From a business standpoint, the multi-billion dollar Intel-Mobileye (NYSE: MBLY) deal on the Israeli auto-tech industry had the effect of a level 8 earthquake on the Richter scale shifting the tectonic plates.
Not only was it the largest acquisition in Israel's history, but it also provided a concrete financial criterion for the developing sector and was registered on business seismographs all over the world. BM (before Mobileye), the industry attracted attention mostly from professional parties and knowledgeable people in the global auto industry, as well as a few small-to-medium fish in the venture capital industry. AM (after Mobileye), the business ocean's deep water sharks and whales are gathering round.
Intel still on edge
Every earthquake of these proportions naturally has aftershocks that continue for a long time afterwards, the results of which in this case are evident. Since the deal was announced in March, Israeli companies concentrating on various aspects of the smart vehicle vision have raised over $120 million. Most of the companies found more money available than they were planning on raising, and had to politely turn down some serious investors. Specialist venture capital funds also raised hundreds of millions of dollars from investors all over the world seeking to build a portfolio of investments in seed-stage Israel auto-tech companies and ventures. An airlift of auto industry executives is also continuing under the radar - the very top management level - and that is only the tip of the iceberg.
Behind the scenes, these aftershocks are starting to generate structural changes in the young and developing industry: consolidation of the existing players, the entry of new companies from parallel sectors, major strides forward by existing companies, etc. Before trying to map some of these changes, it is worth noting that the earthquake epicenter itself, i.e. Intel, has not necessarily calmed down and stabilized.
Last week, Intel unveiled an "autonomous vehicle laboratory" in Silicon Valley, in which it is exposing and focusing research and development in many technological areas of the smart car vision extending far beyond Mobileye's computer vision and mapping. We therefore recommend that analysts ignore this earthquake, and continue following Intel's automotive activity in Israel. It is a real possibility that the Mobileye deal was merely Intel's first acquisition, and will serve as a core for the acquisition of a group of Israeli companies with complementary solutions.
Defense industries are discovering vehicles
The dimensions of the Intel-Mobileye deal were also a wakeup call for the Israeli defense industries - the dumb giant of the Israeli economy. "Globes" has already commented about the indirect connection between former defense industry figures and the developing auto-tech industry, but other than a few minor civilian automotive spinoffs, most of the defense industry giants have until now preferred to stay off the superhighway and focus on tanks, missiles, and aircraft.
There are quite a few reasons for this. First of all, it is mentally difficult for companies accustomed to working with government customers with products costing from tens of thousands to millions of dollars per unit to get used to the auto industry's stringent cost policy, in which every dollar counts.
This situation is now changing, and a good illustration of this appeared last month in the form of a very rare visit to Michigan by a "commercial" delegation organized by the Ministry of Defense International Defense Cooperation Authority (SIBAT) for 13 representatives of the largest defense industries in Israel. Michigan, of course, is the center of the US auto industry, and the purpose of the delegation's visit was described, among other things, as presenting solutions and products in sub-systems for military vehicles, robotics, and autonomous propulsion.
There is a high correlation between civilian and military uses of smart car technologies. Matters such as autonomous propulsion, artificial intelligence, machine vision, connectivity, encryption, and protection of information transmission to and from a vehicle are also an integral part of the smart battlefield vision in which governments throughout the world have been investing trillions in recent years.
Anyone gaining a foothold in advanced core technologies in such sectors and successfully making the necessary mental and business adjustment is therefore likely to benefit from a two-way business track. Defense companies can grab a share of the rich global vehicle market, and civilian companies can win military contracts amounting to tens and hundreds of millions of dollars. It cannot be ruled out that we will see cooperative efforts or intensive activity involving local defense industries in civilian uses of their technology, and perhaps even separate stock exchange offerings by subsidiaries in this sector.
Check Point looking at vehicles
Another sleepy giant now responding to the Mobileye deal fallout is Israeli cyber security firm Check Point Software Technologies Ltd. (Nasdaq: CHKP), the pride of the cyber industry. A connection between Check Point, a software company, and the hardware-intensive auto industry ostensibly appears unnatural. In an era of connected vehicles, however, this situation could change dramatically.
