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Tue, Dec 27, 2005 - Page 12 News List

High-tech sector making a recovery in Israel

BACK ON TRACK The dot-com crash together with the Palestinian uprising hurt the Jewish state's high-tech sector, but things are finally starting to look up again


Israel's high-tech sector is having its best year since the dot-com implosion in 2000, and the evidence includes this working-class town, where bulldozers are rapidly clearing hectares of land for a huge, state-of-the-art chip-making plant.

The Intel Corp, the world's largest chip maker, announced this month that it would invest US$3.5 billion to build a new plant, adjacent to an existing one that makes Pentium 4 chips, at an industrial park in this town in southern Israel, which has long struggled economically despite the money poured into it.

Intel already has six design and production facilities scattered across Israel and more than 6,000 workers, making it one of the country's largest private employers. It will be adding at least 2,000 jobs at the new plant, which will produce 12-inch chip wafers, the company says.

"Intel has a long history of high-tech manufacturing in Israel, and this is a natural continuation of that," said Alex Kornhauser, the general manager of Intel's operations in Israel. "When the manufacturing requires highly skilled people, we believe we have a competitive advantage here."

The Intel project is a leading example of the overall resurgence of the high-tech sector, which generates more than US$13 billion of annual exports, or about 40 percent of Israel's total exports, according to government figures.

From large manufacturers such as Intel to startups financed by venture capital firms in the Tel Aviv suburb of Herzliya, the industry appears to have largely recovered after taking a pounding five years ago. Israel now has more than 70 companies listed on the NASDAQ, more than any other country outside of the US.

5 percent growth

With high-tech companies playing a significant role, Israel's economy is expected to grow about 5 percent this year, after growing about 4 percent last year. This follows three years of economic turbulence during which the country suffered one of its worst recessions.

Throughout the 1990s, the technology industry modernized and reshaped an economy with socialist roots and many large state-run companies. The sector established a reputation for producing innovative startup firms that are often incorporated in the US. But in 2000, Israel was hit not only by the dot-com collapse, but also the Palestinian uprising, which drove away foreign players who had been crucial to high-tech development here.

"Before the crash, money was just flowing here, madly," said Joseph Morgenstern, a business consultant who has published The Israel High-Tech and Investment Report for 21 years. "Venture capitalists were investing in startups that had no chance of showing black on their balance sheets. A lot of people lost money and jobs."

The number of high-technology workers in Israel peaked at more than 66,000 in 2000, then fell to around 53,000 in the years 2001-03, and has rebounded to reach 61,000 this year, according to the government's Central Bureau of Statistics.

Unwilling investors

For several years, Israeli venture capital firms did not even hold their annual meetings here because so few foreigners were willing to attend, said Yossi Sela, a managing partner at Gemini Israel Funds, a leading venture capital firm.

"Things have changed dramatically in the past couple years," Sela said. "Investors are again flocking to this country."

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