Mobileye: An entry – not an exit

By
March 18, 2017 17:56

Intel’s buyout of Mobileye is not a classic story of an Israeli hi-tech company cashing out, but rather a scale-up to bigger things.




Mobileye

Mobileye co-founder Amnon Shashua speaks at a press event at CES in Las Vegas, January 5, 2016. (photo credit:AFP PHOTO)

As Intel takes a $15.3 billion leap of faith with Jerusalem’s Mobileye, the global chipmaker is placing its bets that an Israeli-led team can trailblaze the path toward vehicle autonomy.

Setting the wheels in motion for the largest hi-tech deal in Israel’s history, Intel announced a definitive agreement on Monday to acquire Mobileye, a leader in the development of computer vision for advanced driver assistance systems and autonomous vehicles.

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Yet although Intel will be purchasing Mobileye, the chip giant has decided to base its future self-driving operations at the Israeli company’s Jerusalem headquarters.

“People are talking about the largest exit for any Israeli company,” Prof. Ben Gomes-Casseres, an expert in alliance strategy at Brandeis University’s International Business School, told The Jerusalem Post this week. “It feels different – like an entry. It seems like a scale-up. This is an industry where being small doesn’t pay.”

The Intel-Mobileye collaboration is now poised to go head-to-head with other giants aiming to dominate the autonomous driving world, such as Google, Apple and rival chipmakers NVIDIA and Qualcomm – the latter of which announced $47b. plans to acquire semiconductor firm NXP in October. Not to be taken lightly, the $15b. deal is actually Intel’s second-largest acquisition ever, a point that Intel CEO Brian Krzanich emphasized at a press conference held with Prime Minister Benjamin Netanyahu on Tuesday.

“We think of ourselves as an Israeli company as much as a US company,” Krzanich said that evening.
Netanyahu congratulates Intel and Mobileye chiefs after landmark deal (credit: REUTERS)

With Intel’s autonomous driving operations about to be headquartered in Israel, under Mobileye’s Prof. Amnon Shashua, the country will have an opportunity “to lead how these autonomous vehicles go out on their own, interact with cities, interact with government agencies and really set the standards for how this gets implemented into the world,” Krzanich said.

“[Shashua] will lead Intel’s overall autonomous vehicle efforts, across the whole company, not just here in Israel,” he added. “We will be folding in operations in the US underneath the operations here.”

All in all, the transaction is expected to bring Israel about $1b. in tax revenues and add about 3,000 jobs for Israelis, according to Economy Minister Eli Cohen.

In order to make an impact in the global automotive sector, companies need to be large enough to be viewed as a credible partner in such an enormous industry, with the capability to integrate software and hardware technologies, according to Gomes-Casseres.

“Mobileye and Intel both have a piece of that puzzle,” said Gomes-Casseres, who is also the director of the Asper Center for Global Entrepreneurship at Brandeis. “Putting them together is a very reasonable approach.”

By combining Mobileye with Intel’s Automated Driving Group and keeping the resultant product in Israel, it is almost as if “an Israeli company has acquired the Intel division,” he argued.

“You often see Israeli companies with a brilliant idea that then get acquired and folded into the American company,” Gomes-Casseres said. “This could become a global company actually based in Israel.”

Founded by Shashua and Prof. Ziv Aviram in 1999, Mobileye is best known for its vision-based anti-collision system that detects other vehicles and warns drivers of potential dangers. In August 2014, the company went public on the New York Stock Exchange, raising $890 million, in the largest Israeli initial public offering in the United States. Accounting for 70% of the global driver assistance technology market, Mobileye provides its anti-collision detection systems to 27 automakers around the world.

Mobileye and Intel began collaborating already in July, when the two companies teamed up with BMW, with a goal of bringing fully autonomous vehicles to the streets by 2021. In November, the two companies also announced a partnership on self-driving with vehicle technology supplier Delphi Automotive, leading Intel to establish an in-house Automated Driving Group that same day.

“Intel is making a play to become a very important partner to the whole automobile industry,” Gomes- Casseres said. “Everybody is looking for this holy grail.”

For the Intel-Mobileye venture to be successful in the autonomous driving sector’s “big field with many players,” the Israel-based team must not simply allow Mobileye to act independently, but should also take advantage of the key computing and manufacturing capabilities that Intel brings to the table, Gomes- Casseres argued. “What we’re looking for is not independence but integration.”

