Exclusive: Microsoft Secretly Launched a New Chip Development Center in Israel

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A Microsoft server center in Israel. The company secretly launched a new chip development center in Israel a year and a half ago
A Microsoft server center in Israel. The company secretly launched a new chip development center in Israel a year and a half agoCredit: Amy Sacka

Following in the footsteps of Apple, Amazon and Google, another tech giant has opened a chip development center in Israel: Microsoft secretly began developing networking chips at its Israeli research and development center and is gradually expanding the operation.

The project began about a year and a half ago, but its existence has never before been reported. Recently, the company has begun accelerating the project’s operations, recruiting new chip engineers.

The chips Microsoft is developing in Israel are intended primarily to speed up networking at its data centers, which run the company’s cloud service, Azure.

Developing chips and other hardware isn’t something new for Microsoft’s Israeli R&D center, which employs some 2,000 people. It has a team in Herzliya developing a touchscreen interface for its Surface computers that is based on its acquisition of the startup Intrigue in 2014.

Developing chips and other hardware isn’t something new for Microsoft’s Israeli R&D center, which employs some 2,000 peopleCredit: עמית גירון

In the past, Microsoft also had a hardware development group in Israel that worked on its HoloLens mixed reality smart glasses. But that group was shut down in 2015.

A year and a half ago, the company set up the new group at its offices in Haifa tasked with developing chips for its cloud computing operations. The group, which is currently focused primarily on networking and storage, includes both hardware and software engineers. Its members have formerly worked at Mellanox, Qualcomm, Intel, IBM, Apple and Broadcom.

Microsoft also recently accelerated its hiring of chip engineers. And last year, it set up a server lab that will conduct tests and simulations of the hardware developed in Israel. 

The Haifa group is also active in information security, software, storage and other projects related to Microsoft’s cloud computing operations. 

Israeli chip wars

Other companies have also recently increased their investment in chips in Israel. Google announced the launch of an Israeli chip development center for its cloud computing operations last month; the center will be headed by Uri Frank, a former senior Intel executive. And Invidia announced that it will hire 600 new employees, among them engineers specializing in both hardware and software for chips.

The new project is part of Microsoft’s years-long effort to develop and build its own chips for its server farms. This is a widespread trend in the semiconductor market. Other technology giants, including Apple, Google, Amazon and Facebook, also want to develop their own chips rather than buying them from chip manufacturers like Intel.

Microsoft's R&D center in Haifa is home to the networking chips project - that is now being accelerated with new engineers being recruited Credit: תומר פולטין

In December, Bloomberg reported that Microsoft was working on developing processors based on ARM for its servers and its Surface computers.

One of the interesting products developed by Microsoft in Haifa is SmartNIC, a smart networking card that speeds up data transmission on servers in the company’s data centers. The card reduces the burden on the server’s central processing unit by taking over some of the necessary tasks itself.

Using SmartNIC (which some companies call DPU) to speed up data centers’ operations has become a powerful trend in the cloud computing industry in recent years. Its adopters include Amazon, Google, Microsoft and Alibaba.

Microsoft’s focus on networking cards is also interesting because of the local competition. SmartNIC technology is being developed by Amazon’s Israeli branch, Annapurna Labs, as well; its AWS Nitro is designed for Amazon’s AWS cloud computing service, which competes with Microsoft’s Azure. And Mellanox (owned by Invidia) develops networking cards meant for the entire industry.

Microsoft currently uses SmartNIC products from Mellanox. But its long-term goal is to replace those products with its own.

Microsoft has been developing technologies related to SmartNIC for several years. But people familiar with the issue said the company would likely want to develop the next generation of these chips, which will be more efficient and better adapted to Microsoft’s needs, in Israel.

Today, Microsoft’s SmartNIC is based on FPGA (chips that can be reprogrammed to change their function after they are made). But the company may want to develop networking chips based on ASIC, meaning chips built for a specific use.

The company’s growing investment in chip development in Israel stems from the extensive know-how that exists here. Israel is considered a major center of know-how in the field of chips in general and networking in particular, and it is home to both startups and giant corporations engaged in this field, including Amazon, Invidia (Mellanox), Cisco, Marvell and Broadcom.

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