The acquisition by Intel Corp. of Israel’s Mobileye, a maker of chips for car cameras and driver-assistance features, is a typical tale of an Israeli start-up that has grown from within the folds of the local academia and then found an exit.

This tale, however, is a blockbuster, and Intel’s $15-billion acquisition will entrench Israel as a leader in the highly competitive autonomous car industry.

The acquisition announced Monday — at a price that represented 35 percent premium to the market value of Mobileye — represents the biggest ever for a tech company in Israel; it is the largest deal to date involving semi-autonomous and autonomous driving technology. The creation of a joint enterprise in Jerusalem will spawn additional entrepreneurs in the field and create a go-to country for investors who will be seeking to find the next blockbuster, according to analysts and industry players.

Mobileye was founded in 1999 by Prof. Amnon Shashua, a professor in computer science at the Hebrew University of Jerusalem and an expert in computer learning and machine vision; and Ziv Aviram, a businessman with a knack of turning companies around from loss to profit, and restructuring organizations. The two aimed to use technology to increase road safety by helping avoid collisions, as opposed to mitigating the severity of collision-related injuries on which the auto industry was focused at the time.

The technology the two developed — a single-lens camera with a chip — was inspired by human vision, which uses just one eye for depth perception such as shading, texture and motion. This camera became the primary sensor that is used in their array of products that help drivers avoid collisions and also in future-enable autonomous driving.

The "Mobileye" mounted on a car windshield, May 27, 2015. (Shai/FLASH90)

The “Mobileye” mounted on a car windshield, May 27, 2015. (Shai/FLASH90)

Mobileye systems, which combine the use of the camera with chips, algorithms and electronic circuits, can alert drivers of potentially dangerous situations, such as when a car leaves its lane, or when a collision may be imminent. It also can identify such collisions by breaking without any driver intervention; adapting cruise control and enabling other automated features such as assisting the driver to keep in his lane; and navigating traffic jams. It is these latter technologies that can make up the building blocks of the semi-autonomous or fully autonomous driving that companies are in a frenzied race to achieve.

The Intel and Mobileye deal continues a trend of blockbuster merger and acquisition deals, as incumbents look to acquire semi-autonomous and autonomous driving capabilities, said Kerry Wu, a senior mobility analyst at CB Insights, a New York-based data firm.

Automakers from GM to Toyota and Volkswagen have been acquiring start-ups and taking stakes in technologies in an effort to stay at the cutting edge of developments. GM bought Cruise Automation, a San Francisco-based developer of autonomous vehicle technology in 2016. And Ford invested in Argo AI, an artificial intelligence company in February. Auto-tech start-up financing topped $1 billion in 2016 with sector financing reaching a “frenzied pace,” according to CB Insights.

“All of these buyers, Intel included, are hoping to position themselves as next-generation automotive suppliers of silicon, vehicle electronics, and other automotive technologies,” said Wu.

A car drives past the offices of Israeli car tech firm Mobileye in Jerusalem on March 13, 2017. Intel will buy Mobileye for more than $15 billion (14 billion euros), the companies said. (AFP/Thomas Coex)

A car drives past the offices of Israeli car tech firm Mobileye in Jerusalem on March 13, 2017. (AFP/Thomas Coex)

Mobileye’s advantage over competitors in the field is that its founders early on realized the potential of the new market and created a focused technology that managed to penetrate the difficult market.

“They identified a huge market opportunity: that of using computer vision and applying it to assisted driving,” said Elan Zivotofsky, a general partner and head of investments at the Jerusalem-based VC fund OurCrowd. “They did this long before there was even talk of autonomous driving vehicles. So they identified the market and developed deep, core technology for that market. They didn’t build cars, but created a core technology that was critical — and is becoming even more critical — to the industry.”

Mobileye’s one-camera technology “is cheaper and allows a quick and easy installation of the camera, which simplifies the process,” said Aner Ravon, cofounder and chief product officer at Zirra, a market and company analysis firm based in Tel Aviv. “The technology is also simple to understand and use, and that is what caused so many car manufacturers to integrate it into their cars.”

Some 15.7 million vehicles worldwide have Mobileye’s camera installed and its technology is available with 21 Original Equipment Manufacturers (OEMs), according to data provided by Mobileye.

Amnon Shashua, CTO, co-founder and chairman of Mobileye. May 27, 2015. (Moshe Shai/FLASH90)

Amnon Shashua, CTO, co-founder and chairman of Mobileye. May 27, 2015. (Moshe Shai/FLASH90)

“Mobileye was created in Israel because it is a prime example of a company that incorporates multidisciplinary fields, which is what Israel is good at: integrations,” said Eden Shochat, a partner at Aleph VC, a venture capital fund. “You can be a really good software engineer and a really good hardware engineer, but only in Israel will you find people that can do both and work easily and well in teams together that get along. That kind of ability stems directly from the tech teams that work in the Israeli army. Israel also has a way of thinking: get things done, and combine multiple talents to do this.”

Mobileye’s systems combine computer vision and machine learning and semiconductor knowledge and complex software development — all of them are areas in which Israel is known to excel, said OurCrowd’s Zivotofsky.

“The Israeli ecosystem is good at developing deep core technologies that are challenging to reach and require a multidisciplinary know-how and engineering,” he continued. “The key is then applying that technology to a large market opportunity.”

What the founders also did right was to focus on building a very large scalable company, Zivotofsky said, and they stayed focused on their market. “They focused their technology on a very large market opportunity, and did not get distracted by other areas or other applications for their technology.”

