So long, Soluto: A worrying trend as Israel-based R&D centers fall victim to tech giant cutbacks

Soluto, which announced on Sunday its closure and the dismissal of 120 employees, is the epitome of Israeli high-tech. A company which began as a huge promise with a prestigious prize win, attracted a series of high-quality investors, including alternate Prime Minister Naftali Bennett, went on to complete a handsome exit, being acquired by an international company deciding to make it its center of development in Israel. Then, out of nowhere, the announcement came yesterday about the closure of the company in Israel.

So far, layoffs and hiring freezes have been reported in a large number of R&D centers, including Google, which announced a hiring freeze in recent days, Microsoft and Intel, which are significantly slowing hiring, as well as telecom giants such as Airspan. But until Sunday, we haven't had in the current wave a targeted and comprehensive hit like what happened to Soluto. Soluto is the first multinational development center to shut its doors completely and you can be pretty certain that it won’t be the last to close.

Soluto co-founder Tomer Dvir (left) and CEO Merav Oren.

The company, which develops technological products for remote support for technical problems, was founded in 2008 by Tomer Dvir and Ishay Green, who at that time already had a proven track record in the cyber company Onigma. After its initial establishment, the company's founders appointed Bennett as CEO. He only held the position for a short time until he was appointed chairman of the Yesha Council and retired from high-tech. After his departure, the company's founders asked him to sell his shares so that his political activity would not hinder the company's progress and ultimately his shares were placed in a blind trust until the company was sold.

The company's first significant turning point came in 2010. In that year, Soluto experienced one of its most significant events when it participated in the prestigious high-tech competition TechCrunch Disrupt and won first place out of 100 companies that participated in the conference. Winning the competition brought the company a lot of publicity and put it on the radar of investors and potential first-rate buyers. Throughout its existence, the company raised about $20 million, with its investors including U.S. VC Bessemer Venture Partners, Britain’s Index, Roi Carthy and Elad Cohen's Initial Capital, Innovation Endeavors and the Israeli VC fund Giza Venture Capital. In addition to the funds, a number of angels such as Zohar Gilon, as well as Zvi Margalit, Chaim Venezia and Uri Ra'anan - the founders of the Proxima Investment House - also invested in the company.

In 2013, the American company Asurion purchased Souto for about $130 million. Soluto became Asurion’s development center in Israel, managed by the founders of the company. Asurion currently serves about 300 million users worldwide and employs about 23,000 people and works in cooperation with the largest mobile operators and retailers in the world. The company's center in Israel was responsible for a wide range of products such as Home+ and Anywhere Expert and complex system developments based on innovative technologies, such as artificial intelligence, advanced automation and cloud management, which enabled the streamlining of the service and contributed to the growth of the parent company.

In 2021, Tomer Dvir was appointed to a senior position in Asurion and it decided to appoint Merav Oren, a veteran employee of the company, to the position of CEO of the local center. Oren, who managed the center for a little over a year, was also forced to be the one to close the center. Dvir is still an employee of Asurion but has been on unpaid leave for over a year. Soloto's second founder Ishay Green left the company in 2019.

The closing of the development center yesterday proved the extent to which - despite all the history of the company and the great work it has done for the parent company - there are no sentiments when a crisis hits. In the last few days, an executive from Asurion arrived in Israel and spoke with the company's employees and managers, announced its closure and in fact gave the signal for the beginning of its end.

Asurion stated that it made the difficult decision to close the center in Israel as a result of downsizing processes taking place throughout the company, after deciding to focus on its current growth goals in the cellular market, home appliance repair and store operations. The 120 Soluto employees will receive extended retirement benefits. About 40 of them will continue to work in the company until the end of the year.

“The decision to close the offices in Tel Aviv and part ways with the team that contributed to our company’s success over many years is not easy,” said John Leonard, Senior Vice President, Global Product Management, at Asurion. “The team at Soluto had an important part in our growth and success since the company was acquired in 2013.”

The closure of Asurion's development center in Israel did not come as a complete surprise. A few months ago we already wrote here that small development centers that are not close to the core of parent companies overseas will be the first to close. Asurion is a huge company that employs tens of thousands of employees. The development center in Israel, which employs 120 people and is very far from the company's home base and its business center, resulted in the U.S. company doing what American companies do when a crisis is at hand: focus on the core business and aggressively cut everything that does not meet this definition.

If in Israel many companies still try to fire a small number of workers and are concerned about public criticism, in the international market companies carry out drastic and immediate cutting measures that include the dismissal of hundreds and thousands of people, and moves of this type are accepted with understanding as part of the business culture in the U.S. Asurion, for example, fired 750 of its employees in the U.S. during the current move and won't hesitate to lay off more as the business outlook becomes hazy.

Even in the technology giants, a trend of slowing down and even a complete stop in hiring is felt. Google has stopped hiring for two weeks, Microsoft and Meta are significantly slowing down new hires and progressing with only necessary hires. These measures are expected to affect the local market as well. Closure of small development centers and significant downsizing of others will not surprise anyone if they happen in the coming weeks.

In all the past crises, the small development centers were the weak link of the industry in Israel. Those centers that were established based on purchases of small technology companies survived as long as their technology and employees were needed. In times of crisis, many of them downsized significantly or closed completely. For companies, especially those who don’t have any other activity in Israel, it is easier to close a center in Israel than to fire hundreds more employees in Silicon Valley.

In contrast, the centers in Israel that are immune to closure or severe cuts are those of huge companies that see Israel not only as a secondary development center, but also as a business center and a strategic technology center, such as Intel, Applied Materials and Microsoft. But even if the giant centers have immunity from closure, it is not impossible that the giant companies will also decide to close activities of companies acquired in Israel. In the past this happened to Intel, Microsoft and others, and it can also happen in the current high-tech crisis.