High-tech reporters are often accused of paying too much attention to venture capital funds, financing rounds amounting to a few million dollars, and new groundbreaking technologies, while neglecting the foreign companies with extensive research activity in Israel that employ thousands of workers. One reason for this is that the research industry in Israel usually keeps a low profile, avoiding publicity about its current developments.
Motorola Israel’s development center has over 1,000 development employees in its total staff of 4,200. The development center is responsible for many highly respected original developments, which have added several billion dollars to Motorola’s revenue over the years. Motorola had $27 billion in revenue in 2003.
Motorola Israel, which was set up when the State of Israel was founded in 1948, is proud of the fact that it was the first non-North American branch of the communications giant, and that Motorola was one of the few companies to defy the Arab boycott by establishing an Israeli subsidiary.
Motorola Israel is composed of subsidiaries and operational divisions. It manufactures, markets, sells, and provides services for all types of products, systems, and networks in radio communications. Motorola Israel’s sales turnover totaled $846 million in 2003, including $359 million in exports. Motorola Israel’s best year was in 2000, when its sales totaled $980 million, including $419 million in exports.
Most of Motorola Israel’s revenue is from its plant in Arad, whose 700 employees produce fixed cellular telephones for cars, and mobile terminals for all the world’s major delivery companies, such as FedEx (NYSE: FDX), American Express (NYSE: AXP), the USPost Services, and retail and other entities.
Motorola Israel’s main development body is the Commercial, Government and Industrial Solutions Sector (CGISS) design center, headed by director Avraham Credi. Over the years, the center has developed many terminals, mobile phones, and SCADA monitoring and control systems for water, electricity, irrigation, meter reading, etc. It has developed systems for detecting systems malfunctions, the TETRA standard systems for public safety in Europe, and more.
Mountain Rose prospers
Motorola’s development center has a long list of developments to its name; compiling a detailed list would be an impossible task. I have therefore picked out some of the most important, those which have led to profitable and prestigious projects.
The first is the Vered Harim (Mountain Rose) GSM-900 military cellular network, estimated at $100 million. In this project, Motorola provided the Israel Defense Forces (IDF)with a TETRA-based encoded mobile communications system, adapted specially to the IDF’s needs. The system, the first anywhere of its kind on cellular frequencies, includes special encoding requirements.
Motorola won the Mountain Rose tender in 1999. After 3-4 years of development, the equipment was delivered to the IDF this year, and became operational. Motorola pins great hopes on similar projects with many other armed forces in the future. During November’s telecommunications exhibition at the Tel Aviv Exhibition Grounds, Motorola tried to attract interest from foreign military attaches.
”The use of civilian equipment adapted for military use is a general trend among armies around the world,” Motorola Communications joint general manager Nathan Gidron explains. “The cost of adapting a civilian application is much less than developing a device to military specifications.”
Another special Motorola Israel project, for the Israel Police, has generated $100 million in revenue for the company to date. In this project, Motorola developed a mobile terminal that provides police vans with a continuous hookup to the central police computer. Using this development, police officers can send queries to the main computer, and receive information in real time through the wireless infrastructure of Motorola subsidiary MIRS Communications. Motorola Israel has supplied the police with several thousand units, and has also developed software applications for the terminals.
Motorola Israel is also Motorola’s global development center for wireless terminals designed for the world’s largest delivery companies. The company is currently bidding for one of the largest projects in the field, after having won a $300 million project to supply terminals to the US Postal Service. In the context of this project, Motorola Israel is now developing a terminal tailored specifically to the US Postal Service. For project integration, Motorola has joined forces with Siemens (NYSE: SI; XETRA: SIE). Production of the terminals is slated for Motorola’s Arad facility. Incidentally, it is believed that winning this project was of considerable help in making Motorola Israel general manager Elisha Yanay one of the parent company’s leading managers. Yanay was appointed a Motorola senior VP four months ago.
The Israeli center serves Motorola as a global center for wireless command and control systems. The SCADA system can be used for remote control of electricity, water, and other systems. The Israeli development center has been working on command and control systems for a long time, and total revenue from these developments reaches into the hundreds of millions of dollars.
September 11, 2001
The Israeli development center is also responsible for the soft switched radio network (SSRN), developed to connect the networks of many defense systems. “Following the events of September 11, 2001, there was a greater need to connect police, fire department, and ambulance networks,” Gidron said. “The systems we developed work on Internet protocol (IP), which enables connectivity between the various networks continuously, or on demand. The first use of the system is taking shape now in Florida, in preparation for the SuperBowl this February. As part of this project, we supplied 500 terminals linked to the security forces’ systems. We worked for two years on the project, which is worth tens of millions of dollars. We believe that we’ll be able to sell several dozen such systems over the next five years. The main target for these system is the US market.”
”Globes”: Were developments in Israel initiated by you, or by Motorola’s global management?
Gidron: ”The parent company makes decisions about developing new products, after checking the demand for products and setting guidelines for development. On the one hand, we develop for the parent company; on the other, we provide the inspiration. Over the years, we’ve initiated development of products that were first used in Israel, but which were subsequently introduced into the parent company. For example, we began development of command and control systems in Israel by developing these systems for kibbutzim (collective communities), which wanted to open and close large valves at irregular times. We later developed control systems for the Mekorot National Water Company, and then for the Israel Electric Corporation, which had special requirements. We then succeeded in exporting the idea through our parent company. Today, we sell most of our command and control equipment through the parent company.”
