Intel is at one of the lowest points it has ever known. It has lost its lead in the chip market to rivals who have overtaken it in both mobile and artificial intelligence, and have figured out Intel’s sophisticated production methods. It has suffered ongoing CEO churn, employee defection to competitors, and criticism about a closed-off corporate culture. The share trails competitors like Nvidia and Qualcomm - even though Intel has more sales than any of them.
At the same time, the US semiconductor giant is intensifying its hold on the Israeli technology industry. Its total chip exports from Israel last year reached an all-time high of $8 billion - double that of just six years ago - despite concerns among workers that the local plant’s expansion would be delayed under former CEO Bob Swan. Out of total tech exports, Intel accounted for no less than 14%, another record, and at a time when Israeli tech is at a peak. Intel has also been critical to domestic product, at a record rate of about 2%.
This is a reciprocal relationship. Intel's Israeli operations are at the heart of its recovery strategy. New CEO Pat Gelsinger, who was appointed at the beginning of this year, wants to bring Intel back to its heyday. Gelsinger has outlined the areas where Intel’s Israeli centers have an inherent advantage: computer and server chips, fields led by Intel Haifa in the 1990s and early 2000s; artificial intelligence (AI) chips and automotive chips through massive investment in Habana Labs in Caesarea and Mobileye in Jerusalem; and reentering the competition for Israeli engineers who, in the interim, have been in fierce demand by giants like Amazon, Nvidia and Facebook, and young semiconductor startups.
How did the PC revolution flagship become a company forced to reinvent itself? Veteran staffers from Intel and other chip giants have some answers. Some see Intel's 'original sin' as not having identified the mobile revolution in time, others think it fumbled the AI market, and still others blame the management style of former CEO Brian Krzanich.
Missing out on the mobile revolution
Mobile chips have long outstripped computers and servers in terms of market size. Some believe that Intel's failure to identify the revolution served this sector on a silver platter to competitors like Qualcomm, Samsung, and TSMC.
In the mid-2000s, Apple CEO Steve Jobs asked then-Intel CEO Paul Otellini to provide chips for the first iPhone. But Otellini thought the offer was too low, and that adapting Intel's high-performance CPU to small phones would require a lot of effort. Jobs then turned to Samsung, and the rest is history. A few years later Apple began to develop its own chips, with production at the TSMC factory in Taiwan that competes head-to-head with Intel. Ironically, the person who oversees all of Apple's semiconductor operations is Johny Srouji, formerly of Intel Haifa.
Intel has made several failed attempts to gain a foothold in the smartphone market. It acquired Infineon’s mobile chip division for $1.4 billion, and invested capital on customers like LG for them to make devices based on its chip. Nonetheless, Qualcomm has maintained its lead. Intel’s preference has been computer and server chips - with sophisticated performance capabilities - over mobile chips, where compromises must be made to extend battery life.
"Nvidia did an Intel on Intel"
AI and machine learning was another missed opportunity. Once perceived as a small niche market for robotics or computer game developers, today these clearly form the infrastructure for countless fields including cybersecurity, automotive, smart speakers, virtual reality, and more.
"Artificial intelligence is ubiquitous today, and Intel hasn’t devoted enough time and thought to the matter, "a former senior executive at the company tells "Globes." "It was a gaming company, Nvidia that developed the field. Up until then, it was known as a graphics processing unit (GPU) developer for gamers who wanted to optimize their hardware to support high-performance computer games. Nvidia’s value soared on the strength of that achievement, and today its market cap is double that of Intel, even though Intel sells a lot more chips."
Thanks to the software layer developed for its CUDA GPU, Nvidia has become a monopoly, holding 81% of the AI processor market, according to research firm Omdia. Despite competition from higher quality chips designed by companies like Google, AMD, Xilinx, and even Intel itself, Nvidia continued to benefit from its supremacy in the market, thanks to its proprietary software environment. "Engineers won’t want to learn a new software language just to work with Intel hardware," the former senior executive tells "Globes." "Nvidia did to Intel what Intel had done to the world with its software monopoly that worked only on its own x86 microprocessor that unquestionably dominated the desktop, laptop, and server markets for years. In other words, Nvidia did an Intel on Intel to beat it in the future."
