3 billion in 2017.
Other notable acquisitions include US company KLA-Tencor’s purchase of Orbotech for $3.4 billion in 2018. Chipmaker Nvidia acquired Israel’s Mellanox Technologies for about $7 billion in 2019. Intel also acquired Habana Labs for $2 billion in 2019.
"Six or seven years ago, it was difficult for Israeli chip startups to raise money for chip technology. A lot of money went to software development because investing in chip development is a longer process. But all that has changed with the rise of artificial intelligence and fast data communications," Perlmutter said. Even so, the number of companies and venture capital firms investing in semiconductors is still far smaller than overall investment in technology companies, he added.
In the first half of 2021, Israeli semiconductor startups raised a total of $588 million in 13 deals, $141 million less than they raised in 24 deals in all of 2020, according to data compiled by IVC. Israeli tech companies raised a whopping $11.9 billion in funding in the first half of 2021.
“The industry is experiencing a renaissance, with a lot of investor money coming into the space, including in Israel. This will drive growth in the Israeli economy and startup ecosystem,” Perlmutter said.
IVC data shows that three semiconductor companies reached deals that raised at least $100 million in the first half of 2021. In contrast, there were only three such deals in all of 2020 and zero in 2019.
The amount raised per round was also much higher, averaging $45 million per round in the first half of the year, compared to an average of $30 million per round in 2020 and $15 million per round in 2019. $449 million was raised in 29 rounds.
What we’ve seen so far, both in terms of funding and exits, is “just the tip of the iceberg,” Perlmutter said.
“In general, it’s a good time for hardware silicon engineering in Israel,” said Shlomit Weiss, who was named co-general manager of Intel’s design engineering group earlier this month, where she will oversee the entire chip development and design process for the U.S. tech giant, including computers, laptops and servers.
Intel is the most active investor in the semiconductor space, making 15 investments between 2017 and the first half of 2021, according to IVC.
Operating in Israel “is good for companies because there are very good and innovative engineers there,” she said in a recent interview. It’s also good for Israel because “it helps the economy, and it’s good for engineers because it gives them more opportunities and more competition.”
Search: Engineers and startups
However, there are many challenges ahead, mainly a shortage of engineers and programmers, and competition for talent between multinational companies and local startups that has led to a sharp increase in wages. The average monthly salary for a software engineer in Tel Aviv is about NIS 24,000 ($7,300), while the average monthly salary in other economies is about NIS 13,000 ($4,000).
Israel’s tech sector was short of about 13,000 skilled workers at the end of 2020, according to data compiled by the Israel Innovation Authority and Start-Up Nation Central.
“Universities are not producing enough engineers, and industry and government need to take strategic initiatives to increase the number of engineers in the short and long term,” Perlmutter said.
Another emerging trend also being felt in the rest of Israel’s tech ecosystem is a decline in the number of startups being formed, as would-be entrepreneurs avoid the risks of launching their own companies in favor of pursuing lucrative salaries offered by local multinationals or recently launched unicorn tech companies.
In the first half of this year, no new startups were founded in Israel in the semiconductor sector, compared with three new companies last year and 12 in 2017, according to IVC data.
“This is a major threat to the growth of our industry,” Perlmutter said. “The energy for innovation has to continue. An ecosystem without new startups is not healthy.”
Reference Links:
https://www.timesofisrael.com/as-global-demand-for-microchips-surges-tech-giants-go-all-in-on-israel/
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