Wednesday, August 16, 2006

The 10 Leading R&D Centers in Israel

Three years have gone by since we last released the classification of the leading foreign hi-tech R&D centers in Israel. Since then, the US has invaded Iraq, the NASDAQ has slightly recuperated and the global financial hub has been shifting towards South East Asia. We've currently decided to re-evaluate the situation and to see whether Israel still serves as an attractive zone for foreign technological companies. Here goes…

Entered Israel
The main reason behind the establishment of R&D centers in Israel is the acquirement of technology; Israel serves as a substantial source of innovation, and as can be witnessed, in the last three years, over 130 technological Israeli companies have been acquired. A significant part of the acquisitions have been made by companies that already have presence in Israel i.e. Intel, Cisco, BMC, and CA, however the Israeli innovation has tempted some additional global technological giants such as Kodak, Agfa, EMC (which came back), Google, Alcatel, eBAY, Oracle, Juniper and more.

The scope and amount of companies being acquired is certainly impressive, but we suggest referring to the figures with a bit of skepticism, because past experience shows that a considerable number of foreign R&D centers in Israel closed shortly after they were acquired, and their technologies were eventually transferred.

From our experience, there are 2 indicators for long-term survival chances for a foreign R&D center in Israel:

The larger the scope of the acquisition (in money and human resource terms) and the larger the acquiring company – the more likely the R&D center's chance of survival.
The R&D center is established in a planned way, and not via the acquisition of an Israeli company.

The amount of foreign R&D centers that are set-up in a planned manner is relatively small, but, as aforementioned, Israel's technological capabilities attract large entities; and in the last three years, we can mention such prominent names as Samsung and Google, who established R&D centers in Israel. Judging by the "square meters" Google has rented in office space, it seems like the company is planning to hire many more developers.

Exited Israel
In the last three years, several of the leading R&D centers in Israel have shut down such as Serono, Terayon, Infineon and Analog Devices. Usually, the closing down of the R&D centers emanates from three main reasons: Organizational – the company changes its organizational structure; Personality (personnel) – When a CEO in the corporation is replaced; and has no obligations to the one he replaced; and Economic – hardships in the "main" company that require cutbacks.

So basically, what's left?
In practice, Israel deserves a "high score" for the last three years. In spite of the hi-tech crisis, the Intifada (uprising), and the supply of cheap workforce in India and the Far East, Israel still serves as an attractive location; the scope of foreign R&D center activities in Israel has been showing a constant upsurge, and nowadays there are over 30,000 families in Israel employed in foreign R&D centers.

Summary & Forecast
The hi-tech industry is going through a quick maturing process accompanied by consolidation (convergence by mergers & acquisitions). The consolidation process won't pass over Israel, and in the short run we are to witness additional Israeli companies being acquired and a relative increase in the number of hi-tech workers employed by foreign companies. The consolidation may not necessarily be at Israel's advantage because large corporations act in a cold manner in turbulent times. Many R&D centers may shut down and leave behind an entire industry in a hopeless situation.

The 10 leading companies

Classification of the leading companies in Israel:
Criteria:
· Amount of R&D personnel
· Significance of Developments: What's the extent of responsibility that the company gives the local branch?
· Senior Executive mobility: Have top executives from the Israeli R&D center blended in the global management?
· The Dynamics of the company in Israel: Is the company expanding, implementing acquisitions and cooperating with the local industry?
· Amount of R&D personnel in comparison to those in the world

If we'd like to summarize the criteria into one question it would be: What harm will be inflicted on Israel and on the corporation if the local Israeli branch will close down one day?

1st place Intel (Formerly: 1st place)
Intel is so deep-rooted in Israel that at times we tend to forget that Intel is an American company... Intel invests extensive amounts of money in Israel regardless of the economic or political situation, and the investments aren't made as "charity causes", but rather Intel's R&D centers in Israel, especially the one situated in Haifa are a source of several of the most fundamental and important solutions of the company. Intel provides direct and indirect employment to over 10,000 families in Israel, according to above average employment conditions. Undoubtedly, Intel is the leading foreign company in Israel.

