The Israeli who makes sure the chips work

Dan Glotter
Dan Glotter

Danny Glotter abandoned a secure future at Intel to found Optimal+, and became indispensable to global chipmakers.

Every year, Danny Glotter, or rather the software of Optimal+, which he owns, surveys the semiconductor industry: Qualcomm, Broadcom, Nvidia, and the rest. That, however, is far from satisfying him. The man who left a very senior position at Intel because he felt that "the corporate culture leads to mediocrity", went "to the edge of the precipice" as he puts it, and as a result had to part with his business partner and also his wife, now dreams of moving up a grade.

Glotter created for the semiconductor industry a common language of valuing quality. Now he wants to do the same thing for Apple's iPhones, Tesla's electric cars, for sensitive medical equipment - in short for anything with complex electronics that it is essential that it should work properly, sometimes to the point of being critical for human life. This vision sounds somewhat megalomaniacal, but it intrigued KKR, one of the world's largest investment funds, sufficiently for it to have invested $42 million in Optimal+ last September.

You don't think small.

"I want to leave my mark. But I don't boast that I'll succeed."

Had you not left your job as production manager at Intel Kiryat Gat in 2004, you would presumably been in line for manager of the fab. Most people would not have foregone that prospect.

"It never interested me personally. It didn't look to me sufficiently challenging. I'm not unappreciative, God forbid. Intel taught me to think and act, but it was clear to me that I would not continue in a large corporation. It's a question of individual preference. I left a lot of money behind at Intel - options I had that were above the waterline. Most people thought I'd gone crazy. But it didn't suit me. I want to be master of my fate, even at the risk of failing, to make my imprint on what I do."

And that doesn't exist at Intel?

"At Intel, with all due respect to what they do there, they can't be a formative influence from here. That's also true of other companies: the ability of the head of Cisco or of Microsoft in Israel to do things depends on their charisma and their personal ties with the decision makers at headquarters in the US. They are the czar's representatives overseas. What can the head of Intel Israel do? They can persuade someone in the US to set up another fab here and invest in more technology, and persuade the Knesset Finance Committee that they should give grants - which, incidentally, I think the state should give."

What about the mark left by Intel Inc., which seems to have fallen asleep on watch, at least as far as mobile telephones are concerned.

"Intel did indeed miss out hugely on mobile. Success blinded them to the extent that they were oblivious to it. No-one has a crystal ball with which to see the future, and no-one should behave as though he knows what's going to happen. I hope that now, after the acquisition of Infineon's mobile division, there's a more than reasonable chance that they have learned something and will get onto the high road.

Intel, however, has another problem. At the moment, all Apple's portable computers have Intel processors in them. If Apple decides to put its own processors into portable computers instead, Intel loses $5-7 billion overnight. That's an extremely high level of risk. If I had to advise Intel, and similar companies, I'd say, be open enough to listen, don't be arrogant, it's not possible that you're always right. Intel people have a feeling they're blue-blooded, and that’s not good."

This is happening despite the change of management two-and-a-half years ago and Brian Krzanich's appointment as CEO?

"Krzanich is an impressive person who can bring about change, but in the layers under him things haven't really changed. The best example of that is what is happening with automotive. It's crazy hype. Other companies in the industry are very interested in it: Broadcom is getting into it, Nvidia, Marvell and STM are already there, even Qualcomm decided to get into the field. By contrast, Intel may claim to be into the 'Internet of Things', but we haven't heard any announcement about getting into vehicles, and that in my opinion is the next trend that it is liable to miss out on."

The enemy of progress

About half of Optimal+'s 210 employees are in Israel, in the Holon industrial park. The company is hiring extensively, and has expanded its premises to an entire floor. Some of the work stations still await the new hires. In the kitchen, one of the programmers chops a salad finely for breakfast for him and his colleagues. In the afternoon they will eat in the dining room where bowls of fruit adorning the counter indicate a healthy menu. On the walls are huge pictures taken by another employee, an amateur photographer, among them a photo essay on dancers in the streets of Tel Aviv, alongside photographs from around the world and the length and breadth of Israel. The high-tech artist has appended an explanatory note to each picture. Glotter walks around like someone who has found where he wants to be for many years.

Glotter, 52, was born in Rehovot, served in the Air Force and went to study industrial engineering and management at the Technion as an officer, "one of the youngest", at 21. After his studies he returned to the military and became head of a field security technology unit in the IDF, until "at a certain stage I became sick of all the secrecy, which does not suit my character, and decided that I would go into finance." He became head of a finance unit, in which he role he managed for the army the construction of the residential projects Re'ut and Nevei Afek, together with Itamar Deutscher, today CEO of Electra and still a close friend.

