A few weeks ago, Intel Israel marked thirty years of activity, during which it has succeeded in generating exports from Israel to the tune of $10 billion (making it one of Israel’s largest exporters), and in contributing developments that have enhanced Intel’s own top line by billions of dollars.
Intel Israel ranks as “Israel’s biggest private employer”. It has a payroll of 5,400, almost 2,000 of whom are engaged in research and development. Those two thousand employees are distributed among the company’s offices in Haifa, with about 1,000 development personnel, Petah Tikva, with some 400, Jerusalem, with 300 development personnel, and a few dozen more in Kibbutz Yakum.
The slowdown in the chip industry has shrunk exports by Intel's Israeli branch. Nevertheless, the figures are still very respectable: Intel Israel's exports totalled $1.36 billion last year (13% of the total exports of Israel’s electronic industry), similar to the 2002 figure $1.4 billion, but far less than the $1.75 billion of 2001, and the record $2.2 billion in exports that the company posted in 2000. For 2004, the upsurge in sales of chips and personal computers is expected to boost Intel Israel's activity considerably.
While not, of course, an Israeli-owned company, Intel Israel may certainly be regarded as flagship of the local high-tech industry, currently leading the development of Intel’s portable processors. Intel Israel also boasts that its operations in this country are making an indirect yet significant contribution to the Israeli market. By the end of 2003, the suppliers unit, established in 1996, had yielded sales totalling $1.78 dollars for other companies, as a result of their joint activities with Intel.
Product must be healthy
The man responsible for the Intel Israel connection was engineer Dov Frohman who, in 1974, set up the Israeli branch, then employing a staff of just five. It was Frohman who, a few years before, had invented the EPROM memory.
The company set up its first development center in 1985 at Har Hotzvim, Jerusalem. A year later, it started to export semiconductors from the fab it had established there. Intel Israel is proud of the fact that the Jerusalem fab, which produces the various micro-electronic products, especially chips for the motor vehicles industry, was Intel’s first manufacturing plant outside the United States.
The Kiryat Gat fab was set up in 1999, at a cost of $1.7 billion. It produced Pentium 3 processors, and currently makes Pentium 4 processors for PCs and also chips for portable computers and wireless communications.
Over the years, the Israeli branch succeeded in presenting many original developments, foremost among which was the Pentium MMX, the first product developed in Haifa to be designated for large scale manufacture, followed by the Centrino portable computing technology, a mathematical processor family of the X87 series developed in the late ‘seventies that for large scale manufacture, and which performed arithmetical calculations that were highly advanced at that time, as well as silicon based communications controllers.
“The MMX was the first product that was designated for mass production to come out of the Haifa development center”, relates David (Dadi) Perlmutter, who is vice president and general manager of Intel's Mobile Platforms Group and general manager of the Intel Israel Development Center in Haifa and Jerusalem.
“A product for high-volume production has to be highly sophisticated and very healthy, otherwise it will create problems and road blocks on the manufacturing side. Its success was twofold: the MMX proved a huge marketing success, while the very fact that a product had been developed that could be produced on a large scale was a success in itself”.
The most significant development that has passed through the hands of the development center in Haifa is the Centrino portable computer technology, which includes the Pentium M processor, the chipset, and a wireless communications component than enables network connectivity. “This is the first time that Intel has come out with a brand name that is beyond the processor itself,” Perlmutter explains. “Intel thus presented a brand that provides a complete technology and whose object is to confer value upon what the company has called “the vectors of mobility”, which include computer performance, battery life, and wireless communications.”
"Globes": What is development focusing on now?
Perlmutter: “Our current focus is on the future generation of products, going far beyond technology. I won't elaborate on that. The Haifa development center is developing the product line that will be one of Intel’s main lines in the next few years, taking a much more prominent role than in the past.”
"Globes": Meaning?
“Intel has a few processor development centers in the US, in addition to the centers in India and Israel. For the sake of modesty, I will just say that Israel’s is one of the two leading centers”.
Major risk and large contribution
Intel Corporation, the world’s largest processor manufacturer, is currently traded at a market value of some $145 billion, and has a payroll of 84,000 worldwide. The company wound up 2003 with a profit of $5.6 billion, on revenue of $30.1 billion. In the second quarter of the year it presented a profit of $1.75 billion on revenue of some $8.05 billion.
"Globes": Do you think Intel Israel will be affected when Craig Barrett steps down as CEO in a year’s time?
