Contribution of the IT Industry to Economic Development Hanan Achsaf President, Motorola Israel Ltd. Former President Israel Electronics Association Advisor.

Contribution of the IT Contribution of the IT Industry to Economic Industry to Economic

DevelopmentDevelopment

Hanan AchsafHanan AchsafPresident, Motorola Israel Ltd.President, Motorola Israel Ltd.

Former President Israel Electronics AssociationFormer President Israel Electronics Association

Advisor to the Prime Minister Infrastructure Advisor to the Prime Minister Infrastructure Communications and InformationCommunications and Information

July 16, 1999July 16, 1999

““Today we are witnessing the Today we are witnessing the early turbulent days of a early turbulent days of a

revolution that may prove to revolution that may prove to surpass all previous surpass all previous

revolutions”revolutions”

More use of consumer electronics like TV sets,More use of consumer electronics like TV sets,video recorders, video games, CD players, PCs,video recorders, video games, CD players, PCs,etc.etc.

Computer-based communications, information,Computer-based communications, information,commerce and entertainment servicescommerce and entertainment services

Internet, Intranet, Extranet usage spreading fastInternet, Intranet, Extranet usage spreading fast

Globalisation trends and trade increase productivityGlobalisation trends and trade increase productivityand flexibilityand flexibility

People spend more time on the move and want toPeople spend more time on the move and want tocommunicate and be informed when travellingcommunicate and be informed when travelling

IT Developments

Classifications For New Media IndustryClassifications For New Media Industry CommunicationsCommunications

Communications facilitiesCommunications facilitiesHousehold A/V equipmentHousehold A/V equipmentTelephone and telegraph equipmentTelephone and telegraph equipmentBroadcasting and communications equipmentBroadcasting and communications equipmentRadio and TV broadcastingRadio and TV broadcasting

ComputingComputingComputer equipmentComputer equipmentSemiconductorsSemiconductorsElectrical equipment and suppliesElectrical equipment and suppliesSearch and navigation equipmentSearch and navigation equipment

ContentContentNewspapers, Periodicals, Books, Greeting cardsNewspapers, Periodicals, Books, Greeting cardsAdvertisingAdvertisingBusiness servicesBusiness servicesMotion picturesMotion picturesLibraries, vocational and schools Libraries, vocational and schools

Source: The Digital Economy, Don Tapscott

Convergence trends

Information Society services

Convergence telephony data information/Internet broadcasting

Integration fixed/mobile cordless/cellular/

satellite

Mobility personal terminal service

Towards the third generation systems

Technologies For The New Economy

Technology Old Economy New Economy

Signal Analog Digital

Processor Semiconductor Microprocessor

Network NarrowBandwidth

InformationHighway

Device Dumb access InformationAppliance

Content Text, Voice,Image

Multimedia

Networks Dumb Intelligent

Multimedia ApplicationsMultimedia Applications

Video conference

Internet applications

Wireless Post Card and Electronic Business Card

Internet

ISDN/PSTN

• WWW Browsing• Video Telephone• E-mail• News push• Networked games• Electronic commerce

• High-quality tailor-made appl.• Standard ISDN package

• Multimedia electronic mail

Voice/Audio • High-quality voice• Music

The Future Network

Video terminal

ApplicationServers

InternetServiceProviders

CorporateLAN

Remote LAN &Intranet

• File transfer• Groupware• E-mail• Corporate info

HandwritingRecognition

Fax,E-Mail, WWW

Camera

Voice Inputand Output

foldable

Video Conference

Global Mobile CommunicationsPersonal Communicator

A View of the FutureThe “Portable Tool Set”

Enabling Technologies - Enabling Technologies - “Portable Tool Set”“Portable Tool Set”

PCWorkstationVideo/Still CameraTV/Web TVFaxCopierScannerDVD/CD-ROMGPS NavigationOrganizerCellular/Satellite LinkAnswering MachineElectronic DictionaryElectronic Translator

Single Portable Unit

~ $500

40 Years: Transistor Radio

10 Years: 1kg Cellular Phone

10-15 Years ?? “The ToolSet”:

Credit Card Size

80g StarTac

20kg 100-200 g

Technological solution for the “Tool Set”Technological solution for the “Tool Set”

