Hard Times Hit Israel's Tech Sector

Israeli President Shimon Peres (R), his son Chemi Peres (C) and visiting Steven A. Ballmer, CEO of Microsoft Corporation, during Ballmer's stopover in Israel to officially inaugurate the company's R&D center

The number of résumés being e-mailed to Jobinfo, a leading Israeli high-tech recruitment company, has jumped by more than 50% in the past few weeks. Most are from recently laid-off workers in an industry that until not long ago was facing a manpower shortage. Several thousand have lost their jobs since the beginning of this month, and the number grows daily as the global recession starts to bite into Israel's largest export industry.

Local powerhouses like software billing company Amdocs (DOX), telecom software provider Comverse Technologies (CMVT.F), and optical inspection company Orbotech (ORBK) already have announced plans to trim hundreds from their workforces. The situation at the country's 2,000-odd startups is not much better.

"It's not as bad as 2001 yet, but if the current momentum continues we'll soon get there," predicts Ilana Achimeir, the chief executive of Jobinfo. The recruitment company also is being inundated with e-mails from high-tech workers whose companies have not yet cut back but are rumored to be on shaky ground.

Teach for Israel?

In an effort to cope with the rise in unemployment and a sharp drop in growth, Israeli Finance Minister Ronni Bar-On announced a $5.5 billion government stimulus plan on Nov. 19 that includes $100 million in new R&D funds for the high-tech industry. The plan also provides incentives for fired high-tech workers—many of whom are unlikely to find other jobs in industry—to be hired as teachers in science, math, and computers.

Until this summer the major concern of the local high-tech industry was the strength of the shekel (BusinessWeek.com, 7/23/08). But since peaking in July, the currency has dropped by more than 20% against the U.S. dollar. Nowadays the emphasis is focused instead on falling sales.

In October, Israeli high-tech exports fell more than 18% on an annualized basis—the first such drop in years. (High-tech exports accounted for 41% of Israel's $31 billion in industrial exports in the first nine months.) A survey by Bank Hapoalim (POLI.TA) predicts the downward trend will continue in the months to come, as global recession suppresses demand in Israel's major export markets, the U.S., Western Europe, and the Far East.

Even companies still holding their own are being far more cautious because of continued uncertainty. "As part of a consolidation following an acquisition, we've closed an R&D facility in France, cut back at our Swiss operation, and imposed an across-the-board wage freeze in an effort to cut costs," says Eli Ayalon, chairman and CEO of DSP Group (DSPG), a leading chipmaker for cordless devices from consumer-electronics giants such as Panasonic (PC) and Uniden (6815.T). The Herzliya-based company implemented the cost-savings measures even though it reported record results for the third quarter.