Shakeup at Intel Weakens Israeli Execs

The chipmaker's new CEO arrives in Israel Thursday for a visit, but Israeli sources say he's driving the company in a new direction.

Following reports last month that Intel, the world's leading chipmaker, had launched a sweeping reorganization of the company effective immediately, experts in Israel are saying that shakeup will have an unfavorable effect on top-tier Israeli executives at the company.

The reorganization was announced by new Intel CEO Brian Krzanich, who was elected May 2 by the company's board.

Krzanich arrives in Israel on Thursday for a visit, pointing to the strong ties the global chipmaker has with the "startup nation." However, some experts say, that close relationship will be put to the test in the coming months – perhaps the biggest test since Dov Frohman first brought Intel to Israel in 1974.

“The moves Krzanich is leading show a clear focus on the mobile device market and on a change of outlook in the company," said a highly placed source in the Israeli chip industry. "The senior Israelis blossomed during the Wintel era – the period when Intel and Microsoft together were a monopoly in the market. It seems he is carrying out a serious shakeup of the top executive level,” the source said.

“Today the chip market is not controlled by a single operating system and despite Intel’s attempts to penetrate [the market for] chips for mobile devices, thus far it has been minimal. Intel today needs a profound change and a prioritization of its activities,” added the executive.

Adjusting to a rapidly changing industry

Krzanich announced his plans to change things up in a memo circulated to employees, Reuters reported.

"As your CEO I am committed to making quick, informed decisions. I am committed to being bolder, moving faster, and accepting that this means changes will be made knowing that we will listen, learn and then make adjustments in order to keep pace with a rapidly changing industry," Krzanich said in the email, according to Reuters' source.

"Our business faces significant challenges, and we simply must continue to execute while finalizing our future strategy," he reportedly wrote.

The chipmaker's main product groups -- including the PC client group, mobile communications and data center unit that previously reported to Intel Architecture group chief Dadi (David) Perlmutter - now report directly to Krzanich.
After Perlmutter transfers his business groups, he and Krzanich will "define his next significant contribution at Intel," according to the email described by the source.

Until Perlmutter’s new position is defined, Israeli sources say, there will be no senior Israeli official among Intel management for the first time in many years.

“It is still early to know where Krzanich is heading,” says Shlomo Gradman, CEO of the Israeli Semiconductor Industry Association. “The fact that he is coming here a month after his appointment shows he values what is being done in Israel. At the same time, it isn’t clear whether he thinks Israel should also be a production center as well as a development center. It’s clear there is a new CEO who thinks in a different way and apparently he thinks it is necessary to control things more directly, which raises questions.”

Intel Israel, one company, two leaders

Israel and Intel have had a strong and long-standing relationship. The company employs about 8,500 workers in Israel and the Israeli branch is responsible for about $4.6 billion in exports annually – about 20% of Israel’s high-tech exports.

Intel’s significant presence in Israel has always been based on the economic profitability to both sides. Over the years a number of Israelis have attained key positions in the global organization. Frohman, who joined Intel in the 1970s and was responsible for the establishment of the company’s development center in Israel, was the first. He has been followed by others in recent years: Perlmutter, who achieved the highest position in Intel; Mooly (Shmuel) Eden, who is in charge of the personal computer division at the company and Amir Elstein, who was joint CEO of Intel Israel and was responsible for establishing the company’s production activities in Jerusalem.

“The most advanced development today at Intel is being done in Israel and this isn’t expected to change in the near future. Intel is aware of the abilities and strengths of the technological units in Israel,” says a senior chip industry source.

However, the source surmised, in the past year there has been uncertainty about the management of Intel Israel by Eden along with Maxine Fassberg, with some saying that having a duo of managers could weaken the standing of company's activity in Israel.

“Intel Israel is being run by two heads, one in Haifa and one in Kiryat Gat, and this isn’t doing well by it," said the source. "As of now, it appears there is a power struggle between Eden and Fassberg over influence on the management in the United States.

Add to this the big challenges Intel is facing globally. Though the company did identify the mobile computing revolution and as early as 1999 – it never succeeded in penetrating the field. The more the smartphone and tablet market replaces the personal computer market, the more Intel loses strength.
 

Bloomberg
Bloomberg
Eyal Toueg