Intel can no longer be changed by fax
As mentioned, some attribute the company's current situation to Krzanich’s management style. Krzanich, who served as CEO from 2013 to 2018, was known for overreacting to criticism, and strident arguments that sometimes devolved into ridicule and humiliation of others. The result: overlooked problems on the production line, postponements, delays, and missed opportunities. During his tenure, for the first time Intel failed in what it had always known how to do better than anyone else throughout its history: launch the most technologically advanced chips.
Intel was the first to launch a 14-nanometer production line in 2015, but the launch of its next technology, 10-nanometers, was delayed first by six months and then by three years, with ramifications for the Kiryat Gat fab. The delay not only caused a great deal of embarrassment, it also caused Dell, one of Intel's major customers, to cut its sales forecast by $1 billion last year, according to research by Bloomberg. Those junior engineers who warned Krzanich were ignored.
In his new book, Molikhim l’Hatzlakha "Conducting to Success", David "Dadi" Perlmutter, the most senior Israeli ever to serve at Intel, (as EVP and General Manager of the Intel Architecture Group and Chief Product Officer), tells of a time when the organizational culture was bottom-up. In 1992, junior employees in Israel sent a fax to CEO Andy Grove that changed the company's destiny. Perlmutter and two other engineers wanted to maintain good relations with Microsoft and did not want to rewrite the CPU’s core software. The move planned by the management, they cautioned, could harm the applications environment already developed on top of the Intel layer, and thus harm its competitive advantage.
"The bottom line is that this fax resulted in the Pentium processor, which changed the personal computing world by turning every IBM-compatible PC into a product found in every home," writes Perlmutter, (who refused comment for this article).
Krzanich’s term was eventually marked by a wave of departures of executives that included Perlmutter. Roni Friedman, who led the development of the advanced PC semiconductors, left for Apple. Shlomit Weiss, who was general manager of the Data Center Group Silicon Development, went to rival Nvidia; she recently returned to Intel as Senior Vice President and Co-General Manager of the Design Engineering group. A host of other VPs and senior executives at Intel's Santa Clara headquarters also resigned.
But it is possible that Krzanich’s appointment was only a symptom and not the cause. As one former Intel executive put it: "You don’t get a heart attack in a day, it’s the result of decades of unhealthy nutrition. The mobile division has suffered from a lack of investment for decades. Even a legend like Andy Grove decided not to invest there, even though the first processor Nokia ever used was the famous 386 by Intel."
Another former executive tells "Globes" that, "Intel was blinded by success. It refused to see what its competitors were seeing and, in retrospect, the CEOs it appointed in the last few decades made it a different company. It started out as a group of entrepreneurs with PhDs in engineering and chemistry but, over the past 20 years, it’s appointed CEOs from manufacturing or finance. These people had technical or financial understanding but no vision."
Empires fall slowly
The loss of its advantage in manufacturing, development and design of new chips has taken a toll on Intel’s prestige and market value. The considerable price gap between Intel’s share, lagging far behind Nvidia and AMD, has only widened since the outbreak of the Covid-19 global pandemic.
Nvidia, as mentioned, has become the AI chip market leader. It is also gaining the lead in the data center market with its super-processing GPU, and is expected to acquire ARM, an intellectual property (IP) titan for low-power CPUs.
At the same time, AMD is nipping at Intel’s heels in chips for the home market, desktops and laptops, and has even overtaken it technologically with a more advanced generation (7-nanometers). Market experts believe that AMD’s new server chips outperform Intel’s and threaten its market hegemony.
Meanwhile, tech giants, including Google and Facebook, are in the process of setting up chip development departments for their data centers, and additional electronic products. Only a few months ago, Uri Frank, who was GM of Intel’s Core & Client Development Group, moved to manage hardware development as VP Engineering at Google. Project manager Ofer Weissman, today holds a similar position on Facebook, and there are others.
In manufacturing, too, Intel lost the lead to TSMC, which has overtaken it with advanced technologies. The Taiwanese giant has launched chips fabricated using 7- and 10-nanometer technology, and is preparing to launch 3-nanometer chips next year. Meanwhile, Intel is struggling to open 7-nanometer fabs, with plans for a 4-nanometer factory in Arizona in a few years. TSMC grew under its partnership with Apple, and now serves almost all chip developers without their own production facilities, including Amazon, Nvidia, Qualcomm, Broadcom, and AMD. Apple has already unveiled its strategy to jettison Intel in favor of a range of new Mac chips manufactured by TSMC.
