2024-01-29 16:00:28
January 29, 2024
Israeli companies are looking for solutions in the center of the country, customers abroad are demanding alternative production sites, some of them are postponing orders for several months and suppliers from abroad are demanding certification forms for dual-use products be filled out
In the photo above: Soldiers of Division 36 in the Gaza Strip, January 2024. Photo: IDF spokesman
A large manufacturing contractor from Southeast Asia did not supply the electronic circuits to its Israeli customer on the grounds that it was a dual-use technology and the company was prevented from supplying military products to conflict zones. A massive company recently reported that a week after the outbreak of war, a customer who agreed with it to order two printing systems, canceled the order without explanation. The company still does not understand why the order was canceled after the customer tested the large digital printing systems and decided to purchase them. A large Israeli system manufacturer reduced the local production of control systems by several thousand, because its Zivod factory is in Sderot.
All of these are examples of the shock experienced by the electronics industry in Israel, which is dealing with the consequences of an ongoing two-front war. This article is based on many interviews with production officials in the industry, who asked to remain anonymous. But their stories are very similar. They describe an industry facing a series of crises that began during the Corona period, continued with the local recession that accompanied the political crisis of 2023, and is reaching its peak these days when close to 15% of the workers in the technology companies are recruited into the reserves, or are in transitional states between recruitment and release and recruitment.
China is turning its back
A very large part of the manufacturing plants in Israel are located close to the border in the north or in the south of the country, and customers abroad are beginning to fear the fate of the orders. The manager of a large company that deals with both production and supply of components told Techtime that Israeli companies that manufacture in the north contacted him recently and said that they were looking for production solutions in the center Haaretz. At the same time, his business partners in Europe want to advance the payments, because they fear the continuation of the war and its expansion. “The production market is in great uncertainty because now we are considered a war zone. Customers abroad started asking for two production sites in Israel. They ask a lot of questions that we were not used to answering. A large customer decided to postpone the orders for an entire quarter, until after April. It is possible that they will move the production to another location.”
Another problem he faces is related to the import of components from China: “It seems to me that the Chinese don’t want to sell to Israel. They have problems with delivery times and suddenly started demanding reports on the purpose of each component. It may soon be difficult to produce in China. The Israeli companies will have to decide whether to produce in Israel or in the US.” Oren Gadal, the CEO of the Israeli operations of the distributor A2 Global, says that he recently encountered certification requirements for dual-use products, which did not exist before. “In addition, every item originating in China absorbs an immediate 25% tax when it enters the US. This is a problem, because quite a lot of components are made in China.”
They are considering transferring production from Israel to Ukraine
The director of the Israeli operations of the global Jabil company, Tzipi Landsman, said that in the last two months there has been a wave of inquiries from Israeli manufacturers looking for production solutions abroad. move the production to Ukraine. We have manufacturing plants in Western Ukraine, Poland, Hungary and medium volume development and manufacturing facilities in Germany, Ireland and Belgium. There is a great awakening in the search for alternative production sites that are not in risk areas.”
It is still very difficult to estimate how the year 2024 will develop. From the data of the Central Bureau of Statistics it appears that the export of electronic products made in Israel decreased in December 2023 to the amount of approximately 1.48 billion dollars, compared to the amount of approximately 1.7 billion dollars in December 2022. The employment survey of the CBS reveals that the employment The south has recovered somewhat since October 7: the percentage of businesses in the southern district that are in minimal employment/temporary closure has dropped from approximately 59% at the end of October to approximately 10% in December 2023. In the northern district, where a large part of electronic production is concentrated, the picture is different: the percentage of businesses Those reporting minimal employment/temporary closure remained unchanged at the level of approximately 27% of businesses.
But not everywhere production is stuck. The CEO of RA Electronics, Ya’akov Levy, says that he still does not deal with customers who are afraid of local production or who have delayed orders. We have production sites in Romania and the USA, so we have an answer if someone requests production abroad. It is true that we started 2024 with a 5%-10% decrease in the forecast, but this is related to the recession and slowdown that we have been experiencing for almost a year, not to the security situation.”
Production distress in the defense market
At the same time as all this, the defense production is at an unprecedented demand peak in the industry. PCB Technologies, for example, received urgent orders in the last two months amounting to more than 15 million dollars. RA plans to stay out of this wave, as it is not interested in working in the defense market. “It is difficult to make money working with the defense industries. The processes are very slow and holding materials at high interest rates is very expensive.”
The other contractors working in the defense market report a shortage of personnel and difficulty keeping up with orders. “Soon there will be an allocation in the military field, which is something that has never happened before,” said a local production contractor. The difficulty here is twofold, because following the war in Ukraine and the tensions in Taiwan, all the production lines in the world are working at increased output, so it is difficult to transfer projects to production abroad. Paradoxically, there is an opportunity here to build an Israeli defense manufacturing industry that will also be a major exporter – but this requires government policy Goal-oriented – a move that is not yet visible on the horizon.
Posted in the categories: news, production and subcontracting, war 2023, Israeli industry
Posted in tags: electronic production, production and subcontracting, war
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