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Strong shekel squeezes Israeli high-tech as AI reshapes the industry - opinion

From Jerusalem Post · () English

Summarized and contextualized by DistantNews.

At a glance

Opinion Named sources Context piece
  • The Israeli shekel's rapid appreciation, reaching multi-decade highs against the dollar, is negatively impacting the country's high-tech sector.
  • Israeli tech companies, which earn revenue in dollars but incur expenses in shekels, face a significant reduction in their shekel-denominated income.
  • This economic pressure, combined with the rise of AI, has led to layoffs, exemplified by Wix dismissing 1,000 employees.

The strengthening of the Israeli shekel, a sign of economic confidence to markets, is sounding alarm bells within the nation's dominant high-tech sector. While the influx of dollars is positive externally, its conversion into shekels results in substantially less value for local companies.

Over the past year, the dollar has lost over 20 percent of its value against the shekel, hitting a low not seen since 1993. For Israeli tech firms, this translates to a sharp cut in revenue. A company that raised $100 million a year ago could cover expenses up to 360 million shekels; today, that same amount yields only 300 million shekels. This currency shift has effectively reduced their shekel-denominated income by nearly 20 percent, even without losing customers or investors.

A company that raised $100 million could, a year ago, use that money to cover salaries and expenses of up to NIS 360 million. Today, it is left with only NIS 300 million.

— article textIllustrates the financial impact of the shekel's appreciation on tech companies.

Wix, a prominent Israeli tech company, exemplifies the mounting pressure. While AI technologies are rapidly making website development tools like Wix seem redundant, the currency exchange rate exacerbates the challenge. Wix announced it would lay off 1,000 employees, approximately 20 percent of its workforce, citing the significant portion of expenses denominated in shekels against revenues earned in dollars. This is a critical issue, as high tech constitutes nearly 20 percent of Israel's GDP and over half of its exports.

Israeli technology companies operating globally cannot easily raise prices to compensate. Consequently, they are forced to cut costs, dismiss employees, or consider relocating jobs abroad. This situation has already prompted several companies to announce cutbacks and layoffs, highlighting the dual challenge of currency fluctuations and industry-wide technological disruption.

A very significant share of expenses is denominated in shekels, while the vast majority of revenues are denominated in dollars.

— Wix statementWix's explanation for its significant workforce reduction.
DistantNews Editorial

Originally published by Jerusalem Post. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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