"Pentium Pat" to the rescue
The half-dozen former Intel executives interviewed by "Globes" were unanimous: appointing new CEO Pat Gelsinger is a brilliant move. The right man at the right time. A symbol of the Intel of yesteryear. A protégé of legendary CEO Andy Grove, in his first post-graduate job Gelsinger learned professional management tempered with humility. He is a technologist who was Intel's first VP technology. He then served as CEO at VMware, as president and VP operations at EMC, and at additional software companies, where he experienced corporate cultures other than Intel. He is passionate about restoring Intel’s dominance in chip manufacture to the West, chiefly the US.
In the Israeli context, Gelsinger's appointment is good news, too. Gelsinger gave his imprimatur to Intel's biggest brand of the 1980s, the 486 chip. He advanced the next generation, the Pentium, whose development group included a great number of Israelis. Managers in Israel who knew him then still call him "Pentium Pat." During his tenure, EMC and VMware expanded their operations in Israel and made local acquisitions.
As mentioned, a large part of Intel's rehabilitation strategy depends on Israel: chips and components for AI, automotive, servers and PCs. Small wonder that Gelsinger visited Israel recently, announcing his intention to recruit a thousand workers and open another development center. But unlike Krzanich, Gelsinger understands Intel's limits, knows where to invest and where to concede.
Last month, Intel workers in Israel had a front-row seat to the company’s cutbacks. Smaller acquisitions made in Israel dealing in areas that have always been considered trivial and not part of Intel’s core activity - like sports imaging developer Replay Technologies and 3D sensor printed circuit board developer InVision Biometrics - were swiftly shut down by Gelsinger.
Giving up privilege - Focusing on the main thing
He is also willing to give up Intel’s privilege, transferring manufacturing of the company's less significant chips to competitors like TSMC, and repositioning Intel as a third-party manufacturer that will produce for others, including the competition, in addition to itself. This latest move achieves a principle coined by the legendary Andy Grove: "Intel has one goal: our plants must always run at full capacity, because a plant that doesn’t utilize 100% of its capabilities is a losing enterprise."
At the same time, Gelsinger will invest $100 billion in the construction and upgrade of new plants, of which $20 billion this year is for construction of two new factories in Arizona, and $3.5 billion to upgrade the New Mexico plant. It also sets into motion plans for the new Kiryat Gat fab, which was delayed under former CEO Swan, a $10 billion investment of which $4 billion are government grants. The new plant is expected to be operational in 2024.
Gelsinger has his sights set on Europe, and has stated that Intel intends to spend about $100 billion on plants in Europe (assumed to be in Ireland, Germany or Poland), including fabs for automotive chips designed in Israel. The goal is to return Intel to the forefront of global chip production using Extreme Ultraviolet Lithography (EUVL) - a technology that prints circuits thinner than a single hair. Intel is also examining a new business model that will enable it to compete with Apple partner ARM, and sell its chip IP, including to competitors.
By 2025, the company intends to launch the 18A chip, whose electrical circuits are measured not in nanometers, the currently accepted standard, but in Angstrom, (one-tenth of a nanometer). Intel not alone: TSMC has already announced that it will invest a similar amount in new plants in Taiwan, Korea, China, and even near Intel’s Arizona factory.
In doing so, Intel hopes to restore the glory days of its founder Gordon Moore, whose Moore's Law predicted that the density of transistors in integrated circuits would double every year and a half to two years without increasing production costs. He assumed - and rightly so - that Intel would succeed in minimizing the size of its electronic circuits for each subsequent generation. That held true, at least until the company began missing out, allowing the Asian manufacturers to get around it.
Gelsinger plans to invest tens of billions more acquiring another chipmaker, with GlobalFoundries reportedly the target. The $30 billion company, an Intel competitor owned by a UAE-based fund, manufactures chips in Europe. GlobalFoundries is currently indicating it is not interested in an acquisition and prefers going public instead.
