Global economy, not war with Hamas, hits Israeli IT

The Gaza war has hit most of Israel’s vital tech industry to one extent or another, according to a study — but the worst part is, it comes on top of a general economic slowdown that was already showing its effects on the sector.

A poll of 100 of the top tech companies in Israel by the local edition of PC Magazine shows that 75% of the industry was affected by the conflict in Gaza. After losing worker hours to army service and losing business due to canceled and delayed contracts, companies reported that the war exacerbated a slowdown in the industry that had been developing before the war. Even so, the large majority of companies — 80% — said it was too soon to tell specifically how the war would affect plans for the coming months.

The general worldwide slowdown the IT industry appears to have had greater effects. Several tech companies have announced layoffs recently as earnings have leveled off. The latest is rumored to be Cisco, said to be planning major cuts.

The companies participating in the poll are a representative sample of some 500 of the most important players in Israeli tech. About a third of the companies employ more than 200 people, a quarter are medium-sized companies with 50-200 employees, and the rest of the firms are considered small, with 50 or fewer workers. All are involved in the information technology field, the magazine said, and none are in the security field.

About 75% of all firms said they “lost” at least one employee to IDF service, after about 80,000 reserve soldiers were called up for active duty. About a quarter of the firms conduct nearly all their business abroad, and of these, 65% said that there had been a slowdown during July, which roughly covered the period of the war. Thirty percent said that some of their orders had been delayed or canceled specifically because of the war. In addition, 25% of all the companies polled said that guests — either company executives or customers — canceled their trips because of the war.

Eighty percent of the companies said they could not yet say how the war would affect their business for the rest of the year, but nearly one third of the companies said they were not planning to hire new workers anytime soon, similar to the number that had already made a similar decision before Operation Protective Edge.

If anything, then, it’s not the war that concerns the companies. It’s the global slowdown in tech, which is much more likely to do damage to the Israeli IT industry, according to Peli Hanamer, CEO of the PC Israel Group. “The slowdown in IT reflected in the survey is not necessarily directly connected to Operation Protective Edge,” Hanamer said. “The slowdown has apparently been some time in the making. Global companies, some of them in Israel, have announced layoffs in recent weeks.”

According to reports, Cisco is set to lay off 6,000 employees worldwide, including 300 in Israel. After a flat earnings report — revenue fell 3 percent to $47.1 billion in the fiscal year that ended July 26, the first decline in five years — the company plans to shed as many as 20% of its workers. The layoffs are set to be announced in the coming days and will begin in October. According to the reports, most of the Israeli workers to be laid off work for NDS, the Jerusalem-based video security technology company.

The Cisco layoffs would be the first major hit the Israeli tech industry suffers because of the global tech business slowdown. Until now, things have gone swimmingly for Israeli IT — there is a shortage of workers, according to the Economics Ministry, and investments by venture capital firms in Israeli tech were up 25% in the first half of 2013 over the year before.

Because of delays in processing orders and completing projects, Israeli tech companies have in recent days actually increased their hiring, said Hanamer — but that hiring bump may not last. “It’s important to note that despite the difficulties during the war the Israeli IT industry continued to operate, companies continued to create and produce. It appears that the war will not have a long-term impact on Israeli companies’ ability to raise money.”

As far as the global slowdown is concerned, he said, “the companies in Israel are strong and determined to succeed. I am optimistic and believe that the industry will be able to weather this crisis as well.”