As Intel prepares to make its autonomous driving home in Jerusalem, Gomes-Casseres looked at the deal’s potentially positive impact for other Israeli startups.

The company’s decision to base its self-driving activities in Israel provides a “new direction” for future hi-tech collaborators to consider, he contended.

“We always knew that Israel was a good place for start-ups,” he said. “This is saying that it’s not only good for start-ups but it probably could be good for maintaining a global business.”

Because Israeli companies are strong in technological development but less so in sales and competing in large markets, joining forces with successful American firms that invest huge amounts of money in these areas can be mutually beneficial to both parties, according to Prof. Yair Tauman, dean of the Adelson Entrepreneurship School at Interdisciplinary Center Herzliya.

“Merging with competing US companies can dramatically improve the revenues of the Israeli company, and if this company has a high gross margin... it becomes very attractive to the buyer,” said Tauman, who is also a professor of economics and expert on game theory at Stony Brook University. “Hence, instead of competing with giant US companies, a merger can yield to both of them a significant surplus.”

As competition mounts in the rapidly changing hi-tech world, decrease in gross margins and company value can occur – a risk that can be overcome by “merging with large companies with an edge in the competitive landscape,” Tauman explained.

“If you wait, potential buyers may buy other competing companies, thereby reducing your chance to be acquired,” he said.

Uzi Scheffer, general manager of the SOSA (South of Salame) Tel Aviv start-up hub, said the Intel-Mobileye deal is a testament to the willingness of such international corporations to come to Israel and invest in its companies.

“This historic purchase of an Israeli tech company by such a large multinational corporation is further proof that forward-thinking corporations are willing to invest the money and resources needed when they find the right innovative technologies,” Scheffer said.

“Many leading global corporations, which are determined to lead their industry just as Intel does, look to the Start-Up Nation for the innovation they need to keep themselves ahead of the curve.”

Emphasizing how Israel’s start-up economy is export-based, Scheffer discussed the importance of connecting the country’s innovators with foreign markets. Acknowledging that many startups do dream of international exits, he stressed that other routes, such as partnerships with global corporations, can also lead to success.

“With the growing number of start-ups choosing to take the chance and scale up, it strengthens the innovation ecosystem in Israel,” he said.

By building a self-driving division under Mobileye’s leadership, within Israel, Intel will be positioning itself in such an ecosystem, where nearly 400 start-ups are involved in the automotive sector, Scheffer explained.

“Israel has become a hotbed of innovation in that field and is emerging as a global power in automotive technology,” he said.

“Intel now has Mobileye’s network and regional connections to stay plugged into new innovations; and other companies, whether they acquire Israeli companies or not, are looking for ways to increase their presence and cooperation with the Israeli tech and start-up world.”

To veteran industry investor Michael Granoff, the $15b. deal represents a “far-sighted” decision on Intel’s part and is “a win-win” for both the chipmaker and Mobileye.

“From an Israeli perspective, to have Intel expanding its presence here and locating its research center in what I think is the most promising new sector of the economy is tremendous,” said Granoff, the founder of venture capital firm Maniv Mobility. “It’s great for Mobileye, great for Intel and great for Israel.”

Granoff, who was a principal investor in the failed electric vehicle venture Better Place, established Maniv Mobility to fund transportation technology start-ups, working in partnership with the Jerusalem-based equity crowdfunding platform OurCrowd. Maniv Mobility currently has 14 companies in its portfolio, nine of which are Israeli and several of which focus on autonomous driving.

Commenting on the failure of Better Place as giants like Intel, Google and Qualcomm move toward developing self-driving cars, Granoff stressed his belief that both autonomous and electric vehicles will be operating on the global highways of the future.

“I didn’t get it wrong that we are going from gas to electric in this century,” Granoff said. “But what I got wrong was thinking that this is the headline. It’s a footnote. We are going from manual to automated vehicles. That’s the major insight.”

In Granoff’s mind, a sizable portion of that “headline” is being written in Israel today, by companies like Mobileye and a slew of other start-ups working in the autonomous vehicle sector.

Israeli entrepreneurs have already built up a global reputation for their expertise in hardware-software integration, cybersecurity and censors – all vital components in this “new world,” according to Granoff.

“Israel is indisputably not worse than second in this world of what I call new mobility technologies, just like so many other technologies,” he said. “Mobileye is really the tip of the iceberg, and for Intel not only to be able to benefit from that existing infrastructure, but also to be able to reach out to the rest of the ecosystem here, puts them in a very strong position.”

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