Intel’s surprising geopolitical role
Two trends - economic and geopolitical - play in Intel’s favor, increasing the West’s dependence on it, and giving it a role it never dreamed it would take on. Intel may be the Western world’s last chipmaker, a kind of "Silicon Curtain" should China invade Taiwan - which today seems more likely than ever before. Intel also benefits from the current chip market shortage, where every manufacturer is critical to the continued production of vehicles, phones and laptops.
Intel is encouraged by the huge demand for electronics and computer products that intensified with the outbreak of the Covid-19 pandemic, which kept hundreds of millions of people at home. The company estimates this huge demand will increase a thousand-fold within four years - equaling Moore's Law times five.
This new spirit has brought senior executives back: Shlomit Weiss returned from Nvidia to co-manage the Design Engineering group, alongside US-based Sunil Shenoy, another leaver who returned as Senior VP. "Gelsinger can be unusually aggressive, and he won’t keep the company the way it is today," a senior executive familiar with Gelsinger tells "Globes." "He's a man of decision and action - which is how he can save it or kill it. It's intriguing to see which way Intel will go with him."
The challenges for Intel Israel
Intel Israel in the Gelsinger era faces a dual challenge: reviving the corporate culture to make it, once again, the market’s most attractive employer, and fulfilling an increasingly significant role in server and AI chips, the strategic markets targeted by Intel HQ.
Although its workforce is gradually increasing, Intel actually declined, in the Israeli perception, as an attractive place to work. In the BDiCode Best Companies to Work For list, the company moved down the top ten ranking for 2019 and 2020, after many years of vying with Google for top spot.
The Intel employee profile has also changed. One senior chip development manager who hires hardware engineers [name withheld by request] says that Intel used to attract the best elite university graduates, year after year, with outstanding engineers traveling daily to Haifa from Tel Aviv and the central region.
Today, he says, long-standing employees are leaving Intel, equipped with specific, narrow expertise and without the tools to help them integrate into other companies. "What people have absorbed there, over 10-15 years, doesn’t really match what can be absorbed at other companies for that time," he says. Seniority among Intel employees, for better or worse, is also reflected in the data: According to LinkedIn, Intel employees have a median seniority of 6.1 years, the highest compared to its competitors; median seniority at Nvidia is 3.6 years, and 3.3 years at Apple.
"There's a veteran ethos there, folks who worked at Oregon HQ and 'lugged their transistors on their backs' - as they say in the lunchroom - tough, quality engineers, not like their competitors at Qualcomm, who just know how to send an email to TSMC," says one industry executive well-acquainted with the Intel workforce. "But the sheer size of the company sometimes makes it difficult to move quickly, and when one division head gets replaced by another, it's like a body that’s had its head replaced."
Intel has also suffered, in recent years, from employee attrition in favor of its rivals. Apparently, the number of new employees has stagnated in the last two years.
The Gelsinger era indeed cut Intel's peripheral activities in Israel, with more waves of cutbacks expected to rock the company in the near future. But Intel recruitment executives, along with employees who know the company from the inside, report a recent reversal in trend. "Intel has begun battling to retain good employees and hermetically seal the talent drain. Likewise, their proposed salaries to new hires are highly competitive." One example, obtained by "Globes", proposes a salary, signing fee, and bonus comparable to Amazon or Apple. In late August, Intel recruited a senior hardware architect from Apple Israel.
Intel has hired about 1,000 development workers this year and is still hiring staff for about 400 vacancies. Among the largest groups hired: server, cloud, and communications, and a new AI driven WiFi group. Another new group, formed to compete with Mellanox in data center processors, is managed by Ilan Avital, VP Engineering, Network and Edge Group.
An employee familiar with Intel's hiring policy tells "Globes" that, among potential recruits, Intel has a very good image regarding work-life balance. "Apple pays well, but is considered a very rigid workplace without a good balance between leisure and work, and work is a small part of Apple's hardware, especially in communications," he says. "Amazon pays great, but in the end, you're a small cog in the machine, without global impact. Anyone who goes to work at Google's hardware division in Israel deals with a very narrow aspect of cloud CPUs. Life at Intel is much more comfortable, with a good balance between leisure, family and work. Engineers can work on big projects and affect processor development in countless areas: PCs, servers and AI."