2nd place Motorola/Freescale (Formerly: 2nd place)
Due to the addition of Ed Zander, chairman and chief executive of Motorola to the company, things that seemed asleep – started moving in the super giant. The company began investing in Israeli technological companies at a higher rate than in the past, and in our opinion, it won't be long till the company makes an acquisition in Israel.

3rd place HP (Formerly: 10th place)
HP is the largest growing company in Israel. Seven years ago, there were a few dozen HP workers in Israel and today the company employs over 3,000 workers. The company has extensively widened its digital printing activities in Israel through huge investments in Indigo and the acquisition of Scitex Vision. Now, with the acquisition of Mercury, HP will undoubtedly turn into the number 2 foreign company in Israel, if things continue to stay on the right track.

4th place Marvell (Formerly: 7th place)
Marvell is one of the only companies that its stock price has gone up and surpassed the "pre-bubble" prices, and this is not by chance. The company's management is fruitful and succeeds in understanding the market and supplying its needs.

Acquiring Intel's mobile field (DSPC) will bring the amount of Marvell employees in Israel to approximately over 1,000 – this number is very high for a chip designing center, especially in light of the fact that salary costs and investments in the chip center are much higher than that of a software development center.

We are confident that the acquisition of Intel's mobile arena is not Marvell's last acquisition in Israel, and it is probable that we will witness additional acquisitions in the near future.

5th place Cisco (Formerly: 5th place)
Cisco is one of the most dynamic companies in the world – The company quickly identifies future markets and aggressively penetrates them whereas its main "arms" is acquiring technologies in these markets. In the last three years, the company has acquired 4 companies in Israel, in continuation to acquisitions it has already made in Israel. The company closely cooperates with the VC market in Israel and makes minority investments in Israeli start-ups.

6th place SAP (Formerly: 15th place)
SAP intensively recruits workers – the company's R&D centers, which are located in Ra'anana and in Carmiel already employ approximately 800 employees, and the sky's the limit. Perhaps a significant part of the growth of the Israeli branch is related to Shai Agasi's senior role in the organization, but we must remember that SAP is evaluated every quarter and at the end of the day, the R&D center in Ra'anana is evaluated according to the targets set.

7th place Kodak (Was not ranked in former list)
In the beginning of 2000, the company understood that if it wants to survive, it must turn to digitization. Since the company was a bit behind, the only way to bridge the gap was by making acquisitions, so in fact, in a short period of time, Kodak became one of the leading foreign R&D centers in Israel through a series of acquisitions, with the peak being the acquisition of the Creo R&D center. Since these acquisitions have been done in the last three years, we must wait and see how they are "digested" by the company.

8th place Applied Materials (Formerly: 3rd place)
The past three years have been good ones for the Israeli branch, which is behind many successful solutions. The company has completed its transfer to the new R&D center in Rehovot. Unlike other R&D centers, Applied Israel does it all: development, manufacturing and support. Those who wish to learn how a complex organization works efficiently should look into Applied.

9th place BMC (Formerly: 4th place)
The company is intensifying its activities in Israel all the time and is recruiting employees. This year, Identify employees will join the company. Identify was acquired by BMC in the first quarter of 2006. In relation to its general size, BMC's R&D center is one of the biggest from all the 50.

10th place IBM (Formerly: 11th place)
IBM is one of the most deep-rooted and veteran companies in Israel. In the past three years, IBM invested vast sums in buildings and equipment aimed at expanding the development lab in Haifa. The lab received larger responsibility from the mother company and simultaneously, the company is strengthening its ties with the academia and the local VC Fund community.




Author: Gilai Dolev, Director, d&a hi-tech information
Source: Yedioth Ahronoth
Translation: Lee-At Green, d&a hi-tech information