The auto industry estimates that a single autonomous vehicle will generate a stream of data amounting to four terabytes every 90 minutes. This prodigious stream of data, multiplied by tens and hundreds of millions of vehicles throughout the world, has to be processed, filtered, and also secured against malicious attempted break-ins. This goal requires integration of advanced hardware capabilities in a vehicle, and but also on the cloud to which the data from the vehicle will be streamed.
This integration of capabilities led this month to an interesting announcement of technological cooperation between Check Point, which has been a partner of Argus Cyber Security in developing cyber security solutions for cars for the past two years, and Valens, which has developed unique infrastructure for very high-speed data transmission on a single pair of wires. In recent years, Valens has entered the automotive field, including a contract with Daimler-Mercedes Benz.
The announcement mentions the establishment of a "Cyber Security Working Group" that "will define the necessary specifications for a more secure connected car." To the technologically challenged, it sounds complicated, and there is no doubt that many more obstacles await the players in this field in the coming years, headed by the absence of a uniform standard in the auto industry for information security and updating cyberspace security for vehicles. We nonetheless recommend closely following the "elephant hiding in the picture" - in this case, Check Point.
Current studies say that by the middle of the next decade, the cyber security market for vehicles will reach billions of dollars a year, and force the auto industry to cooperate with specialist external parties for the purpose of periodic updates about threats and protecting data transmission from the cloud to and from the vehicle. This is Check Point's specialty, and it is doubtful whether a company with global status and an assertive business policy like Check Point can ignore it.
Check Point finished 2016 with a pile of cash and cash equivalents amounting to nearly $3.5 billion. Swallowing up several new players in the sector, including its partners, is more than what is needed in order to achieve a breakthrough in the auto industry.
Gett's global plans
Another interesting business focus attracting widespread global attention in recent weeks is the rapid expansion of Gett (formerly GetTaxi). The company made the headlines this month with its acquisition of Juno, its competitor, for $200 million. The attitude towards Gett in Israel is reminiscent of the attitude to Mobileye before its great leap, meaning that it is limited to familiarity with the company's end product - in the case of Gett, a taxi-ordering app - while ignoring the broader picture.
Gett is now in the midst of a very ambitious business and technological maneuver being conducted hand-in-hand with the Moia technology division of Volkswagen, the world's largest auto manufacturer, which is the only major investor in Gett. It is a mistake to categorize Gett as just another competitor of Uber in the shared vehicle sector.
It is true that Gett's main source of revenue at present and in the immediate future is its vehicle ordering app and various vehicle sharing services. Behind the scenes, however, the company, in cooperation with Volkswagen, is developing advanced solutions for transportation management in the connected and autonomous vehicle era. Over the next five years, some of these solutions are likely to put Gett into territory next to that of the mobility divisions of Google, Waze, and the like, with capabilities for optimizing traffic loads and intelligence direction of public transportation in cities and countries, while taking into account traffic loads, weather, individual external events, etc.
Gett also has a close link with the huge Russian auto market, which has been dormant in recent years because of the economic crisis in Russia, but which is likely to again become a focus of global auto industry growth in the future. In any case, this business and technological expansion is currently creating, quietly and behind the scenes, the second multi-billion dollar companies produced so far by the Israeli auto-tech industry. The big question is whether the company can do this independently, or whether it will be swallowed up by some shark or other.
A hint of the answer can be found in a report by the Bloomberg agency, which quoted anonymous sources as saying that Gett had hired the services of Wells Fargo and Credit Suisse in order to raise $700 million for expansion at a company value of $2 billion.
These are only a few examples of what is going on in the local auto-tech industry before the midpoint of 2017 is reached. It cannot be ruled out that the second half of the year will be just as momentous.
Published by Globes [online], Israel Business News - www.globes-online.com - on May 9, 2017
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