10 Themes Of The New Economy

KnowledgeKnowledge DigitizationDigitization VirtualizationVirtualization MolecularizatiMolecularizati

onon InternetworkiInternetworki

ngng

InnovationInnovation ImmediacyImmediacy GlobalizationGlobalization DiscordanceDiscordance ConvergenceConvergence

IT - A Major Engine of Economic IT - A Major Engine of Economic Growth in Industrial NationsGrowth in Industrial Nations

35%

55%

4%14%

ITHouseholdAutoOther

GDP Growth In The US 1995-1998 (Percent)

IT contribute 35% of US economic growthand accounting for only 8% of GDP

Comparison Of Multimedia Comparison Of Multimedia Output 1996 and 2005Output 1996 and 2005

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Content Computing Communications

1996

2005

Source: The Digital Economy, Don Tapscott

IT Changing Productivity standardsIT Changing Productivity standards

0

50

100

150

200

250

300

1990 1991 1992 1993 1994 1995 1996

ComputerAll Industry

Source: US Industry and Trade Outlook, 1998.

US Computer Output Per Worker ($US terms)

$K

Foreign Employment By Global Foreign Employment By Global CompaniesCompanies

0%

5%

10%

15%

20%

25%

IT Auto Food Chemic Petrol

Employ Me

Source: World Investment Report 1997

(Percent of Total)

New Media Industry Job GrowthNew Media Industry Job Growth1995-20051995-2005

0

1

2

3

4

5

6ContentCommunicationsComputing

Source: The Digital Economy, Don Tapscott

Million of Jobs

IT Investment - Top 15 IndustriesIT Investment - Top 15 IndustriesIT investment per workerIT investment per worker

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Telecomm.

Piplines/Gas

Broadcasting

Electricity

Petroleum

Real Estate

Chemicals

Insurance

Railroads

Wholesale

Motion pictures

Investment

Source: The emerging digital economy II, June 1999

Shifts To The Internetworked Shifts To The Internetworked Government Government

Industrial Age Government InternetworkedGovernment

Bureaucratic controls Client service

Isolated administrative Integrated services

Paperwork Electronic services

Time consuming process Rapid, streamlined response

Manual financial transactions Electronic transfer of funds

Slow reporting mechanisms Flexible information inquiry

Source: The Digital Economy, Don Tapscott

Internet is Internet is showing the wayshowing the way

into the new into the new world!world!

World Wide Web UsersWorld Wide Web Users

80%

7%

7%

3%

1%

2%

0% 20% 40% 60% 80% 100%

US

Europe

Canada

Australia

Asia

ROW

Users

Source: US Industry and Trade Outlook, 1998

Traffic on the internet doubles every 100 days !!!! Traffic on the internet doubles every 100 days !!!!

New Era of Digital EconomyNew Era of Digital Economy

The InternetThe Internet - is evolving to an open - is evolving to an open network infrastructure and a unique network infrastructure and a unique venue for commercial opportunitiesvenue for commercial opportunities@ Expanded customer base@ Expanded customer base@ Cost effective delivery channel@ Cost effective delivery channel@ Efficient customer service @ Efficient customer service

Huge Increases In Sales VolumeHuge Increases In Sales Volume

Amazon.comAmazon.com - Went from $16m to $300m in - Went from $16m to $300m in sales between 1996 and 1998sales between 1996 and 1998

Cisco systemsCisco systems - Went from $100m to $4Bn in - Went from $100m to $4Bn in internet sales over the same periodinternet sales over the same period

Dell computersDell computers - Went from $1m per day over - Went from $1m per day over the net sales to $6m between Jan 1997- Jan 1998.the net sales to $6m between Jan 1997- Jan 1998.

Auto-by-telAuto-by-tel - Went from $2Bn to over $10Bn in - Went from $2Bn to over $10Bn in sale over the net between 1996-1998.sale over the net between 1996-1998.

How well Are We Measuring How well Are We Measuring The Digital Economy ?The Digital Economy ?

E-CommerceE-Commerce - Retail sales transactions - Retail sales transactions are not broken out by method of sellingare not broken out by method of selling

Firm/IndustryFirm/Industry - Not yet developed the - Not yet developed the micro data sufficiently outside of micro data sufficiently outside of manufacturingmanufacturing

PricesPrices - New products, services and - New products, services and ways of selling are yet to be modeled.ways of selling are yet to be modeled.

