The total IT market in Israel can be segmented into software, hardware, services, and communication. A large number of SMEs, in order to reduce cost and maintain efficiency, are deploying several IT products with the major focus toward enterprise solutions, system integration software, client server, and computer peripherals. Outsourcing is the emerging sector attracting a lot of investment. High spending by manufacturing and government verticals and trends in the financial sector to comply with financial reforms are growth drivers of the domestic IT market.
Best Prospects for U.S. Exporters
•“Low-priced” mini-computers, “netbooks”
The local IT market totaled $4.25b in 2008; IT spending was higher than expected in 2008 with strong demand from both enterprise and household sectors. This continued the trend of 2007, with enterprises increasing outlay on IT, while spending in traditional sectors such as government and military remained strong. However, growth is expected to decline in 2009 because of the global economic slowdown and lower consumption affecting demand for high-tech.
Israel’s software industry truly symbolizes the country’s strength in the knowledge-based economy. Highly skilled human resources coupled with a highly competitive environment have transformed Israel into a global powerhouse in information technology (IT) software services and solutions. Israel’s competitive advantage in the IT industries is in Research and Development (R&D). Between government investment, investment by Israeli venture capital firms and existing private sector R&D budgets, Israel records the world’s highest R&D intensity at 4.65 percent of GDP, over twice the OECD average of 2.26 percent. The IT sector now accounts for 20 percent of industrial output, directly engages 10 percent of the workforce, and is responsible for a large share of economic growth. Key ingredients for Israel’s entrepreneurial business culture is a strong government science policy, state supported innovation programs facilitating the spin-off of ideas from military and academia into the commercial world.
The top three IT services vendors - Israeli companies Ness Technologies and Matrix, and US firm IBM- have at least one-third of the local market. Israel’s domestic IT service giants have strong advantages due to local knowledge and contacts. Despite their global ambitions, Israel remains an important market for these companies and typically accounts for 40-50% of revenues. Ness Israel posted good results for the first three quarters in 2008, despite the global economic storm. The company reported 6% top-line growth, even with the sale of two business units. Ness’s defense and homeland security unit performed particularly well. Meanwhile, Matrix also chalked up some successes in 2008, including a number of public-sector CRM projects.
Computer sales in Israel including servers and accessories totaled an estimated US$1.85bn in 2008, up from US$1.68bn in 2007. The market is expected to grow at a compound annual growth rate (CAGR) of around 7% from 2008-2013, estimated to total US$2.6bn in 2013. Given the economic slowdown, PC sales growth was stronger than expected. Despite strong growth in demand for notebooks, the desktop sector is still unsaturated and accounted for as much as 75% of PC sales in 2007, largely to business and government end-users. The PC market is expected to slow as a result of declining consumer and business outlook. One area of growth will be “lower-priced” mini-computers, or netbooks, which are establishing a position in the market. Software Israeli software spending was estimated at US$309m in 2008, up from US$255m in 2007. Spending on software is shifting towards the small- and medium-sized enterprise (SME) segment, which forms the mainstay of the Israeli business sector. Spending on enterprise solutions has grown since 2007, with reviving or emerging areas of opportunity including security, CRM solutions and business intelligence. In terms of verticals, the financial sector has been a mainstay of demand, with other key areas including defense and healthcare. Along with Ness, Matrix, and IBM, other top software companies are MALAM-TEAM, Taldor and One 1.
The IT services sector had an estimated value of US$1.54b in 2008. The relatively robust economy and increased investment by a number of key sectors have driven recent growth, although the number of new projects is expected to be smaller in 2009 due to the economic slowdown. A number of major outsourcing deals have highlighted the growing opportunity. Israel seemingly possesses many advantages as an outsourcing destination - in particular a technologically literate, linguistically skilled workforce, and low labor costs, relative to most developed countries. Israel is starting to emerge as a desirable location for packaged applications and localization services.
Israel's telecommunications market is currently estimated at $6 billion. In an era of fast communications and accessible information, the telecommunications market has been a major driving force in the Israeli economy. In 2005-2006, the average growth rate was 3.9%. The main factors in this growth are the cellular, Internet, and multi-channel television fields. Telecommunications presently contribute approximately 4% of the Gross National Income, and in 2006, the average ratio of household communications expenditures from total household consumption expenditure was 7% (130$).
