In the 1970s, two hi-tech giants, IBM and Intel, set up research and development (R&D) centers in Israel that would lead the country’s shift into one of the world’s most dynamic semiconductor ecosystems.
A new study by Earth & Beyond Ventures and Deloitte Catalyst examined the Israeli semiconductor industry to ascertain how far the industry has come. More than 70 Israeli semiconductor start-ups have been acquired for a collective value of $44 billion.
Names such as Mellanox, acquired by NVIDIA; Mobileye; Habana Labs, acquired by Intel; and Annapurna Labs, acquired by Amazon, have become symbols of Israel’s innovation prowess, attracting international attention and investment.
There are about 200 semiconductor companies operating in Israel, with more than 45,000 employees, the report said. It mapped 70 active semiconductor start-ups in Israel, including 26 growth-stage companies and 44 earlier-stage ventures. Together, they have raised $5.5b. since their founding.
The companies’ areas of expertise span the full spectrum of chip technology and were divided into several categories:
• Processing and computing: 22 companies raised $1.8b.; they make chips that perform operations to execute instructions and manipulate data. This category includes start-ups that develop chips for AI models and new computing paradigms, such as optical, quantum, and neuromorphic computing.
• Sensing: 17 companies raised $2b.; they make chips that detect real-world signals and convert them into digital data.
• Communications: 10 companies raised nearly $1b.; they make chips that enable the transfer and reception of data between devices, systems, or infrastructure.
• Memory: Five companies raised $350 million; they make chips that store or retrieve digital data during computation for near- or long-term use.
• Power: Four companies raised $90m.; they make chips that regulate, convert, or manage electrical energy for stable and efficient system operation.
• Semiconductor infrastructure: 12 companies raised $220m.; they drive innovation across the semiconductor manufacturing supply chain.
The global semiconductor industry has undergone dramatic changes in recent years. The acceleration of large AI models demands massive computing power, requiring both large-scale chip production and the development of specialized chips for AI.
This need led to NVIDIA’s meteoric rise, with its market value recently surpassing $4 trillion.
Meanwhile, geopolitical tensions and supply-chain disruptions, especially after the COVID pandemic, have exposed vulnerabilities in chip production concentrated in East Asia.
The US and other Western nations are now investing heavily in domestic semiconductor capabilities, recognizing chips as both economic drivers and national security assets.
Small Country, Big Impact
Despite its small size, Israel has played a central role in the global semiconductor industry over the years. It began with the establishment of R&D centers in the 1970s and later by Qualcomm, Microsoft, Google, and others.
These centers created fertile ground for the growth of numerous start-ups across the value chain, including chip development, design, and testing.
The combination of multinational R&D centers leveraging Israel’s strong human capital, together with start-ups developing solutions across the semiconductor value chain, has made Israel a significant industry player, with many exits, initial public offerings, and unicorns.
Israel is also home to two semiconductor fabrication plants, one owned by Intel and one by Tower Semiconductor.
The future of semiconductors will be shaped by the surging demand for AI models, geopolitics, and the race to build resilient infrastructure.
Israel’s challenge is to maintain its edge by investing in talent, academia, and start-up growth, especially as competition for skilled workers intensifies and as export restrictions and the continued reliance on East Asia for chip manufacturing increase.
Nevertheless, the report’s authors are optimistic and expect to see substantial growth in semiconductor development and manufacturing investments from both private capital and governments.
Looking ahead
The rising use of AI models will likely accelerate innovation in chips designed for these models and, more broadly, across the entire semiconductor value chain, the report said.
Amit Harel, a partner and leader at Deloitte Catalyst, emphasized the strategic importance of technology, especially semiconductors, for global powers and nations to strengthen their global standing.
“The capacity to develop innovative IP [intellectual property], alongside the continuous upgrading of manufacturing and development capabilities for advanced chips, forms the foundation for creating future competitive advantage among nations,” he said.
“Israel has positioned itself as a significant player in this race, but we must not take our foot off the gas,” Harel said. “The state, together with both local and international players, must invest in the field more than ever before through growth-oriented investments as well as investments in academia and human capital.”
Zack Fagan, a partner at Earth & Beyond Ventures, said venture-capital funds were once reluctant to invest in the sector, but now there is an increasing number of early-stage investments in the field from a broader range of funds.
“Israel’s strengths in core deeptech verticals such as chip design, advanced materials, and photonics form a critical technological foundation for the next era of the semiconductor industry,” he said.
“The combination of rich human capital and the significant presence of multinational corporations creates fertile ground for innovation to emerge in new and existing Israeli start-ups.”
“In parallel to this, the growing demand for solutions capable of supporting large-scale AI models is changing perceptions on investments in the domain,” Fagan said.
“Taken together, there is reason for optimism about the future of semiconductor start-ups in Israel.”