Israel’s Semiconductor Landscape 2025

From Innovation to Global Scale

3 November, 2025

Including commentary by:

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Executive Summary

Israel's "Two-Engine" Semiconductor Paradox

Yariv Lotan
VP of Product and Data, Startup Nation Central

The Israeli semiconductor industry is a global powerhouse in specialized innovation, though not in large-scale manufacturing. Unlike the United States, which leads in broad chip design, or Taiwan and South Korea, which dominate fabrication and memory production, Israel has carved out a distinct role as a world-class hub for semiconductor R&D and fabless design.

 

Israel’s semiconductor ecosystem runs on a “two-engine” model. It is both a prolific generator of high-impact startups and a critical R&D base for global tech leaders including Intel, Nvidia, Amazon, Apple, and Microsoft. Many of these companies now develop their most strategic, custom silicon and core IP in Israel.


This dynamic has fueled major M&A success and positioned Israel as a source of breakthrough innovation. Yet the ecosystem’s reliance on exits, combined with high operational costs, has slowed new startup formation. Its central challenge now is to evolve from a “build to exit” mindset toward a “build to last” model.

1. Israel's Unique Position: Global & USA Comparison

Israel’s strength lies in its deep, specialized intellectual property across emerging blue ocean markets, where it designs the core technologies that power high-growth industries.

 

  • Global Niche: Israel excels where others lag behind. IKey domains include:
    • Networking & Interconnects: A world leader in high-speed networking for AI data centers, built on the legacy of Mellanox (Nvidia) and Annapurna Labs (Amazon).
    • AI Acceleration: A proven hub for AI-specific chip design, for example Habana Labs (acquired by Intel) and Neuroblade (acquired by Amazon).
    • Metrology & Inspection: Home to leading independent public companies, including Nova and Camtek, that supply critical technologies for advanced manufacturing.
  • vs. United States Ecosystem:
    • Scope: The USA leads in broad-spectrum design (CPUs, GPUs) and EDA tools. Israel is focused on niche fabless design.

Funding Dynamics: Israel’s share of private semiconductor funding compared to the USA has declined from roughly 33% in 2019 to below 10% in 2024–2025, reflecting the USA GenAI chip surge and a phase of quiet consolidation in Israel.

2. Key Insights for the Executive (MNC & Corporate Leaders)

  • Israel is Your Core R&D, Not an Outpost: Your most strategic, next-generation custom silicon is being designed in Israel. This includes Amazon’s Graviton (CPU) and Nitro (networking) , Nvidia’s data center networking , Intel’s Gaudi (AI) chips , and Apple’s core M-series and sensor technology (like Face ID). Microsoft develops its own Cobalt (CPU) and Maia (AI) accelerators in the northern city of Haifa.
  • Self-Reinforcing Talent Engine: In Israel, multinational corporations serve as the primary university of the tech ecosystem. Their R&D centers train elite engineers who either go on to lead new internal initiatives or leave to found startups that are later acquired by the same corporations or their competitors, recycling experience and talent back into the ecosystem.
  • A Geographically Diverse & Stable Hub: Unlike the concentrated Tel Aviv tech hub, the semiconductor industry is spread across the country, from Kiryat Gat in the south to Yokne’am and Migdal HaEmek in the north. It is also a notable engine for workforce diversity, with Intel being the largest employer of Arab-Israeli engineers in high tech.

3. Key Insights for the Investor (VC & PE)

  • High Risk, High Value Exits: This is not a fast, scalable software play. The dominant exit path is high-value M&A (e.g., Mobileye $15.3B, Mellanox $6.9B, Habana $2B), not IPO.
  • Capital Intensity & High Barriers: The sector is defined by high capital intensity and long development cycles. The median semiconductor funding round in Israel is consistently 2-4 times larger than that of the general tech ecosystem. VCs are cautious because semiconductor startups face steep upfront costs for EDA tools and tapeouts, often running into millions.
  • A Market Gap in Early-Stage: The report flags a slowdown in new startup formation. This represents a missed opportunity for specialist VCs who are wary of the long timelines and high costs.
  • Where to Invest: Avoid red ocean markets such as general-purpose compute or memory technologies, where small companies cannot survive. Instead, focus on defensible niches including ASICs, AI-specific accelerators, photonics, and manufacturing equipment.

