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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

NY TIMES NEWS SERVICE , KIRYAT GAT, ISRAEL

Pointing to a recent success, he cited Saifun Semiconductors, which makes flash memory systems used in digital cameras, mobile phones and other consumer electronics. In 1998, Sela's firm began investing in Saifun in its early stages. Last month, the company was listed on Nasdaq and raised US$121 million in its initial public offering.

Israelis point to several factors in the nation's high-tech success.

Israel's military has been a leader in adopting new technology, and it works closely with civilian companies. One example is Elbit Systems, which makes night-vision equipment and has customers that include the US military.

Also, Israeli men and women are required to perform military service after high school. Many gain experience in a variety of high-tech systems, which leads directly to future careers.

And Israel's close ties with the US have made it a natural choice for young companies searching for investors, stock listings and marketing guidance.

The Israeli government, meanwhile, has sought to tap the high-tech sector to develop isolated areas such as Kiryat Gat.

Kiryat Gat is a development town, one of many established by the government over the years with the intention of directing immigrants to more sparsely populated areas. Such towns have usually fared poorly.

The Israeli government provided substantial subsidies for Intel to build its first plant here, which opened in 1999. This time, the government's benefits package is even larger, with incentives totaling US$525 million.

Technicians lacking

Kiryat Gat lacks enough engineers, technicians and other skilled workers to meet Intel's needs. Fewer than half of the more than 3,000 workers at the existing plant live in the town, according to Kornhauser. He is among those who commute an hour each way to homes in Jerusalem.

But the company has been able to recruit from the cities where the high-tech industry is clustered, including Tel Aviv, Jerusalem and Haifa.

While most Intel factories are in the US, Intel's chief executive, Paul Otellini, said earlier this year that federal corporate taxes had led the company to consider new plants in countries with lower tax burdens.

Israel has long been regarded as a high-tax country, but the Israeli government offered Intel a 10 percent tax rate, compared with 35 percent in the US, Otellini said.

"The benefit package put forth by the Israeli government was part of the equation," Kornhauser said. "This is a good investment for Intel and for the state of Israel."

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