Perlmutter: “I don't take relationships lightly. In my opinion, an organizational change in Intel will not have adverse consequences, but I can't tell you what the effect of Barrett’s departure will be”.
Intel Israel posts very respectable figures through the two fabs in Jerusalem and Kiryat Gat. (Intel does not provide the exact breakdown of sales, but the new fab in Kiryat Gat exports greater quantities O.L.). But those figures could change significantly if the company decides to set up an additional fab in Israel using 0.09 micron manufacturing technology. About two years ago, the Investment Center at the Ministry of Industry, Trade and Labor approved Intel’s application to set up an additional $4 billion plant in Kiryat Gat, for which the company would receive grants to the tune of 12.5% of its investment up to a ceiling of $3.5 billion.
Intel has yet to decide whether to set up the fab in Israel or elsewhere. But if the board of Intel Corporation resolves to set it up in Israel, that fab may be expected to payroll 2,400 employees plus another 2,000 contractor’s employees, and have annual sales amounting to $2.9 billion.
Meanwhile, the company has also filed an application with the Ministry of Industry, Trade and Labor for upgrading the existing Kiryat Gat fab at an investment of $660 million. Once upgraded, the fab, which uses 0.18-micron technology, will also be able to produce flash memories.
"Globes": What does Intel management look at when it considers expanding development activity?
Perlmutter: “The parameters for selecting the development centers are numerous. Unlike the parameters for setting up fabs, where one looks at the cost versus benefits and decides where manufacturing should take place accordingly, things are far more complicated when it comes to a development center. When you are dealing with invention, there is an element of capability and creativity, and even if a lot of people are brought in, there are things that money cannot duplicate.
“A development center is measured by the cost of the engineer, benefits, taxation, construction costs and so forth. In these respects, Israel doesn’t stand a chance of competing against India, but we do compare favourably with the US. The second parameter is that of efficiency to develop a product using fewer people. And the third parameter is benefit - can the development center achieve a much better result than others? All these are components that depend on people, on technological capability, on management style and cohesiveness within the company. These are important components that one takes into account when one thinks of setting up a development center, and of course there is also the human relations component and trust between people in the company.”
We are paranoid
"Globes": How likely are the activities of the Israeli development centers to be relocated elsewhere?
“The possibility always exists, but I don’t know of any such plans. We view everything in the most paranoid light possible. Development is doing well, but this is no time to rest on our laurels; and there are lots of risks that we are keeping an eye on. Israel’s development centers have grown substantially, both in communications and processors, and this is not something that Intel is about to abandon any time soon. Our objective is to maintain added value in the future."
What's the paranoia about?
“We look at what our competitors are doing and what they are about to do, and we believe that our products will give us the competitive edge over our rivals. Another element of risk is to maintain our competitiveness within Intel even if someone is found who will do the job more cheaply.”
It's not difficult to find someone cheaper in India.
“I have no doubt that, in a few years time, what we are doing here will be able to be done in India. To develop a processor is not something that you learn in a couple of days. It took us fifteen years to reach our level of capability, but the Indians may get there faster because they have better teachers. Our current objective is to be somewhere else in two to three years time, when they get to where we are now.
“We work hard to keep costs down, not in order to compete against India, but in order not to reach a point where costs are so high that investment becomes uneconomic. We are trying to be more efficient vis-à-vis the United States and to give a higher added value than anyone else. We don’t always succeed.
“This week I had a talk with the staff and I mentioned the game of “King of the Hill” that we used to play as kids. In the past thirty years the ‘kids’ (meaning Intel’s employees O.L.) have been struggling to get to the top of some hill. When you are at the top of the hill, it’s very easy to topple you, and there are plenty of kids who are trying to do that and some of them cooperate with one another. The best way to remain at the top of the hill is to reach another hill, so that when the kids who are trying to make it to the top manage to do so we will already be somewhere else. We have an advantage in capability and we want to preserve it.”
What do you see as Intel’s greatest contribution to the Israeli high-tech industry?
“There is an indirect contribution that I am proud of but don't like. Some of the people who worked at Intel left and set up other companies. Some of the lessons I derived from products that I developed, they applied to products in their companies. I also assume that the fact that Intel exists in Israel and has invested here over a long period makes other companies look favorably at the idea of investing in Israel. We also contributed by bringing technology to Israel. There was no silicon development technology here when we arrived, but since then, there has been lots of it."
Published by Globes [online] - www.globes.co.il - on November 23, 2004