4. Key Insights for the Founder (Startup)

  • Expertise & Capital Are Non-Negotiable: Success demands deep domain knowledge (PhDs, postdocs) and a credible roadmap to raise tens to hundreds of millions of dollars. This is not a field for “three army veterans working on an application”.
  • Leverage the Pioneers: The ecosystem is defined by legacy and continuity, with early leaders such as Dov Moran, Avigdor Willenz, and Eyal Waldman remaining deeply involved as mentors and investors, creating a unique network and lasting asset.
  • The MNCs Are Your Ecosystem: Global tech giants are your main source of talent, your biggest competitors, and your most likely exit strategy. Your business plan must account for this dynamic.
  • Focus on a Bottleneck: You cannot out-Nvidia Nvidia. Find a specific, unsolved problem, for example in memory access, data acceleration, or AI inference, and build a defensible IP-moat around that solution.

Introduction

Why Semiconductors Define the Global Tech Race

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Semiconductors are the tiny chips that make modern life possible. They run our phones, cars, hospitals, factories, and defense systems. Without them, economies would stall and national security would be at risk. Beyond their strategic role, semiconductors also represent one of the fastest-growing global markets. Valued at roughly USD 681 billion in 2024, the industry is projected by the World Semiconductor Trade Statistics (WSTS) to grow to USD 701 billion in 2025. Furthermore, there is a wide consensus that revenues will surpass USD 1 trillion by 2030, a forecast supported by leading industry bodies and market analysis firms including McKinsey & Company, Deloitte, PwC, and SEMI.

Despite the enormous market value, semiconductor production remains highly concentrated and vulnerable. Advanced chipmaking demands nanometer-scale precision, specialized equipment, and investments of tens of billions of dollars. Only a handful of countries control the most critical parts of this supply chain: Taiwan and South Korea dominate manufacturing, with TSMC producing most of the world’s leading-edge chips; the United States leads in design; Israel in R&D; and Europe and Japan in lithography tools, materials, and other specialized equipment. This concentration leaves the world economy and national security exposed to political conflict, supply disruptions, or technological bottlenecks.

These vulnerabilities have pushed semiconductors to the top of government agendas worldwide. The United States enacted the CHIPS and Science Act to strengthen domestic manufacturing and research, while the European Union’s Chips Act aims to double its global market share by 2030. Japan is subsidizing new fabs, China is investing hundreds of billions to achieve self-sufficiency, and countries from India to Israel are rolling out their own semiconductor strategies. This global race reflects both economic and strategic value in an era of geopolitical competition.

Israel is home to many of the world’s leading semiconductor companies, making it a strategic global hub. Intel operates one of its largest development centers in the country. Applied Materials runs its biggest R&D site outside the United States. Nvidia transformed its Israeli footprint through the $7 billion acquisition of Mellanox in 2020, integrating its high-performance networking capabilities—now central to AI—and becoming one of Israel’s largest technology employers, with more than 5,000 staff.

Alongside these giants, Israel’s startup ecosystem is a driving force in semiconductor innovation. Dozens of ventures are advancing AI accelerators, cybersecurity hardware, and defense-related chips, with several securing substantial global investment and scaling rapidly. This density, fueled by exceptional engineering talent, an entrepreneurial culture, and decades of strategic investment, has transformed Israel from a peripheral outpost into a global R&D powerhouse.

From Materials to Systems: The Semiconductor Value Chain

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At their core, chips are integrated circuits composed of millions or billions of transistors on a silicon wafer. Their importance lies in their versatility. They can be designed for general-purpose tasks, such as powering a laptop, or as Application-Specific Integrated Circuits (ASICs), optimized for a single, highly specialized function. Running everyday applications on a smartphone versus enabling high-performance simulations in a supercomputer, for instance, requires very different chip architectures tailored to performance, power, and thermal constraints.