Israel Electronics IndustryProfile

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1991 1992 1993 1994 1995 1996 1997 1998

ExportLocal

1998 Total Revenue - $8.0Bn Exports - $6.2Bn

47,000 workers are employed in the industry

Sales per employee amount to $172,000

The Israeli electronics industry has 65% added value rate

12% of employees in the electronics industry are engaged in R&D

$M

Israel Electronics Industry Outlook

Total electronics industry revenue is expected to reach $10 billion by 2000

Strong government support for accelerated growth of the industry

Increased emphasis on technological education to close the human resources gap

The Israeli economy will be increasingly technology-based

0

5

10

15

20

25

30

1995 2000 2005

$Bn

Current Growth Path2005 ~ $17 Bn(11% CAGR)

Accelerated Growth Path2005 ~ $25 Bn(17% CAGR)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1992 1993 1994 1995 1996 1997 1998

No. Companies in Israel Engaged in R&D, 1992-1998

Israel Start-Up PhenomenaLargest number of start-ups outside of Largest number of start-ups outside of USUS

Highest concentration of start-ups Highest concentration of start-ups outside Silicon Valleyoutside Silicon Valley

Expanding volume of venture capital Expanding volume of venture capital - nearly $1.8 billion has been invested - nearly $1.8 billion has been invested in 300-400 start-ups since 1992in 300-400 start-ups since 1992

In 1998, $150M of US venture capital In 1998, $150M of US venture capital was invested in Israel - more than in was invested in Israel - more than in any other country outside the USany other country outside the US

Over 100 Israeli companies traded on Over 100 Israeli companies traded on U.S. & European exchanges. More U.S. & European exchanges. More than $1.5 billion raised from than $1.5 billion raised from placements in 1998placements in 1998

Total Capital Raised by Year Total Capital Raised by Year ($Million)($Million)

1995 1996 1997 1998

Venture Capital 60 264 626 470

Private Equity 91 110 66 83

InvestmentCompanies

5 23 20 115

Total 156 397 712 668 Total Capital raised is estimated at $2.87 Billion

An estimated 60% have been invested alreadyA total of $1.1 Billion is yet to be invested

Capital Distribution by IndustryCapital Distribution by Industry19981998

Biotech11%

Industrial7%

Medical12%

Software28%

Telecom20%

Other22%

Biotech Industrial Medical

Other Software Telecom

Acquisition of Israeli Technology Acquisition of Israeli Technology 19981998

Elcint by GE valued @ $100MElcint by GE valued @ $100M WaveAccess by Lucent valued @ $56MWaveAccess by Lucent valued @ $56M Teledata by ADC valued @ $200MTeledata by ADC valued @ $200M Memco by Platinum valued @ $412MMemco by Platinum valued @ $412M Lannet by Lucent valued Lannet by Lucent valued @ $117M@ $117M Class Data by Cisco valued @ $50MClass Data by Cisco valued @ $50M Mirabilis by AOL valued Mirabilis by AOL valued @ $407M@ $407M Picture Vision by Kodak Picture Vision by Kodak

Armon Networking by Bay Networks @ $36MArmon Networking by Bay Networks @ $36M Instent by Medtronics @ $200MInstent by Medtronics @ $200M Scorpio Com by US Robotics @$72MScorpio Com by US Robotics @$72M Orbot by Applied Materials @ $100MOrbot by Applied Materials @ $100M Opal by Applied Materials @ $175MOpal by Applied Materials @ $175M Biosense by J&J @ $400MBiosense by J&J @ $400M RadNet by Siemens @$75MRadNet by Siemens @$75M

More acquisition of Israeli More acquisition of Israeli Technology 1996 & 1997Technology 1996 & 1997

Internet connectivity, multimedia, navigation, protection, service, telephony

Internet Video Streaming

Smart cards

Voice and Handwriting Recognition

Wireless LANs

Automatic PCB quality control

Bio imaging, bio informatics

Bio sensors, Cardiac imaging

Dental diagnostic and imaging

Data Compression

ADSL,HDSL - wide band com.

Artificial intelligence

Cryptography, security, encryption

Firewall, Compression

Data bases, data mining, Development tools,

Semiconductor Design, Asic, DSP Digital imaging, printing

Image processing, Audio, video

E-commerce, E-mail, E-publishing

Distance learning, training

Leading Start-Up TechnologiesLeading Start-Up Technologies

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