Intel’s $2 billion purchase of Habana Labs, announced on Monday, is a big feather in the cap of Israel’s high-tech industry, but the context in which it occurred is just as important: It throws another spotlight on the fact that Israel has become a battleground where the world’s technology giants are fighting over the future of computing.
That future is about cloud computing and server farms. One way global tech firms are preparing for it is by acquiring Israeli startups and setting up local research and development centers to design and develop the chips and other technologies for these server farms.
Intel is only one of the players in this contest. The others are Amazon, Nvidia, Marvell, Cisco and Broadcom as well as China’s Huawei, all of which have poured billions into Israel. The competition will only grow tougher.
Data centers or server farms sit at the heart of the online world. Most of what we do on the internet, from uploading pictures onto Facebook and Instagram, Google searches and watching films on Netflix, are saved on and operate from data centers far away from the user.
Big organizations use them as well for tasks like analyzing massive amounts of data. As a result, cloud computing services based on server farms, such as those offered by Amazon AWS, Microsoft Azure and Google Cloud, have grown by leaps and bounds.
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These companies are competing intensely for market share, both the companies that operate the server farms and those that develop and manufacture the chips that use them. The competition revolves around who has the technology that can make data centers operate most quickly and efficiently. That’s expressed in such things as providing the speediest response time to the user, the most powerful processing capabilities for heavy tasks like artificial intelligence, faster data transfer and savings on electric power.
A lot of this technology is being developed in Israel for the world’s technology giants. Israeli engineers are not only working for rival companies but often right next to each other, on different floors of the same building or in offices in buildings adjacent to each other.
Data centers require different kinds of components and chips. The first and foremost are central processing units, which constitute the “brain” of the servers. They are like the CPUs in a personal computer but much more powerful. Intel has a near monopoly on this segment, with some competition from AMD, and its Israeli R&D unit plays a big role in developing these kinds of processors.
But Intel has competition looming on the horizon: Amazon several weeks ago launched a next-generation processor, called Graviton2, for use by its AWS data centers and as an alternative to Intel. Amazon claims its product is capable of four times the processing power and 40% better price performance than the Intel x86.
Development of Amazon’s new processor was led by Annapurna Labs, the Israeli startup it acquired in 2015 for $360 million. Annapurna was founded by Avigdor Willenz, the same Israeli serial entrepreneur who cofounded Habana Labs.
Another kind of chip that is getting increasing attention these days is used for artificial intelligence applications, where Israeli companies also stand to play a major role. These chips are designed to accelerate AI tasks, which are more demanding than anything traditional chips can cope with.
Habana Labs has developed two chips for the segment, which – based on the $2 billion Intel was prepared to pay for the three-year-old startup – seem destined to be the flagship product for the AI market in competition with Amazon (whose AI chips are developed at Annapurna) and Nvidia.
Surrounding these server processors are chips used for transferring data, or networking, among others between the servers in the same farm. Needless to say, it’s very important that they work as quickly and efficiently as possible.
That’s what prompted Nvidia to acquire Israel’s Mellanox last March for $6.9 billion. Nvidia, which supplies data centers with specialized chips for AI applications, wants the Israeli company’ technology, which are designed to speed data movement between servers inside a single facility.
Meanwhile, Broadcom, now the leader in that segment of processor market, is developing new products in Israel, too, based on technology originally developed by the Israeli startup Dune Networks it bought in 2009 for about $200 million. Dune was founded by Eyal Dagan and Ofer Iny.
A surprising development occurred last week when Cisco announced the launch of a new networking chip called Silicon One that it will be selling to data centers operated by the likes of Microsoft and Facebook. It will be first time Cisco is selling a standalone chip and not as part of a system and outs it into head-to-head competition with Broadcom.
The Israeli angle? The chip was developed by Cisco Israel, based on technology originally developed by the Israeli startup Leaba Semiconductor. The U.S. company bought Leaba three years ago for $320 million – its founders were Dagan and Iny, the same pair who founded Dune a few years before
In short, Cisco and Broadcom are now in competition with each other thanks to technology they acquired from the same team of Israeli entrepreneurs.
Another major contender in the market is the U.S. company Marvell, which is also developing networking chips at an Israeli R&D center. Its activities in the segment go back to its 2001 acquisition of Galileo for $2.7 billion. Galileo was founded by Willenz. Huawei is developing networking chips at its Israeli R&D center.
The data center market is just the tip of an iceberg of Israeli innovation that includes developing modems and processors for 5G smartphones and computers, memory, wireless networking like Wifi and a host of other segments.
Nevertheless, a senior industry source who asked not to be named expressed doubts that all this activity could last for much longer. Israeli semiconductor startups are starved for venture capital, except perhaps for companies in automotive technology and AI, he says.
“Willenz is one of the few who is advancing and investing in silicon in the country. It’s a very lucrative industry but it’s difficult to succeed in it. Investment in it, except for some select areas – is declining,” he said.
And then there’s the shortage of engineers, which affects all Israeli high-tech and semiconductors in particular. “Our achievements are based on past successes. We’re seeing that the competition for projects between Israeli [R&D] units and units elsewhere in the world is growing tougher. Pay is crazy by world standards. The government needs to act, in education in particular, to increase the supply of workers.”