Israeli High-Tech Sector Splits as Software Cuts Jobs but Hardware Expands in 2026

A recent survey by the Israel Innovation Authority and Tzaviron reveals a complex picture of the Israeli high-tech industry in mid-2026. Despite widespread reports of layoffs, the total number of employees in the sector remains nearly unchanged, with companies continuing to hire significantly. The survey, conducted in late June 2026 among 210 high-tech firms employing about 130,000 workers (over 80% of the sector's workforce), found that in the first half of the year, companies hired an average of 8% new employees while firing only 2.8%. Voluntary departures accounted for 4.3%, resulting in stable overall employment. This aligns with Central Bureau of Statistics data showing a 7% employment increase in high-tech in Q1 2026 to approximately 424,000 workers.

However, the sector is sharply divided between software and hardware companies. Software firms experienced a 6.6% layoff rate, more than double the industry average, while hardware companies had only a 1.1% layoff rate. Pharma and medical tech firms saw a 2.7% layoff rate. Hardware companies benefit from rising demand for chips, computing infrastructure, and defense tech, whereas software firms face competitive pressures and rapid AI-driven efficiency changes. Medium-sized companies (50-200 employees) suffered the highest layoffs at 8.7%, possibly due to cash flow and business pressures, including currency fluctuations and rising employment costs. Israeli companies with overseas branches had higher layoffs (3.8%) than foreign subsidiaries (2.8%). Currency exchange rates were cited as a key reason for layoffs and reduced hiring by many firms.

Artificial intelligence is accelerating workforce changes, mainly by reducing hiring rather than causing direct layoffs. About 30% of companies report extensive AI integration in products, up 43% since late 2025. Around 10% of firms cut hiring due to AI, tripling from 3% previously. Only 7% cited AI-driven efficiency as a main layoff cause, with general efficiency still the top reason (28%). Half of companies planning layoffs acknowledge AI’s influence on their decisions.

Looking ahead to the second half of 2026, nearly 37% of companies expect hiring to decline compared to the first half, up from 23% earlier. Planned hiring rates are forecast to drop from 7.2% to 5.9%, while planned layoffs among companies expecting broad cuts rise from 4.1% to 6.4%. Dror Bin, CEO of the Israel Innovation Authority, emphasized that the sector is undergoing a deep structural transformation rather than a downturn, with software adapting to AI and hardware sectors like deep tech continuing strong growth. He noted the key issue for 2026 is not layoffs but the evolving skills the market demands.