For decades, the guiding principle of the industry was Moore’s Law, articulated by Intel co-founder Gordon Moore: the number of transistors on a circuit doubles roughly every two years. This relentless miniaturization drove exponential gains in performance and efficiency. In recent years, however, the pace has slowed as physical and economic limits are reached, shifting the focus toward complementary strategies such as heterogeneous integration, chiplets, and “More than Moore” innovations. Looking ahead, researchers are pursuing “Beyond CMOS” paradigms. New device concepts and materials such as carbon nanotubes, spintronics, and silicon photonics, could eventually extend or replace conventional transistor scaling.

The semiconductor ecosystem can be understood through two complementary lenses: what chips do (their function) and how they are made and delivered (their place in the value chain). Together, these perspectives provide a complete picture of both technology and industry structure.

Functional Taxonomy: What Chips Do

Semiconductors can be grouped by their primary role in digital systems.

Compute chips process data and execute instructions, spanning general-purpose CPUs and embedded microcontrollers to high-performance accelerators such as GPUs and AI processors.

Network chips manage the flow of data within and between systems, enabling connectivity across devices and data centers.

Storage and memory chips retain information temporarily or permanently, ranging from dynamic memory (DRAM) to non-volatile memory (NAND flash) and emerging alternatives.

These three categories form the building blocks of nearly every modern electronic system.

Value Chain Taxonomy: How Chips Are Made and Delivered

The value chain describes how semiconductors progress from raw materials to finished subsystems.

Upstream activities

Upstream activities provide the inputs and tools for fabrication, including silicon wafers, specialty gases, photoresists, and the highly complex machinery used for lithography, deposition, etching, inspection, and metrology. Firms in this segment, such as those specializing in nanoscale measurement and defect detection, do not design chips but are indispensable for achieving the precision and yields required in advanced fabrication.

Midstream represents the intellectual and manufacturing core of the industry. It includes intellectual property providers and design tool firms, fabless companies that create chip architectures but outsource production, foundries that manufacture chips on behalf of designers, and integrated device manufacturers (IDMs) that combine design and fabrication under one roof. This is where functional categories of compute, network, and storage, are translated into physical silicon.

Downstream activities prepare chips for use and integration into higher-level systems. This encompasses packaging and testing, often carried out by outsourced assembly and test providers, as well as system integration, where semiconductors are built into modules and subsystems such as sensors, communications components, and automotive platforms. Importantly, downstream refers specifically to semiconductor packaging and subsystem integration, not to general consumer electronics manufacturing.

Blue and White Chips:
Israel’s Semiconductor Journey

For decades, Israel has cultivated one of the most vibrant semiconductor ecosystems in the world. What began with a few visionary engineers has grown into a global innovation hub, powered by bold investments, strategic acquisitions, and entrepreneurial talent. The result is a sector that not only drives technological progress but also plays a measurable role in Israel’s economy.

Early Foundations

The story begins in 1971, when Intel engineer Dov Frohman returned from California to establish a small design center in Haifa, the company’s first site outside the United States. In the 1980s, he persuaded both Intel and the Israeli government to take a bolder step, leading to the opening of Fab 8 in Jerusalem, Intel’s first manufacturing facility abroad. This milestone paved the way for the development of the vast Kiryat Gat campus, now home to Fab 28, Intel’s largest manufacturing site in Israel.

Over the decades Intel became the largest private employer in Israel’s tech sector, with roughly 14,000 people working across engineering, operations, and manufacturing. It also played a central role in Israel’s M&A history, acquiring DSPC in 1999, the nation’s first over billion-dollar tech exit ($1.6 billion), and Mobileye in 2017 for $15.3 billion which was, until recently, Israel’s largest deal. In 2023, Intel announced another transformative $25 billion expansion at the Kiryat Gat campus(Fab 38), supported by a $3.2 billion state grant. Analysts estimate that Intel alone contributes a measurable percentage of Israel’s GDP, with Fab 38 expected to employ more than 10,000 people directly and indirectly.