The year 2007 included many developments in the telecommunications market. According to a local analyst, the future lies in "Triple Play convergence", i.e. voice, data video, all on a single network. Mergers and acquisitions in the telecommunications market, and consolidation of different companies offering cellular, Internet and fixed services are already in progress. The end result will be three major telecommunication groups offering everything under one umbrella.
The Israeli telecom market consists of four domestic cellular operators, six international service providers, one cable television provider as well as one satellite television provider, three leading Internet service providers and two fixed domestic operators with universal service obligation. Mobile services are the leading market segment that constitutes 50% of the revenue, followed by fixed services, cable TV, international long distance calls and Internet. There are 3.1 million direct exchange lines, 7.7 million cellular telephone subscribers, 1.4 million multi-channel TV subscribers, and over 2 million households have an Internet connection, mainly broadband.
Many Israeli companies are active in developing and manufacturing telecommunications and networking equipment. Case in point, and the original cell phone technology was largely developed by Motorola Israel. Still, Israel imports over $1 billion of telecommunications equipment each year, of which $300 million is imported from the United States. In addition, over $100 million in telecom services are imported from the United States.
The substantial changes that have taken place in Israel's communications market over recent years are due, in part, to a basic change in policy on the part of the Ministry of Communications, which serves as the primary sector regulator. The Ministry of Communications' objectives for the coming year, include: Expanding competition in the fixed market, by licensing new competitors without universal service obligation; preparing a policy on VOIP communications (Voice Over Internet Protocol) based on VOB (Voice over Broadband) Technology and on a recently-published consultation with the public; promoting the Wimax technology and developing a policy on Wimax; promoting the deployment of advanced cellular services and promoting the competition in the cellular market- MVNO (Mobile Virtual Network Operator) concept is being discussed as one possibility; ensuring the existence of original Hebrew productions;
Israel has one of the highest household broadband penetration rates in the world, building on even higher Internet penetration. Three major Internet service providers serve more than four million users, over 60% households and 80% businesses. Israel's very high broadband penetration rate provides great potential for triple play and digital media market developments. Both Bezeq, with its satellite TV subsidiary YES and HOT, the merged operating entity of the three Israeli cable TV companies, have the potential to easily deliver triple play services as each possesses both content and delivery mechanisms. IPTV is a hot area today, but the service is still under development.
Another area of development is the Fixed Mobile Convergence (FMC) market. A market survey conducted by BBDO Consulting shows that over 65% of fixed and mobile operators will have implemented FMC services into their products over the next three years. There are a number of Israeli companies offering FMC solutions allowing for Dual-Mode Handset service. Bezeq's (the Israeli ILEC) long-term goal is to merge its activities with those of its subsidiaries in order to become one group that provides cellular, wireline (local and international calls), IPTV, and Internet services, over converged fixed-mobile infrastructure. However for now, regulations in Israel require structural separation between service providers. This means a complete separation between cellular, international calls and local calls operators; i.e., separate infrastructures, subscriber base and management.
The cellular market segment is the main growth engine behind the Israeli telecommunications market. All four operators in Israel provide digital technology countrywide coverage and modern 3G (third generation) services. Pelephone uses CDMA2000 technology. The second operator, Cellcom, uses the American IS-136 TDMA, European DCS 1800 and UMTS. Orange (Partner Communications), the third operator, uses GSM technology DCS 1800 and UMTS. The last licensed cellular operator is MIRS, which uses iDEN ESMR technology. The penetration rate of mobile phone subscription exceeds 100% (over 7.7 million mobile subscribers).
The cellular market continues to search for new and innovative applications such as value added services for its customers. Israel is a highly urbanized, technologically-literate society. Israelis are used to having world-leading technology in many fields, and mobile phones are no exception. All mobile operators make a good profit from the high volume of traffic generated. According to market players, voice is not what makes the cellular market interesting. Israel is a good market for operators to test new applications. Israel is technologically oriented, making launching new services easier. With mobile penetration reaching 107 percent, Israel is a market of users who know what they want and how to use what they get. There is a continual demand for technology that is more sophisticated as Israelis update their handsets regularly, at least once a year. The "experience rate" for new hardware and applications is high. Operators are aware of this and strive to accommodate their subscribers. Many Israeli companies are active in developing and manufacturing telecommunications and networking equipment.
Opportunities are in the IP Networks - Voice, Video, Data and Multimedia, FMC, IPTV, Wi-Fi, WiMAX and VOB. As the Israeli telecoms industry continues to expand and increase in revenue and with the introduction of new technologies, the market will continue to offer many opportunities for U.S. exporters.
This site was last updated 2 November, 2009