"Willenz and Shashua stood their ground"
Intel needed to change its approach to acquisitions well. To date, Intel has closed or sold many of its Israeli acquisitions, including Replay Technologies, RealSense, Oplus Technologies, and DSPC. "Their method was similar," says a former Intel executive. "The day after the acquisition, all employees underwent a series of training sessions about Intel and its organization culture, their work systems were replaced, and ultimately, they were put into uniform Intel cubicles. Then, for months, they’d ask themselves how they could maintain the same level of output they’d had before Intel acquired them. That’s why Amnon Shashua of Mobileye and Avigdor Willenz of Habana Labs stood their ground about maintaining their companies’ independence, at least for the first few years."
Habana Labs is a key asset for Intel - and the success of its Caesarea operations will greatly impact Gelsinger's AI strategy versus giants like Nvidia and AMD. As mentioned, Intel entered the machine learning sector by acquiring the AI chip developer in late 2019. The deal was considered ‘Too little, too late’ and very costly. Habana has not yet launched a product and it will take time for Intel to integrate the technology into its server motherboards. But Habana’s expanding collaboration and possible acquisition by Facebook led Intel to make a $2 billion takeover bid, rather a high sum for a company with no sales. It may be that taking veteran chipmaker Avigdor Willenz - the man behind a number of chip companies sold to giants like Amazon and Marvell - and turning him into a one-day-a-week Intel employee and AI consultant, was worth it.
Habana’s technology is different to Intel’s as its chips are based on the competing ARM technology, but Intel believes that incorporating its Xeon server chips into any board with a Habana chip can accelerate data center activity. The data center sector, and the move to the cloud in general, has become the biggest competitive arena between Intel, Nvidia and even rival AMD. Intel market’s share has been damaged by Nvidia, which offers AI processors and GPUs that help accelerate all data center network communications and deliver higher capabilities. It’s possible that, to regain market share, Intel will continue to make Israeli acquisitions in the data center sector, and benefit from the growing number of startups in this industry, such as Pliops or Hailo Technologies, by acquiring one or two.
Deliver the goods or pay the price
Recognizing Intel's past failures in mobile and Internet of Things (IoT) chips, Gelsinger wants to take Intel back to its halcyon days of high-performance, complex computing chips, and focus on high-power PC and server chips that demand higher capacity and far higher performance than mobile phone chips. This division, which is responsible for $40 billion in annual revenue, is retaking center stage with an Israeli management team that includes Shlomit Weiss, SVP and co-GM of Design Engineering; Ran Berenson, VP and GM of the Core and Client Development group; and Adi Yoaz, Core CPU Chief Architect of Intel's new Alder-Lake chip.
Mobileye remains a sort of island within Intel: Amnon Shashua and his executives run it independently, and decide for themselves the way Mobileye will wear the Intel team colors. Although its revenue is only a small slice of Intel's revenue, at "just" $1 billion per year, Gelsinger views Mobileye as Intel's future in the smart vehicle semiconductor market and its foothold in the automotive world. Intel estimates that the vehicle chip market will account for about one-fifth of all premium car components by 2030 and will account for about one-tenth of the global chip market. Intel, which is the only company among its competitors to own an automotive chip company, has the chance to dominate this field, to the benefit of its Jerusalem development center. Although autonomous vehicles are still far from being commercially available, next year, Intel together with Mobileye, will launch an experimental autonomous taxi fleet branded under the Moovit app that will manage ride-hailing services.
Will Intel Israel eventually grow during the Gelsinger era? It all depends on Intel Israel. "Pat has known Intel Israel for decades and appreciates its contribution, but if there’s one thing you can say about his management style it’s that he’s a cool, calculated CEO who, as we all saw recently, knows where to cut, and where not to," says one former Intel executive. "If Israel doesn’t deliver the goods, it will pay the price."
Despite the announcement about building a new fab in Israel and recruiting hundreds of workers, Intel Israel will face increasing challenges in the coming years. Europe, today at the far end of the semiconductor industry, is making huge efforts to attract chip giants, and the US government is ramping up investments targeted at bringing chip manufacturing back to the US. All could affect Intel’s local activity. Israel is on the right side of the "Silicon Curtain", and its leanings towards the US or China in the coming years are also likely to impact Intel's preference.
Published by Globes, Israel business news - en.globes.co.il - on October 3, 2021
Copyright of Globes Publisher Itonut (1983) Ltd. 2021