Israel's tech sector could face disruptions after attacks - investors (updated)

Tower Semiconductor

09/10/2023 20:34

(Updates with action in US tech stocks, updates first
paragraph, adds quotes in paragraphs 8 and 9)
    By Max A. Cherney, Mica Rosenberg and Steven Scheer
       SAN FRANCISCO/JERUSALEM Oct 9 (Reuters) - Tech companies
operating in Israel are expected to fortify security as they
could face disruptions, said investors and analysts, as the
Israeli military shifted to a war footing that may include a
full-scale invasion of the Gaza Strip.
        Hamas gunmen from Gaza killed hundreds of Israelis and
abducted an unknown number of others, kicking off a fresh
conflict in the region.
    High-tech industries have for a few decades been the fastest
growing sector in Israel and crucial for economic growth,
accounting for 14% of jobs and almost a fifth of gross domestic
product.
    Israeli stock and bond prices slid on Monday after gunmen
from the Palestinian group Hamas rampaged through Israeli towns
on Saturday. Militants also fired thousands of rockets into
Israel in a surprise attack. Some rockets reached as far as Tel
Aviv, prompting airlines to suspend flights to and from Israel.
    Israel retaliated with air strikes on Hamas targets in Gaza,
and hundreds of people have died.
    "It is a huge disruption to business as usual," said Jack
Ablin, chief investment officer and founding partner at Cresset
Wealth Advisors. He said in the short-term resources could be
diverted if the conflict expands, such as staff at tech
companies being called up as military reservists. 
        Israel has already said it would call up an
unprecedented 300,000 reservists, many of which could come from
U.S.-based tech operations. 
  
        “We’re preparing for this to take a while,” said Noam
Schwartz, the Israeli-born founder and chief executive of
ActiveFence, "a tech firm that specializes in online threats
with headquarters in New York and Tel Aviv. 
  
        His company will keep serving customers during the
conflict, he said, even as he expects to return to Israel for
military duty. “We have enough people worldwide to make sure
everyone is in check.”
  
    Quincy Krosby, chief global strategist at LPL Financial in
Charlotte, North Carolina, said there will likely be a
"tremendous effort" to guard physical installations for
companies based in Israel from attacks because some technology
spending is tied to the military. 
    U.S. tech shares were largely down, including bellwethers
with large operations in Israel. 
    A spokesperson for chipmaker Intel  INTC.O , Israel's
largest private employer and exporter, said the company was
"closely monitoring the situation in Israel and taking steps to
safeguard and support our workers." 
    The spokesperson declined to say whether chip production has
been affected by the situation. Intel's shares fell 0.5% on
Monday. 
    Nvidia  NVDA.O , the world's largest maker of chips used for
artificial intelligence and computer graphics, said it had
canceled an AI summit scheduled for Tel Aviv next week, where
its CEO Jensen Huang was due to speak. 
    Israel-based Tower Semiconductor  TSEM.TA , which provides
customers with analog and mixed-signal semiconductors, mainly
for the automotive and consumer industries, said it was
operating as usual. Its New York-listed shares fell 4.9%.
    Other tech giants, Meta Platforms  META.O , Alphabet
 GOOGL.O  and Apple  AAPL.O  did not respond to requests for
comment. Microsoft  MSFT.O  declined to comment.
    Israel's technology sector had already been facing a
slowdown in 2023, exacerbated by internal political conflict and
protests. A growing number of Israel's tech startups have been
incorporating in the United States.
     
    MILITARY, AI SPENDING BOOST
    Israel's tech sector dates back to 1974 when Intel
established a presence, but the start-up scene took off in the
1990s, earning a reputation as the world's second-largest tech
center outside of Silicon Valley, with thousands of companies
and developing a significant ecosystem.      
    There are now 500 multinationals operating in Israel -
mainly research and development centers after buying Israeli
start-ups - from Intel to IBM, Apple, Microsoft, Google and
Facebook.
    Prime Minister Benjamin Netanyahu in June said Intel was
planning to spend $25 billion on a new factory in the southern
city of Kiryat Gat some 42 km (26 miles) from Gaza.
    Due to open in 2027, he called it the largest-ever
international investment in the country that could employ
thousands of people and would add to its chip plants and design
centers there.
    In the longer term, the tech and AI sector, where Israel has
been a leader, could see increased investment because of the
industries' close tie-in with military spending, LPL's Krosby
said.
    "They will probably increase the investment in AI," Krosby
said. "When a country is caught literally off guard the first
thing they look at - beside the obvious problems with
intelligence - is what was missed within the security systems."

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Listen now: Inside Hamas' planning and Israel's response    https://link.reuters.com/Oqd0bGZRKDb
WRAPUP 11-Israel on war footing, Hamas threatens to kill
captives     urn:newsml:reuters.com:*:nL4N3BF05O
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 (Reporting by Max A. Cherney in San Francisco, Mica Rosenberg
and Helen Coster in New York, and Steven Scheer in Jerusalem;
Editing by Kenneth Li, Megan Davies, Jamie Freed and Nick
Zieminski)
 ((mailto:mica.rosenberg@thomsonreuters.com; (646) 223-6735;))