According to Xinhua News Agency, in the early hours of the 14th local time, the Iranian Islamic Revolutionary Guard began launching large-scale missile and drone attacks on Israeli targets. Subsequently, the Permanent Mission of Iran to the United Nations stated on social media that Iran's attack on Israel "can be seen as over.". What is the impact of Israel's semiconductor industry under the Israeli-Israeli conflict?
Semiconductor manufacturing is an industry that requires extremely high stability in the production environment, and Israel has the world's seventh largest semiconductor foundry, High Tower Semiconductor. Semiconductor giants such as Nvidia, Intel, and Qualcomm all have research and development centers located in Israel. In recent years, semiconductor giants such as Intel and Nvidia have also been enthusiastic about acquiring Israeli startups, taking over companies such as Mobileye and Habana.
At present, semiconductor giants such as Intel have not publicly responded to the impact of the Iran Israel conflict. On April 16th, half conductor analysts told First Financial reporters that the overall impact of this conflict on the chip industry chain will depend on the duration of the conflict. Local chip manufacturing capacity in Israel is limited, and many local chip design companies or departments should be less affected by the conflict.
Affected by semiconductor giants' rush to purchase
Israel is one of the major cities in the global semiconductor industry, including chip manufacturing and design. Among them, chip manufacturing is represented by Gaota Semiconductor, which is known for its mature process and analog chip foundry, producing products such as RF, power supplies, industrial sensors, etc., applied in the mobile, automotive, and power markets. According to data from Jibang Consulting, Gaota Semiconductor ranked seventh in the revenue ranking of wafer foundries in the fourth quarter of last year, with a market share of 1.2%. In addition, Intel has a manufacturing plant in the southern town of Gath in Israel, which produces Intel 10 nanometer process chips.
In addition to chip manufacturing, Israel is home to more chip design startups and research and development centers for overseas semiconductor giants, with some American semiconductor giants placing their second research and development bases in Israel.
Intel was the earliest chip giant to establish a research and development center in Israel. In 1974, it established its first research and development center, which was Intel's first research and development center outside the United States. At present, Intel has four R&D centers in Israel, including the processor and AI software and hardware development center in Haifa, the communication and AI solution development center in Petatikva, the communication, software and network security development center in Jerusalem, and the Mobileye global autonomous vehicle development center. Intel's Centrino chip and its core processor, which support the use of WiFi, were developed in Israel. The Intel factory in Gart town has been producing computer chips for over 20 years.
As of the end of last year, Intel had over 12000 employees in Israel, accounting for nearly 10% of Intel's global workforce and indirectly employing over 42000 people. According to Intel's website, it currently has 11700 employees in Israel, including 3900 manufacturing employees and 7800 development employees.
Nvidia, Samsung, Microsoft, Apple, and Amazon also have research and development centers in Israel. Outside of the United States, Nvidia is also conducting its largest research and development activities in Israel. Nvidia has 7 research and development centers in Israel, with approximately 3000 local employees, accounting for 12% of Nvidia's global workforce.
One characteristic of Israel's semiconductor industry is that there are few local semiconductor giants, but there are many startups. According to data from equity crowdfunding company OurCrowd, from 2010 to 2020, over 70% of semiconductor related companies in Israel that reached specific revenue milestones successfully exited through IPOs or acquisitions. From multiple high-profile acquisition cases, semiconductor giants remain enthusiastic about acquiring Israeli chip companies after 2020.
Intel has made multiple moves. In 2015, Intel acquired Altera for $16.7 billion, which was the largest acquisition in Intel's history; In 2017, Intel acquired Mobileye, a smart driving chip company, for approximately $15 billion; In 2019, it announced the acquisition of Israeli startup AI chip company Habana Labs for $2 billion; Intel has also been interested in developing its contract manufacturing business in recent years. In 2022, it announced the acquisition of Israeli semiconductor foundry Takata Semiconductor, with a total transaction value of 5.4 billion US dollars. Although this deal was unsuccessful last year due to a lack of timely regulatory approval, Intel's preference for Israeli chip companies is evident.
The above chip companies acquired by Intel are either in the forefront of their fields, or have set up a Xintiandi for Intel after being acquired. Altera is the second largest FPGA (Field Programmable Gate Array) chip manufacturer, and Intel's recently launched Gaudi 3 AI chip comes from the Habana team. Mobileye is one of the earliest AI chips applied to autonomous driving, once occupying 70% of the market share in advanced assisted driving systems. Tesla used Mobileye chips before 2016.
