The recent glut in semiconductors has put the sector in the world´s spotlight. The global shortage highlights the importance of increased investment within the industry from early-stage disruptive technologies to manufacturing capacity. In 2020, Intel announced plans to invest $95 billion in Europe’s semiconductor industry over the next decade. We believe Israel will also play a major part in the development of the semiconductor industry during the next decade.
There is a rich history behind the semiconductor industry in Israel, beginning in the 1970s, when Intel established its first development center in the country. In the 1980s, Intel chose Jerusalem as the location for their first chip manufacturing center outside of the US. Today, Intel employs around 14,000 people in Israel and is considered one of the country’s pillars for technological innovation in addition to the elite units of the IDF. Following Intel´s lead, Qualcomm and Cisco have already established development centers as well. Other giant tech leaders like Apple, Amazon, and Microsoft have also shown interest in developing chips in the country. Google is building a chip factory in the country and Facebook has plans to follow close behind. According to 2020 Semico’s Research Corporation study, Israel is second only behind the US in number of semiconductor startups.
Below is the Israeli semiconductor landscape, click here to view the map in high resolution
Taking a closer look, we divided semiconductors into more specific subcategories. Going back to 2019, chipsets, wearables, and systems on a chip have been the most popular investment semiconductor categories with VCs in Israel. According to data from Startup Nation Central, the large increases seen in 2021 were due to investments in a system on a chip, with the startup Wiliot receiving $200M, and chipsets investments in Xsight Labs, Speedata, and Pliops receiving a combined $200M.
When considering all industries in Israel, the semiconductor industry is relatively small. There are a lot of semiconductor companies in Israel but there are not a lot of new ones. Over the past 3 years, there have only been 30 new semiconductor companies created in Israel. That is only 1.6% of the total 1827 new startups in Israel from 2019 to 2021. Banias Labs, Neuronix AI Labs, and FortifyIQ are a few of the newest startups in this area. Banias Labs, a communication chips manufacturer, develops infrastructure solutions for next-generation communications. Neuronix AI Labs is an AI chip manufacturer that aims to reduce cost and power consumption by more than 95%. They raised $1.5 million in a seed round. FortifyIQ, another AI chip startup, produces chipsets focused on providing maximum security against side-channel attacks.
Surprisingly, according to IVC research, Israeli investors dominate the majority of the market’s investment. Israel consistently invests more in its own semiconductor startups when compared to foreign investors. For the past three years, domestic investment has been responsible for roughly 45% of all investments in Israeli semiconductor startups. The US accounts for about 25% and the rest of the world constitutes about 30%.
In terms of M&A and IPO activity, 2019 and 2021 were fairly active for semiconductor startups in Israel. Throughout these two years, there was a total of 10 deals, 7 of them were M&As. 2020 was relatively calm, there weren’t any deals and there haven’t been any in 2022 yet either. The most recent acquisition occurred in October of 2021. Renesas Electronics Corporation acquired Celeno Communications for $315 million. Celeno Communications, invested by Gonzalo Martinez de Azagra, Founder and General Partner of Cardumen Capital, while he was with Samsung Ventures, offers advanced WiFi chipsets into the realm of high-performance home networks and smart buildings. In June 2021, G Medical Innovations was listed on NASDAQ through a $15 million IPO. This was the most recent IPO from an Israeli semiconductor startup.
Israel has always been and remains a hotspot for large, established semiconductor companies. However, semiconductor startups over the past few years have not been thriving relative to startups in other fields. The data from the last few years shows there hasn’t been a lot of growth in semiconductor startups in Israel recently. This doesn’t mean it will be a trend that will continue, as huge amounts of data are being uploaded on the internet, breakthroughs in AI, and the growth of smart transportation technology have all recently created a strong demand for new chips and processors that can deal with complex tasks. AI and smart transportation are relatively new technologies that have not been conquered by the big players in the industry. The shift to smart transportation is made possible by the adoption of 5G and advancements in the internet of things (IoT), both of which require semiconductors to operate. The most common example of smart transportation is smart traffic signals and connected cars. Smart traffic signals require semiconductors in order to direct traffic more efficiently and connected cars require semiconductors in order for the cars and traffic lights to communicate with one another. Another interesting company, Coretigo, founded by Texas Instruments and Apple executives is enabling the flexible manufacturing of the future with its mission-critical industrial automation wireless communication solution.
This shows there is a need for more innovation in the semiconductor industry and leaves room for startups to lead the way.
Sources: IVC, Start-Up Nation Central, Tracxn, and PitchBook.