“The bold initiative of Dov Frohman turned into a great success story – only to grow with time. Today, the Kiryat Gat FAB employs around 10k people with about 2–3 employees in the general eco-system supporting each worker. Intel accounts for a noticeable percentage of Israel’s GDP.”


Dr. Alon Stopel, Chairman of the Innovation Authority and Chief Scientist for Innovation at the Ministry of Innovation, Science and Technology

Networking and Compute Powerhouse

In the 1990s a new generation of entrepreneurs expanded Israel’s semiconductor leadership. In 1993, Avigdor Wilentz and Eyal Waldman co-founded Galileo Technology, a pioneering VLSI design firm. Galileo’s acquisition by Marvell in 2000 was both a landmark financial event and a validation of Israel’s advanced design capabilities, inspiring dozens of new ventures.

Wilentz went on to back ventures such as Leaba Semiconductor, later acquired by Cisco, and Annapurna Labs, acquired by Amazon in 2015. Annapurna became the cornerstone of Amazon Web Services’ custom silicon strategy, responsible for the Graviton ARM-based processors, the Inferentia and Trainium AI chips, and the Nitro system for networking and security offload. These technologies now power much of AWS’s global cloud infrastructure.

Waldman launched Mellanox, which grew into a world leader in high-performance networking chips for data centers and supercomputers. The company went public on NASDAQ in 2007 and completed 11 acquisitions, many of them local startups, before being acquired by Nvidia in 2019 for $7 billion. Today, Mellanox is central to Nvidia’s data center division, powering accelerated computing and AI workloads with its InfiniBand and Ethernet interconnects.

AI Acceleration and Beyond

The 2010s added another dimension with dedicated processors for artificial intelligence. In 2016 Habana Labs emerged as a breakthrough startup developing AI-specific silicon. Its Gaudi training processors and Goya inference chips offered an alternative to Nvidia’s GPUs, optimized for data centers. Intel acquired Habana in 2019 and integrated it into its AI hardware portfolio. The Gaudi2 processor now sits at the core of Intel’s strategy to compete in the fast-growing AI accelerator market.

At the same time global technology leaders deepened their reliance on Israel through strategic acquisitions. Apple entered in 2012 with the purchase of Anobit, a specialist in flash memory controllers, followed in 2013 by PrimeSense, whose 3D sensing technology laid the foundation for Face ID and Apple’s AR capabilities. These deals anchored Apple’s largest R&D hub outside of the United States, where Israeli teams work on storage, wireless, CPU design, and Apple’s M-series chips.

Amazon’s 2015 acquisition of Annapurna Labs gave it a decisive edge in building custom silicon for AWS, tightly integrated into its cloud architecture. Microsoft also established a major semiconductor base in Haifa, where engineers developed the ARM-based Cobalt CPU, the Maia AI accelerator, and the networking and infrastructure chips that keep Azure efficient and secure. Together, these initiatives gave the world’s largest cloud providers greater independence from external chip vendors and cemented Israel as a critical node in global cloud infrastructure.

A Global Hub

Beyond the headlines, Israel has become a magnet for the world’s largest semiconductor corporations. Qualcomm, Samsung, Broadcom, KLA, and Applied Materials all operate significant R&D or engineering facilities across the country. Their presence highlights Israel’s dual strength, both as a cradle of entrepreneurial startups and as a global research hub where multinationals invest to secure the future of semiconductor innovation.

“With the digitalisation and electrification of everything, and with the AI boom, we will need more and more chips,” says Avi Hasson, CEO of Startup Nation Central. “But the need for more compute power, in a smaller physical footprint and with lower power consumption, is becoming increasingly sophisticated, challenging the limits of physics. Developing a new chip typically requires tens of millions of dollars, often far more”.