In the next stage, he received an offer from Intel, which had been trying for a number of years to build a factory in addition to the Jerusalem facility; they thought his military experience in real estate fit the bill. "I was essentially the first employee of the new fab," Glotter recalls with a laugh. Together with his team, they chose the Kiryat Gat site, and embarked on a long bureaucratic journey which included negotiations with the government, led by legendary Intel Israel founder Dov Frohman.

When the project was complete, Glotter considered starting buyers groups - an undeveloped field at the time - but even though he was not an electronic engineer, he received an offer from Intel to stay with the company. "They told me, stay and you will be on track to run the fab in Kiryat Gat."

Glotter accepted and eventually became the production manager at Intel. But an unpredictable twist in the tale occurred in 2001. The manager of the testing department - which assures the quality of finished products - was struck by tragedy when her husband was killed in a terror attack. She had difficulty coping with the demands of the job following the tragedy, leading then-CEO Alex Kornhauser to call Glotter and ask him to take over the department.

"I had no idea what it was," recalls Glotter, "But you do not say ‘no’ in such situations."

What he discovered there would become the basis of a long, independent career. "I saw that if Intel was at the top in manufacturing - and was trailed by the world - then in testing it was low and the rest of the world was barely off the ground."

How do you explain the gap?

"While most people think testing is incredibly important, because it holds the most sensitive information on a product’s performance companies erect barriers to keep it secretive. But they also pull the wool over their own eyes and miss out on the experience accrued by other companies. You can share non-classified information and advance technologically. But secrecy is the enemy of technological progress."

"Follow the money"

Exhibitions he visited reinforced in Glotter the understanding the issue was largely ignored. "I said, this is a good opportunity to go and take a chance outside" - meaning start his own company to offer a progressive alternative in the sector.

At the start of 2004, he announced he would be leaving. At the end of 2004, he set off on his own and began thinking of the product, which at that time was specialized software to manage the manufacturing floor from a testing perspective, by using big data analytics; he had a co-founder and partner, Nir Erez, who currently serves as founder and CEO of Moovit. The reasons for their split are ahead.

It started well, for a startup. Within three months, they raised $11 million from Pitango Venture Capital and Carmel Ventures, they already had their first client and were close to signing a second. By 2007, they had finished a second round of funding from Evergreen Venture Partners and other investors - including Kenneth Levy (a veteran of the global semiconductor industry and a KLA founder) who also served as a mentor for a year.

But then came the crash of 2008. "I was lucky to have the money to survive," says Glotter. "When the market is dead and all the clients are hiding, it is not the best who survive but those with funds, and I had money. And, also, with the absence of clients, there was a lot of time to think."

What were you thinking?

"I asked myself if I was selling the right product. Then I remembered a sentence from my MBA days: follow the money."

To understand what comes next requires a short explainer: the semiconductor industry has two main components - chip design and manufacturing. There are companies that only plan and design, like Qualcomm and Broadcom, and have no fab, and there are companies that manufacture for these companies (and are naturally lower on the industry totem pole); and there are companies that both design and manufacture like Intel.

"I realized that if I sold systems for the manufacturing floor, I would be under the hood of someone else’s car, and the real clients wouldn’t know me. If I sell to TSMC, will Qualcomm or Broadcom know who I am?"

What did you do with this realization?

"I started knocking on Qualcomm’s door; I reached them and convinced them they could better manage their supply chain with my product. They didn’t have a serious vision of a supply chain."

What vision do you supply them?

"There are enormous amounts of data in the testing period, and using big data tools I absorb information from the hardware and analyze it in a central location - either at Qualcomm headquarters, for example, or on the Cloud. With this information I ask myself two basic questions: is the good really good and the bad really bad. That is, whether the product that passed testing is truly fit for sale and whether the product that didn’t is truly unsuitable. In other words, I call the bluff on the inspection devices. And I do it in mere hours, when you can still save the products wrongly labeled as defective and prevent the customer from receiving defective merchandise.

"I save 1% of the chips in the world, and that has a quantifiable economic significance, between tens of millions to $100 million per company, depending on its size. But there’s another side to this, because I also help Marvell, for example, ensure that it doesn’t ship a defective chip to Apple. The contracts companies like Apple sign with their suppliers stipulate that the supplier, say Broadcom, must pay Apple not the $6 cost of the chip, but the full price of the iPhone - $700. When there is a serious breach in production line testing, the company can suffer substantial losses."

