Conflict Between Israel and Hamas Can Have Supply Chain Effects

At first glance, the escalating military conflict between Israel and Hamas should have little impact on the global semiconductor market, at least compared to what the tensions between China and Taiwan could do. However, despite its small size, Israel has a significant influence on the global chip industry, and the implications of its conflict with Hamas are severe enough to warrant discussion in supply chain circles.

Israel is world-renowned for their talent in engineering. So much so that many of the largest players in the chip market — including Intel, IBM, Nvidia, and Apple, as well as companies such as Amazon and Microsoft — have either design centers, chip production facilities, or both within its borders. In fact, Israel is one of the only areas in the world outside of East Asia that has a major infrastructure for advanced chip production critical for everything from consumer electronics to artificial intelligence to electric vehicles.

Within these companies is a major source of the world’s talent in semiconductor design. Intel alone, with five major locations in Israel currently, employs approximately 12,800 people. For the last few decades, high-tech industries have been the fastest growing sector in Israel, today accounting for approximately 14% of all jobs.

Now, however, with Israel fully mobilized for war, much of this talent will be lost as the Israeli military calls up its army reserves, which is mandatory to join for the majority of Israel’s citizens. According to the Israeli government, as many as 300,000 reservists are expected to be called up — a historic number.

Intel, although they declined to comment on the status of its operations or if any disruptions have been experienced due to the talent loss, released a statement saying, “We are closely monitoring the situation in Israel and taking steps to safeguard and support our workers.”

The changing landscape also puts on hold much of Israel’s plans to expand its growing chip industry. In June, Prime Minister Benjamin Netanyahu announced that Intel was expected to spend $25 billion on a new factory in Kirat Gat, which rests about 26 miles from Gaza. Now, at least until the conflict subsides, such plans are expected to be put on hold.

cancelling any flights to Israel altogether. Over time, this could result in significant increases in lead times that could result in the suspension of product production for manufacturers.

While this conflict is still very much in in infancy, this should not dissuade OEMs and all stakeholders responsible for maintaining production schedules in the face of market uncertainty from monitoring such situations and crafting inventory-sourcing strategies with the utmost care. Emphasis should remain on acquiring inventory early to minimize supply chain risk while working with valued supply chain partners that have options to store inventory to avoid filling critical warehousing space. Partstat additionally offers options that not only store inventory, but allow customers to take the inventory off their books entirely to free up capital while still enjoying the benefits of secure storage with fulfillment guaranteed.