The company received an investment of $130 million from Goldman Sachs in 2007 and listed shares on the New York Stock Exchange in 2014, with the IPO still the largest VC-backed auto-tech exit to date. Mobileye’s revenue in 2016 totaled $358 million, up from $241 million a year earlier. Profits rose to $108 million from $68 million.

The acquisition follows a partnership that Mobileye, Intel and BMW struck up in July last year, in the field of autonomous cars. And in January of this year, the companies forecast that a fleet of about 40 autonomous BMW cars would be on the roads by the second half of 2017.

Intel’s aggressive positioning in the automotive industry stems from its need to find a new growth engine. Its PC and data center, still the largest source of revenues for the US giant, are witnessing a decline in growth. Last April, Intel’s CEO Brian Krzanich laid out the company’s new strategy of transforming Intel from a PC company to one that powers the cloud as well as billions of smart, connected computing devices.

“After missing out somewhat on the mobile-device era, Intel is aggressively pursuing new avenues of growth in emerging sectors, such as the Internet of Things and the automotive space,” said CB Insights’ Wu. “The company has clearly recognized that it has been slower to capitalize on auto-tech trends in connected cars, computer vision, and autonomous driving — the latter especially when compared to other semiconductor players like Nvidia.”

Nvidia Corp. is a Santa-Clara based firm that develops chips for the mobile computing and automotive market. Late last November, Intel established its Autonomous Driving Group (ADG), solely dedicated to self-driving efforts; and it also announced that it would invest $250 million in autonomous driving start-ups through its Intel Capital arm.

Ziv Aviram, President and CEO of Mobileye, speaks at a conference at the Waldorf Astoria hotel in Jerusalem, November 23, 2016. (Miriam Alster/Flash90)

Ziv Aviram, president and CEO of Mobileye, speaks at a conference at the Waldorf Astoria Hotel in Jerusalem, November 23, 2016. (Miriam Alster/Flash90)

“Intel is looking for something big, beyond the chips it makes for personal computers, which are not a growth market for Intel anymore. They were desperately looking for something,” said Zirra’s Ravon. “The autonomous car industry is one of the most relevant for Intel, which will allow it to grow a huge market in the field.”

The acquisition will combine the best-in-class technologies from both companies, spanning connectivity, computer vision, data center, sensor fusion, high-performance computing, localization and mapping, machine learning and artificial intelligence, according to Intel.

The acquisition of Mobileye will accelerate the future of autonomous driving, Krzanich said on Monday. “Together, we can improve performance in a cloud-to-car solution at a lower cost for automakers.”

The joint company will be able to leverage Mobileye’s computer vision expertise with Intel’s high-performance computing and connectivity prowess, the companies said.

They “fit like a glove and complement each other, each one bringing its own capabilities to the game,” said Ravon. “Intel can build around Mobileye a whole ecosystem for autonomous car technology. Sometimes the terms of the deal are such that you just can’t say no. The premium price offered and the value package Intel can offer with regard to enabling Mobileye to attain the dream of self-driving cars was, by enabling the investment of huge amounts of money, just too good to be passed over.”

By pooling their infrastructure and resources, the companies expect to enhance and accelerate their combined know-how in the areas of mapping, virtual driving, simulators, development tool chains, hardware, data centers and high-performance computing platforms, they said.

“Never before has an Israeli company been acquired by a foreign giant in which the Israeli technology will be playing such a significant part of its future strategy,” said Zirra’s Ravon. “This is a super strategic acquisition of which Israel can be proud.”

The deal is good for both sides, said Steven Schoenfeld, chief investment officer of BlueStar Indexes. “Mobileye could have continued on the path it was on, but would have faced steadily increasing competition from Nvidia, Google, and others. Being part of Intel — with the Mobileye management running Intel’s global autonomous driving business from Jerusalem — gives them scale and resources that they couldn’t have achieved on their own.”

This acquisition is not a “sellout,” said Schoenfeld, but proof that Israeli companies can scale up to a $10 billion-$15 billion valuation, “where they have substantial control of their destiny.”

There are challenges ahead, however, especially from companies like Google that are developing disruptive technologies in the field.

“Mobileye dominates the present-day playing field where Google is taking a very ambitious approach to reshaping it,” said Ravon. “The challenge is to stay ahead of other disruptive technologies. Whereas Intel and Mobileye represent the evolution of the car industry — their systems are installed in the current car industry, working with current production lines, and work within the cars — Google is choosing a completely different model in which it is creating an operating system for the self-driving car from start to finish. It is a technological battle between evolution and revolution.”

The US firm will support Mobileye’s production programs and build up its relationships with car suppliers and Original Equipment Manufacturers (OEMs), Intel said. The combined organization will be headquartered in Israel and led by Shashua — Mobileye’s cofounder, chairman and chief technology officer — the two companies announced Monday.

The fact that the joint activities will be based in Israel is further testament to how much Intel believes in Mobileye’s capacities. This step will also help to create a critical mass for the fostering of a new generation of talent.

“The broader impact of the deal, beyond the taxes Israel will be getting, is the ability of this new Mobileye/Intel center of excellence to create a local critical mass of knowledge and people who will then go on and create their own machine learning and vision companies,” said Aleph’s Shochat.

The acquisition is also testament to the fact that Israel is able to “foster the growth of large companies that compete successfully on a global scale,” Zivotofsky said. “Investors will be even more convinced that Israel is the go-to place in their quest for the next Mobileye. Public market investors that bought Mobileye shares have made nice returns and will be part of the next tech Israeli company too. That is the best way to foster increased investment in Israeli companies.”