"On the edge of the precipice"

What seems obvious in retrospect was far less certain at the outset. We go back to 2009. There were talks (which later turned into a pilot program) with Qualcomm which "bought" the idea, and two additional projects with two other companies, "But on the way, we ran out of money. There was a point that I was on the edge of precipice, while my partner Nir thought we should stop and wait. He stopped believing in the company and left in August."

Were you upset with him?

"He was more upset with me. He thought I was making a terrible mistake. In 2001, he had a bad experience with a company he owned and said ‘never again’; he had been stung. I hadn’t. By the way, we might not be best friends today but we are friendly. Time plays its tricks on everything in life."

But around November 2009, with only a couple million in the bank and on the edge of fading away, Optimal+ signed the three contracts. And from that moment, it became a success. The deal with Qualcomm introduced Optimal+ software to all its suppliers, some of which were Broadcom suppliers, "and then Broadcom wanted in, and when they became clients we added their suppliers who didn’t deal with Qualcomm" and the rest was history: "That was how we covered the list of the largest fabless companies in the world."

Glotter claims no other company provides the same service. While the information can be attained traditionally by compiling the reports from the testing machines, that takes a great deal of time and it does not include the analytic capacity of his products. And that was only the first stage.

"We developed the capacity to transfer all relevant information on chips - now the question is what we do with that information. It’s as if we built a new toll road and we are now busy placing the collection booths, which is to say we are currently looking for other way to monetize."

The company generates "tens of millions of dollars" and works on an annual licensing model; Glotter says customers keep signing up and staying on. "We have a 100% renewal rate - since 2009."

Among his customers are companies that have their own production plants, but "there is organizational politics which halt the flow of information. STMicroelectronics CEO Carlo Bozotti told us, ‘Through your systems I can create a common language for everyone.’ So you can say that Optimal+ provides a ‘seal of approval’ for the industry."

But that’s not enough for you.

"The semiconductor sector is very interesting, but it has a glass ceiling of half a billion to $750 million a year. Not that we’re close to that, but we’re thinking ahead."

In the past two years, the company has undergone a process of strategic development to further monetize its specialty with the help of a few experts, including Prof. Bruce Phillips - who helped several Israeli giants with strategy (like Teva and Amdocs). At the end of the process, they realized the information they could obtain about a single chip could also be obtained for a logic board - a component with lots of chips - which opens Optimal+ up to other clients, from Cisco to Apple and everything in between.

"We realized that with the current advanced, with the Internet of Things and autonomous vehicles, more and more systems which were once important have become critical. If the GPS in your iPhone stops working today, you may make a wrong turn, have to ask for directions, suffer some discomfort. But if the GPS in your autonomous car - a few years from now - stops working, the car will simply stop. Not to mention systems like radar and brakes. Then it’s not a matter of discomfort but actual danger.

"The same is true for medical apps and equipment. When you look at a chip, there are thousands of parameters and each one carries a risk of failure. I can offer a quality rating to each chip, I can know if it can ‘sync’ with other chips in the circuit board, and the manufacturer can then know which chips should be used for critical systems and which should be installed in less-sensitive systems. Essentially, I now want to provide the ‘seal of approval’ for the entire electronics industry."

Is there demand?

"A lot. Nvidia - one of our clients in the semiconductor sector - said it was also interested in using us for its electronics division. Right now we are conducting a trial of our product for Nvidia electronics, in the advanced beta stages." To advance that vision, KKR invested in Optimal+, taking a 15% share of the company alongside the other VC firms.

"Obviously, the shares held by me and the other employees were diluted to that end," concludes Glotter, "But we believe we are doing the right thing."

"You have no future here"

Despite his personal preference to run his own company - and not be part of a conglomerate - Glotter says the presence of multinational firms in Israel is incredibly important because they employ thousands and serve as a launch pad for Israeli companies that develop within them. But for the Israeli high-tech industry, and specifically the semiconductor sector, the situation is far from perfect.

"There have been many discussions recently about the future of high-tech and what will happen to the dying semiconductor sector. They say it’s because the kids aren’t studying math. While I do believe we should encourage math studies, I don’t believe it is the crux of the issue - there is a sustained effort to drive away our best minds.

"Let’s take one recent example: the decision starting from January 1 to lower the threshold of tax-free pension contributions to NIS 24,000. High-tech workers earn well, and a good pension could tie them to Israel. But the government comes and says, ‘Your future is of no interest to us. We want taxes, now.’

"This type of behavior tells talented people: ‘You have no future here.’ And they leave. It breaks my heart."

Published by Globes [online], Israel business news - - on March 24, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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