Which of your developments in Israel were unsuccessful?
”Long ago, we were pioneers in computer modems, which was an unknown field in the 1970s. People didn’t know what a modem was. We invested in developing modems, and we tried to interest the parent company, but, to my great regret, we couldn’t convince them, and the modem operation in Israel was closed down. Several years later, Motorola acquired modem company Codex, and began operating in the field. It wasn’t especially significant we employed only a few dozen employees in it.”
How do you think the parent company regards Motorola Israel?
”We are considered one of Motorola’s great successes. Around the same time that the Israeli branch was founded, Motorola established a branch in Canada, which wasn’t so successful. Our innovative ability and business initiative helped us greatly increase our business volume. We have grown from about 100 employees in 1964 to 4,200 today. We have the reputation of business generators in the regions for which we are responsible (Motorola Israel is responsible for Central Africa and the Balkans, O.L.). We have unquestionably acquired a very good international reputation. At the same time, we’re constantly battling for our position, and making the best quality products.”
What are the chances that some development activity in Israel will be transferred elsewhere?
”We’re always under threat, and we’re trying to show that development in Israel is worthwhile. We’re part of a global company. If the company wants to transfer development to the Far East, it can certainly do so. We fight against the transfer of activity elsewhere, and we usually win. What is usually transferred to the Far East is unsophisticated activities, and we are compensated with more sophisticated development.”
Chips spun off as independent company
For years, one of the interesting activities of the Israeli development center was development of chips in the company’s Herzliya facility. The chip division at Motorola stood on its own for many years, and was managed by Motorola Semiconductor. A few months ago, however, Motorola decided to spin off this division as an independent company named Freescale Semiconductor (NYSE: FSL), and distribute its holding as a dividend in kind. The divorce was officially announced in May, and trading in the Freescale share began in July with a $1.6 billion issue. The share has since fluctuated somewhat. Freescale’s current market cap is $6.84 billion.
Freescale began its existence under the best of conditions: $2 billion in cash, no debts, and a bonus of 4,900 patent families from Motorola. Freescale has 22,000 employees around the world, mostly production workers in the Far East. It operates in three principal fields: auto electronics (50% of its business), networks, and chips designed for wireless telephone makers.
Freescale’s two main development centers are in Houston, where the company has its headquarters, and in Israel. The Israeli development center focuses on three main areas: Netcom processors for data communications, processors for cellphones, and a variety of digital signals processors (DSP) and DSP cores. The design center also includes extensive activity in software, hardware, computer-aided design (CAD), computers, testing, and malfunction analysis. “Many of Freescale’s developments followed initiatives from Israel, but final authorization for development came from Texas. We have the respect of company headquarters there, because over the years, a lot of know-how and experience has been accumulated in Israel,” says Freescale Israel general manager Israel Keshet.
What is the development center focusing on now?
”We’re working on a next-generation communications processor. We’re also working on a next-generation product in DSP developments, where we hope to overtake Texas Instruments, the leader in the sector.”
Which developments were more profitable, and which were less successful?
”Most of our profit comes from communications processors. We can’t deny that the 3G products in which we have invested a lot of money have yet to take off, but we’re seeing signs now that 3G telephones are gaining momentum, and that 3G will finally begin making back the money we invested in it. In addition, although we take pride in saying that we have the strongest DSP in the world, we’ve earned less in this field in recent years than in the past. This is a difficult sector that requires hard work. We’re not the only ones having these problems; the same is true of Texas Instruments, our competitors.”
What difference does the removal of Motorola’s sponsorship make for your business?
”The center in Israel has more independence, but there is no difference from a professional standpoint. The main difference is that Freescale now has access to customers who formerly were unwilling to do business with Motorola because Motorola competed with them in other areas. Those customers now have no hesitations about discussing future chips, and buying them from Freescale, which does not compete with them.”
Have you heard any hints that they plan to reduce their development activity in Israel, and transfer it to other countries?
”No. The entire Western world is afraid of losing jobs to India and China. This concern is arising everywhere. The answer to the question is very simple a modern company in the chip industry must be active in all countries, and use Israeli, European, Chinese, and other workers. The advantages of using all these workers are many, and the company must find the right mix for its workforce.
”In 1996-1998, the increase in the size of our staff accelerated; we grew from 250 to 500 employees. We don’t have the same employee growth rate now, but the rate of increase in development staff in the Western world is not the same. Companies want to grow in different places, but every country has the ability to specialize in a particular field. The US, for example, has the advantage of proximity to the market. The Chinese are able to sell at low prices. We can make high quality products.
What is the government’s role?
”Even the US now realizes that government cannot be complacent is in the face of competition from the Far East. In countries like Singapore, China, and India, the state helps companies compete with the US. In my opinion, Israel should not adopt a strictly laissez faire attitude; it should continue assisting companies in development areas in various ways, granting tax breaks, and so on. Incidentally, we have never had any substantial aid from the Chief Scientist.”
Published by Globes [online] - www.globes.co.il - on December 1, 2004