While the Startup Nation is based mostly on software development, the future of new technologies relies heavily on the revolution of hardware. The reasons for the lack of hardware-related innovation are varied - from the prolonged periods needed to develop the final product to the hurdles of adopting new technologies. For these reasons, entrepreneurs don’t want to take the considerably high risks involved in hardware development, and neither do angel investors and VCs.

Meanwhile, the deep learning software revolution relies on the next CPU generation. Moreover, the movement of software companies like Microsoft to hardware development, offers new opportunities.

Intel's complete control of the chip technology that powers mobile phones is about to end, according to recent developments in the hardware market. After almost four decades in which Intel was a monopoly in the field, with a market share of nearly 90%, there is a sense of change in the air after Apple and Microsoft recently announced that they would make their own CPU based on ARM architecture.

ARM Holdings is a company based in the U.K. that was recently acquired by Nvidia from Softbank for $40 billion. ARM doesn't manufacture the chips on its own, instead it licenses its chip design for companies to manufacture the products for their own needs. In this way ARM saves the manufacturing costs and can focus only on development. This model of hardware development may be relevant to Israel.

Microsoft is one of the largest customers of Intel processors. Although it is a long way till a complete transition to self-manufactured processors, this is still a significant move, and may undermine the dominance of Intel in the long run.

According to ARK Investments, ARMs could not only power the majority of developer PCs by 2030, but also become the new standard for cloud computing.

Will Israeli entrepreneurs make up the next generation of companies?

For decades, Israel has played a major role in the world of chips and hardware, although few companies have reached the Unicorn market value. Among the names we can mention are EZchip, Mellanox, Habana Labs and Galileo.

Apple’s move will also influence the data centers market. Since a significant number of software developers are working on Apple's computers, they will be adapting software to ARM servers in the cloud, thus significantly cracking Apple's dominance in the market. A new rise of competition and the need for innovation will drive new changes in the cloud computing market.

Why does Israel have to worry about the rise of ARM’s technology?

It seems that Intel's dominance in the CPU market is in its last days. More and more companies are manufacturing ARM based CPUs by themselves, and reducing their dependence on Intel CPUs. Recent performance tests, made on Apple's PCs based on ARM CPUs and ARM CPUs (which were made by Amazon for their server farms), have shown that their processors are equal and even better than Intel's ARM CPUs. Switching to ARM CPUs should reduce CPUs costs significantly and save a great amount of energy.  All this creates the sense that we are facing a new era in the CPU market.

For years, Israel has been relying on Intel as the biggest tech employer. Israel has further increased its bet on Intel after approving several grants in recent years. After the prolonged analysis of ARM’s technology, we can conclude that Intel's pace of growth will probably stall.

A new grants program for young entrepreneurs needed

With dozens of Israeli startups going public since the start of the Covid-19 pandemic and additional companies are getting billion dollar valuations, decision makers must  help create the ecosystem for future generations. Over the last few decades, technologies that were built for national security purposes were the foundations for civic use, but unlike the software market, the barriers for the chip and hardware developments are still high. In order to support radical changes in the chip markets and the larger portion of  Israeli software startups, the Israeli government should take on an active role in helping entrepreneurs in the hardware development space.

Experience, knowledge, skilled workforce can all be found in Israel. But, few are willing to take the risks. The Israeli government should do something about encouraging new hardware entrepreneurs for many reasons. First, a substantial grants program would keep or even strengthen Israel’s tradition in chip development, while the number of the Israeli software unicorns is at all time high. Second, hardware startups are paving the way for the next generation of software startups, because many successful software developers have built their skills from past hardware experience.

Written by Liron Rose, a serial entrepreneur, venture capitalist and has advised tech companies for 20 years