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Mobileye Catches Intel’s Eye to the Tune of $15 Billion

Tzippy Yarom

How Will Israeli Citizens Benefit from the Windfall?

Wednesday, March 22, 2017

 Mishpacha image

MAKING IT BIG “It’s not the money, it’s the achievement.” Amnon Shashua was born in Israel but MIT was the breeding ground for his game-changing technology for the automotive industry (Photos: Flash90)

W hen Mobileye, the Israeli leader in high-tech automobile safety systems and driverless technology, agreed to a $15 billion buyout from Intel, it generated billions in new wealth for its owners and investors, and a windfall to Israel’s treasury.

It also served as another ringing endorsement for Israel’s global leadership in high tech and a major blow to the BDS industry, once again proving that when it comes to business and technology, politics will always take a backseat.

Mobileye got its start in 1999 in the middle of the dot-com rage, developing software algorithms, computer chips, and apps for advanced driver assist systems (ADAS).

These systems process visual information that reduces the risks of traffic accidents. The ADAS technology also serves as the basis for driverless vehicles, which some auto industry analysts expect to be commercially available by 2025 and gradually replace today’s conventional cars.

Mobileye, whose technology is used by 25 automakers and incorporated into 15 million vehicles worldwide, caught Intel’s eye in its highly competitive race with Google to develop driverless, or autonomous, vehicles. Google’s project is considered more advanced due to the company’s proprietary system that has mapped all the streets of the world. That mapping helps Google’s cars safely navigate just about any route.

Mobileye, on the other hand, is betting that its recent agreements with General Motors, Volkswagen, and Renault-Nissan (which expanded its share to 30% of the global car market), will help it develop its own mapping system for autonomous cars.

Unlike Google, Mobileye’s systems were never intended to photograph every inch of the road. Instead, the system records and identifies various landmarks, traffic signs, and signals that, together with the camera, can identify the location of an object within a four-inch margin of error. Its systems then analyze the computer-generated images, enabling it to alert drivers who might be swerving out of their lanes, tailgating, or about to hit a distracted pedestrian.

The system has one major drawback that Intel must address. Because it is based on cameras, reflected sunlight can blind the camera and interrupt its operations, just as the sun can impair drivers’ vision. In contrast, Mobileye’s primary competitor in Israel, AWACS, doesn’t face this problem, because its systems are radar-based (in addition to a camera that discerns deviations from the route). However, since AWACS relies on radar, it lacks the street-level pedestrian-detection system that Mobileye offers. Many Israeli automobile importers receive a tax break on import fees if they offer Mobileye and AWACS systems as a factory-installed option on new vehicles.

As it currently exists, Mobileye’s technology will never serve as a stand-alone system for a self-driving vehicle because it lacks the ability to take control of the steering wheel and brakes. But its new fourth- and fifth-generation EyeQ technology will further support semi and fully autonomous driving, having the bandwidth and throughput to stream and process the full set of surround cameras and radars.

Mobileye was founded by Israeli partners Amnon Shashua and Ziv Aviram. Shashua, who still teaches computer science at Hebrew University and has actively funded organizations such as Kamatech to assist chareidim to break into the high-tech world, translated his expertise in computer vision and machine learning into the business world, while Aviram, who had gained his reputation as a financial turnaround artist at retail companies, first crossed paths when advising Shashua on how to extricate himself from a previous money-losing startup.

Shashua got his brainstorm for Mobileye while studying for his doctorate at MIT. He developed the idea of creating a new image, from a different angle, out of three existing pictures of a scene. A professor intrigued by the idea financed a patent, which they eventually sold to a Japanese investor seeking a camera-based solution for a system to prevent road accidents.

After returning to Israel in the late-1990s, Shashua formed a startup, CogniTens, which developed vision and measurement systems for the vehicle and aircraft industries. He sold it to a Swedish company at a loss, but he didn’t make the same mistake twice.

Both Shashua and Aviram own more than a 7% stake in Mobileye. At the agreed-to buyout price of $63.54 per share — a 34% premium to the stock price the day before the deal was announced — each stands to bank $1 billion in cash.

The Israeli citizen stands to benefit through the taxes the owners and investors must pay. Israel’s capital gains tax is 25%, and in addition to the owners, many insurance companies and private investors will be facing a hefty tax bill. This windfall comes at a time when Israel’s treasury is already flush with cash thanks to a stronger-than-expected economy.

Finance Minister Moshe Kahlon, who was already contemplating tax cuts, indicated that the unexpected tax income would accelerate the process.

But Kahlon and Prime Minister Netanyahu have yet to reach agreement on where to make the cuts. In preliminary discussions, Kahlon has stated his preference for reducing Israel’s already onerous 17% VAT by one percentage point. Since VAT is leveled on virtually every Israeli good and service, a VAT cut theoretically reduces consumer prices. However, Israeli business have become quite skilled at inching up their prices by whatever cut is made to VAT so that the consumer doesn’t benefit.

So Netanyahu prefers an income tax reduction that would primarily benefit the middle class, whose tax bite as a percentage of income is relatively high.

Other options include a cut in corporate taxes, mainly on small businesses, or reducing taxes on capital gains; both of those cuts primarily benefit the wealthier sectors.

The government could also decide on some combination of the above.

And for the rest of the Israeli high-tech world, and investors hungry for profits, many are laying their bets on the next big buyout. But in investing, you can’t count your chickens before they’re hatched.

As Shashua told Globes in a recent interview, before the big buyout: “It’s not the money, it’s the achievement. It’s like setting a world record in the 100 meters that might take another 20 years to break.” 

 

(Originally featured in Mishpacha, Issue 653)

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