From this reason he claims:

“You’ll see fewer startups pursuing chip development, and fewer investors willing to fund them. Consequently, Israel’s role in the global market is reshaping. Shifting from a focus on generating many startups and M&As, Israel’s tech talent is now becoming a crucial part of multinational players with large R&D centers.”

Chips for Defense

In the 1970s, amid international embargoes and restricted access to critical technologies, Israel’s defense sector turned to semiconductors to ensure self-reliance. Dedicated subsidiaries were established to develop and produce the components vital for national security.
Gal-El, based in Ashdod, specialized in radio-frequency (RF) and mixed-signal chips for defense communication and radar systems. In December 1976, SCD (SemiConductor Devices) was founded in Migdal HaEmek as a joint venture of Rafael and Elbit Systems, focusing on infrared and electro-optical sensors for missile guidance, thermal imaging, and surveillance. Together, these firms supplied the Israel Defense Forces (IDF) while also exporting abroad, generating revenues in the hundreds of millions of dollars.
Any count of Israel’s semiconductor fabrication facilities must therefore extend beyond commercial leaders such as Intel and Tower to include Gal-El and SCD. These defense-driven fabs illustrate how national security imperatives helped lay the foundations for Israel’s broader semiconductor ecosystem.

Additional Pioneers

Israel’s early semiconductor ecosystem also attracted global market leaders. Motorola established a local subsidiary as early as 1964, adding a semiconductor unit in 1982. National Semiconductor opened an R&D center in 1978 and later launched a fabrication facility in Migdal HaEmek. That fab was spun out in 1993 as Tower Semiconductor, which has since grown into a multibillion-dollar public company with thousands of employees worldwide.

The same period saw the emergence of Israeli-born innovators. M-Systems, founded in 1989, pioneered flash storage technology and became a global leader before being acquired by SanDisk in 2006. Orbotech, founded in 1981, became a world leader in inspection and imaging tools for semiconductors and printed circuit boards, remaining independent for decades before being acquired by KLA in 2019. Saifun Semiconductors, established in 1998, developed non-volatile memory IP and went public on NASDAQ before merging into Spansion, extending Israel’s role in global flash memory innovation. TransChip, founded in the mid-1990s, specialized in CMOS image sensors and was acquired by Samsung in 2007, becoming the base for Samsung’s Israeli semiconductor activities.

While many Israeli semiconductor companies of this era were eventually acquired by global players, a small number remained independent and continued to grow. Two of these – Nova, founded in 1993, and Camtek, incorporated in 1987 – have built lasting positions in process control, metrology, and inspection. Both are still publicly traded and have expanded significantly in recent years, cementing their roles as key suppliers to the global semiconductor value chain.

“There is a huge presence in Israel of multinational companies developing fabless chips. Some have been built through M&A activity, while others have grown organically. We love to see startups and M&As, but there is another model – represented by companies such as Nova and Camtek – of becoming a fully independent company, showing that Israel can also compete globally in specialized niches like metrology and inspection.”

Legacy and Continuity

Far from being a nostalgic label, the pioneer metaphor remains apt. In Israel’s semiconductor arena, as in its cybersecurity sector, the first generation of founders did more than inspire those who followed. They became mentors, investors, and serial entrepreneurs, creating a self-reinforcing cycle where experience, capital, and vision continually flow back into the ecosystem. Each new wave of companies is able to build on accumulated knowledge and networks rather than starting from scratch. As global demand for semiconductors accelerates and innovation approaches the limits of physics, Israel’s continuity of talent and entrepreneurial culture positions it to sustain past achievements and also to shape the next generation of breakthroughs.

From Innovation to Scale:
Building Israel’s Semiconductor Future

Eyal Waldman
Founder, Mellanox; Investor and Entrepreneur

The semiconductor industry is in the midst of a historic expansion. Data volumes are surging, sensors are embedded in every aspect of life, and systems demand ever greater computing power. This environment creates enormous opportunity for new ideas and fresh architectures. Having built companies like Galileo and Mellanox, I have seen how Israeli innovation can scale globally, and today I continue to support the next generation of entrepreneurs shaping the future of semiconductors.

