In January, U.S. electronics firm Apple confirmed its purchase of Israeli flash memory company Anobit. Apple often uses its vast cash reserves to buy small companies with interesting technology, and Apple is already using Anobit’s products for “packing more storage capacity into Macs and iOS devices at lower prices, with the same level of component reliability and longevity,” according to AppleInsider.
Why did Apple go to Israel to find this kind of chip research?
Flash memory is hugely important to Apple, and Apple is important to the global flash memory market. The basic components of flash memory are traded as commodities, and every Apple product announcement — especially if it includes a jump in device memory — causes the whole market to move. According to iSuppli, flash memory is the second most expensive part of devices like the iPad (following the screen).
Flash memory, which retains information without the need to be powered constantly, was invented in Israel by Eli Harari, a former Intel engineer who founded a company in 1988 that went on to become SanDisk. In its early history, Kodak was offered his technology but talks fell through when Kodak asked for a three-year exclusive contract. Harari preferred a competitive market and talks broke off.
But what was a former Intel engineer doing in Israel in 1988? Well, Intel first came to Israel in 1974. Yes, you read that correctly: a few months after the 1973 Yom Kippur war, Israel was the first country outside of the U.S. that Intel performed development work in. Founded in 1968, by 1971 Intel was selling the world’s first complete microprocessor on a single chip, and already in 1974 Intel realized Israel held a pool of engineering talent unrivaled in the world.
Intel was just the earliest pioneer: now Apple joins a shopping list of the top names of the high-tech world: Microsoft, Google, SAP, Cisco, and dozens of others maintain large offices in Israel. And these are not just local sales or support offices: full-scale research and development is performed on a large scale in Israel. The mayor of Tel Aviv, a city that has spawned dozens of startup companies later bought by giants, doesn’t talk about subsidies. He says:
We are creating a good place for high-tech people to live in. I am doing it for the people working in high-tech.
Buying Anobit is not the end of the story for Apple. Sources in Israel are reporting that, independent of the Anobit purchase, Apple is looking to establish their own chip research and development office. This is big news because Apple has never performed core component or product design work outside of California. Only marketing, selling, and support have happened out of the state.
One of the last major components of their own products that Apple doesn’t directly control is processor design. Their computers use Intel processors, though the mobile products use an Apple-designed chip manufactured to order by Samsung.
So what are the reasons for such a huge step? Israel has as strong a history in these technologies as anyone: Intel’s investment in 1974 shows that.
One of the little known phenomena of Israel’s permanent need for almost universal conscription is the creative use to which the brightest and best kids are put: a special program in the army, known as “Talpiot,” takes a select few from each year’s intake and grooms them in technical sciences. This elite group has gone on to produce many of Israel’s best-known technical successes. In effect, the three or more years in the army are put to extraordinary use. It’s almost incalculable what contribution this IDF program has made to Israel’s economy. Apple will tap into this just by being in Israel.
Not to mention the new international study that lists Israel as the second-most educated country in the world.
In addition, after the USSR’s collapse, Israel absorbed one million new immigrants in around ten years, people with a disproportionately high amount of advanced training. This was also a source of new scientific and engineering talent.
Barriers to doing business in Israel are not high. I own small companies in both the United States and Israel. I no longer employ anyone directly in the United States, and for that I am grateful: the burden of having staff there has become astonishing.
Israeli employment law, while certainly not a charter for worker exploitation, is nevertheless more attractive. Working and social conditions are comparable with America. It can be said that Israelis enjoy better government services, such as early child care and health provision, than those in the United States. There is also no direct need for employers to spend money on health plans, since their employees are covered by income taxes and “national insurance.”
Again, from my personal small business experience, the Israeli tax system is a lot easier to deal with than the muddle of local, state, and federal taxes that I have to pay an accountant in New York to file for me. My little company in New York, with no employees, generates a level of accounting work that dwarfs my 15-person importing company in Israel. I’m sure at the scale of an Intel or an Apple things become much more complex, but the comparison is probably valid.
The real question: why did it take Apple so long? One suspected cause was the political leanings of Steve Jobs’ wife: firmly in the left-leaning liberal and pro-Palestinian camps. Apple has neglected Israel as a market for its computers for years despite Israel leading the world in per-capita computer use. Apple’s market share in personal computers is much lower in Israel than in the United States or even Europe, and support for Hebrew is not as comprehensive as it is on Windows.
So now Apple, Microsoft, Intel, and Google are all working and developing new products in Israel. Ironically, that means that the “boycott Israel” crowd has to use computers and software developed in Israel to argue that the country is a terrible place that should be wiped out.