Nvidia, Renesas Electronics, and Qualcomm have also been aggressively acquiring Israeli companies in recent years. In 2019, Nvidia defeated potential investors such as Intel and Microsoft to acquire Israeli network technology supplier Mellanox for a total price of approximately $7 billion. This was an important acquisition of Nvidia's high-speed network layout, supporting its later high-performance cluster computing. In 2021, Japanese chip manufacturer Renesas Electronics announced the acquisition of Israeli wireless chip communication company Celeno. Last May, Qualcomm announced that its subsidiary Qualcomm Technologies would acquire Autotalks, a V2X chip manufacturer. However, after regulatory authorities expressed antitrust concerns, Qualcomm subsequently abandoned the deal.
Over the past 50 years, Intel has received approximately $2 billion in government funding in Israel. Last December, the Israeli government still announced that it would allocate $3.2 billion to Intel for the construction of a $25 billion chip new factory in southern Israel, which is also the largest investment in Israeli history by a multinational corporation.
Intel's new factory is expected to create thousands of jobs. Intel has also promised to purchase goods and services worth approximately $16.6 billion from Israeli suppliers over the next decade. Intel Vice President Daniel Bernatar said in a statement, "The latest support from the Israeli government will ensure that Israel remains a global center for semiconductor technology and talent."
Hidden worries still linger
Semiconductor giants are eager to establish research and development centers, manufacturing bases, and acquire companies in Israel, which is closely related to Israel's excellent engineering talents.
The technology industry accounts for 14% of Israel's employment and nearly one-fifth of the country's gross domestic product. The Israel Institute of Technology located in Haifa has trained a large number of engineers and scientists, including Johny Srouji, Apple's chip development leader in Israel, who helped Apple develop self-developed chips to replace Intel chips on Apple computers.
But geopolitical conflicts remain a potential threat to Israel's semiconductor industry.
After the escalation of the Israeli conflict last year, Intel stated in a statement that its existing chip factory is 42 kilometers away from Hamas controlled Gaza. In October of the same year, Nvidia cancelled the offline meeting of the annual AI summit originally scheduled to be held in Tel Aviv due to concerns about the security situation in Israel. Some technology companies have stated that their employees are heavily recruited reserve soldiers, which will lead to work interruptions.
The impact on local chip manufacturing is also of great concern. Gaota Semiconductor responded to the impact of the conflict on the company in February this year, stating that the Israeli Palestinian conflict has not affected its operations or supply chain. However, some analysts believe that this may also be related to the sluggish semiconductor market, where semiconductor demand has already decreased and the impact of conflicts on supply has not been reflected in sales.
Last month, some Israeli employees attended NVIDIA's GTC conference. A technical leader from Mellanox told First Financial reporters that Israel's research and development work is still proceeding normally, but he said that regional conflicts are indeed a worrying risk factor.
Semiconductor industry researcher Li Guoqiang told reporters that geopolitical conflicts have a certain impact on Israel's semiconductor industry, at least affecting the logistics of goods at the Israel factory of Gaota Semiconductor. However, the production capacity of Gaota Semiconductor Israel is mainly based on mature processes, and the current semiconductor industry is still in a low valley. This part of the production capacity can be replaced by other wafer foundries, so the impact on the global semiconductor industry in semiconductor manufacturing should be minimal. There are basically no large-scale testing plants in Israel or the Middle East, and this aspect is not very affected.
"Israel has chip design companies or chip design company R&D departments. Generally speaking, the main mode of operation is computer work, and wafer manufacturing and packaging testing can be outsourced, with limited impact. Unless the conflict is serious enough to threaten personal safety." Li Guoqiang said that to affect the global semiconductor industry, there needs to be a large production or market scale in the local area, and the areas affected by the conflict do not have this feature. Similar conflicts in the past have not had a significant impact on Israel's semiconductor industry.
Li Guoqiang told reporters that Israel's semiconductor industry has developed a more emphasis on chip design, which is also related to the environment and is not suitable for the semiconductor manufacturing industry that requires stable environment and complete supply chain. Some companies still laying out semiconductor manufacturing in Israel may be considering factors such as the distribution of research and development capabilities. The local industrial structure in Israel is incomplete and the market size is relatively small. In recent years, efforts have been made to develop high value-added parts of the industrial chain.
Gartner analyst Sheng Linghai told First Financial reporters, "The overall impact of Israel's conflict on the chip industry chain still depends on how long the conflict lasts. Prolonged conflict will have varying degrees of impact on local chip production facilities."