Startups in this field remain vital. Even with rising costs and growing technical complexity, small and focused teams can still create breakthrough solutions. Success comes from identifying specific bottlenecks, whether in memory, interconnect, or AI workloads, and rethinking system design to deliver stronger performance and efficiency. This is why I invest in companies working on new approaches to data acceleration, near-memory computing, and machine learning inference. These challenges are real, and solving them will define the next frontier.

Israel’s advantage lies in its people and culture of innovation. Decades of experience in design, project execution, and system architecture have created a unique foundation. To build on this, we must continue investing in education, cultivate more engineers, mathematicians, and physicists, and provide shared infrastructure that supports advanced research in areas such as quantum computing and AI. Combined with an entrepreneurial spirit and strong collaboration between government, academia, and industry, these strengths will ensure Israel remains at the forefront of global innovation.

Mergers and acquisitions also play a strategic role. They are not only financial transactions but practical tools for accelerating roadmaps, integrating critical technologies, and strengthening competitiveness. This approach should remain central for the next generation of companies, using partnerships and acquisitions to expand capabilities and build real leadership at scale.

By nurturing talent, encouraging bold ideas, and creating the right conditions for innovation, Israel will continue to produce semiconductor companies with global impact. The future of computing will be shaped here as much as anywhere else.

W.I.P. Marker

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Israel
USA
Europe
Asia
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Summary

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More on the Israeli Tech Ecosystem

Methodology Notes

    • The report is based on the Startup Nation Finder database, with the following exceptions:
      ○ Selected metrics in the Global Comparison and Finder Index sections are based on Pitchbook.
      ○ Selected metrics in the Economic Indicators and Impact section are based on the Central Bureau of Statistics survey data
    • The report offers a snapshot of Q3 2025 activity as of Sep 28, 2025. Data might be further updated in the future. As a result, figures in this report may differ from figures in prior (and future) published reports.
    • The definition and criteria for companies and investors can be found in the Finder Glossary.
    • Active Investors are defined as investors with at least 1 investment round in Q3 2025.
    • Aggregate metrics may include rounds that are not visible in Finder, per the request of the profile owners.
    • Funding Type definitions:
      ○ Private Funding includes the following round types: Pre Seed, Seed, A, B, C, D, E, F, G Rounds, Convertible Debt, SAFE, Equity Crowdfunding, and Undisclosed rounds.
      ○ Funding for Public companies includes the following event types: IPO (including IPO via SPAC or Reverse Merger), Non-Initial Public Offering, PIPE, Convertible Bonds.
      ○ The following events are excluded: Crowdfunding, Debt Financing, Secondary, and Grants.
    • Some Finder lists are dynamic and provide current snapshots. Hence the results might not match the figures in the report.
    • The Finder Index is an index calculated by Startup Nation Central, based on Israeli companies traded in NASDAQ with a $50 million market cap minimum threshold and using an equal-weighting methodology.
    • Figures may be revised based on expanded data availability and future methodology enhancements for the Global Employment Indicator and the Fundraising Journey analyses.
    • The Fundraising Journey analysis:
      ○ Israeli metrics are calculated based on the values of Pre Seed, Seed, A and B Rounds and the median time from the prior round.
      ○ Months to the next round are measured from the last round’s date; if a round is skipped, the most recent round date is used.
      ○ Definitions of funding stages align with those used in Finder. Durations between rounds are approximate.
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About Us

Startup Nation Central is a free-acting NGO providing global solution seekers frictionless access to Israel’s bold and impatient innovators to help tackle the world’s most pressing challenges. Our free business engagement platform, Finder, grants unrestricted access to real-time, updated information and deep business insights into the Israeli tech ecosystem.

A special thanks to Dr. Sergei Sumkin, Senior Researcher at the Aaron Institute for Economic Policy, for his continuous contribution to the Economic Indicators & Impacts chapter.

We wish to also thank Assaf Zvaig for his valuable contributions to the report.