Start-up Nation (6 page)

Even given this responsibility, Israelis still resisted fitting into the Intel mainstream. “The development group in Israel,
even before it was tasked as the mobility group, pushed ideas for mobility that went against the common wisdom at Intel,”
explained Intel Israel’s chief, David “Dadi” Perlmutter, a graduate of the Technion (Israel’s MIT) who’d started designing
chips at Intel Israel in 1980.
¹⁰
One of these unconventional ideas was a way to get around the power wall. Rony Friedman was one of Intel Israel’s top engineers
at the time. Just for fun, he had been tinkering with a way to produce low-power chips, which went blatantly against the prevailing
orthodoxy that the only way to make chips faster was to deliver more power to their transistors. This, he thought, was a bit
like making cars go faster by revving their engines harder. There was definitely a connection between the speed of the engine
and the speed of the car, but at some point the engine would go too fast, get too hot, and the car would have to slow down.
¹¹

Friedman and the Israeli team realized that the solution to the problem was something like a gear system in a car: if you
could change gears, you could run the engine more slowly while still making the car go faster. In a chip, this was accomplished
differently, by splitting the instructions fed into the chip. But the effect was similar: the transistors in Intel Israel’s
low-power chips did not need to flip on and off as fast, yet, in a process analogous to shifting a car into high gear, they
were able to run software faster.

When Intel’s Israel team euphorically introduced its innovation to headquarters in Santa Clara, the engineers thought their
bosses would be thrilled. What could be better than a car that goes faster without overheating? Yet what the Israeli team
saw as an asset—that the engine turned more slowly—headquarters saw as a big problem. After all, the entire industry measured
the power of chips by how fast the
engine
turned: clock speed.

It did not matter that Israeli chips ran software faster. The computer’s engine—composed of its chip’s transistors—wasn’t
turning on and off fast enough. Wall Street analysts would opine on the attractiveness (or unattractiveness) of Intel’s stock
based on performance along a parameter that said,
Faster clock speed: Buy; Slower clock speed: Sell
. Trying to persuade the industry and the press that this metric was obsolete was a nonstarter. This was especially the case
because Intel had itself created—through Moore’s law—the industry’s Pavlovian attachment to clock speed. It was tantamount
to trying to convince Ford to abandon its quest for more horsepower or telling Tiffany’s that carat size does not matter.

“We weren’t in the mainstream—clock speed was king and we were on the outside,” Israel’s Rony Friedman recalls.
¹²

The head of Intel’s chip division, Paul Otellini, tried to mothball the whole project. The clock-speed doctrine was enshrined
among Intel’s brass, and they weren’t about to hold a seminar to decide whether or not to change it.

The “seminar” is part of a culture that Israelis know well, going back to the founding of the state. From the end of March
to the end of May 1947, David Ben-Gurion—Israel’s George Washington—conducted an inquiry into the military readiness of Jewish
Palestine, in anticipation of the war he knew would come when Israel declared independence. He spent days and nights meeting
with, probing, and listening to military men up and down the ranks. More than six months before the United Nations passed
its partition plan for dividing Palestine into a Jewish and an Arab state, Ben-Gurion was keenly aware that the next phase
in the Arab-Israeli conflict would be very different from the war the pre-state Jewish militias had been fighting; they needed
to step back, in the midst of ongoing fighting, and plan for the existential threats that were nearing.

At the end of the seminar, Ben-Gurion wrote of the men’s confidence in their readiness: “We have to undertake difficult work—to
uproot from the hearts of men who are close to the matter the belief that they have something. In fact, they have nothing.
They have good will, they have hidden capacities, but they have to know: to make a shoe one has to study cobbling.”
¹³

Intel’s Otellini didn’t know it, but his Israeli team was giving him a similar message. They saw that Intel was headed for
the “power wall.” Instead of waiting to ram into it, the Israelis wanted Otellini to avert it by taking a step back, discarding
conventional thinking, and considering a fundamental change in the company’s technological approach.

The executives in Santa Clara were ready to strangle the Israeli team, according to some of those on the receiving end of
Intel Israel’s “pestering.” The Israelis were making the twenty-hour trip between Tel Aviv and California so frequently that
they seemed omnipresent, always ready to corner an executive in the hallway or even a restroom—anything to argue their case.
David Perlmutter spent one week each month in the Santa Clara headquarters, and he used much of his time there to press the
Israeli team’s case.

One point the Israelis tried to make was that while there was risk in abandoning the clock-speed doctrine, there was even
greater risk in sticking with it. Dov Frohman, the founder of Intel Israel, later said that to create a true culture of innovation,
“fear of loss often proves more powerful than the hope of gain.”
¹⁴

Frohman had long tried to cultivate a culture of disagreement and debate at Intel Israel, and he had hoped this ethos would
infect Santa Clara. “The goal of a leader,” he said, “should be to maximize resistance—in the sense of encouraging disagreement
and dissent. When an organization is in crisis, lack of resistance can itself be a big problem. It can mean that the change
you are trying to create isn’t radical enough . . . or that the opposition has gone underground. If you aren’t even aware
that the people in the organization disagree with you, then you are in trouble.”

In time, the Israelis outlasted—and outargued—their U.S. supervisors. Each time the Israelis showed up, they had better research
and better data, one Intel executive recalled. Soon they had a seemingly bulletproof case as to where the industry was heading.
Intel could either lead in that direction, the Israelis told management, or become obsolete.

Finally, this time as
CEO
, Otellini changed his mind. It had become impossible to counter the Israelis’ overwhelming research—not to mention their
persistence. In March 2003, the new chip—code-named Banias after a natural spring in Israel’s north—was released as the Centrino
chip for laptops. Its clock speed was only a bit more than half of the reigning 2.8 gigahertz Pentium chips for desktops,
and it sold for more than twice the price. But it gave laptop users the portability and speed they needed.

The switch to the Israeli-designed approach came to be known in Intel and the industry as the “right turn,” since it was a
sharp change in approach from simply going for higher and higher clock speeds without regard to heat output or power needs.
Intel began to apply the “right turn” paradigm not just to chips for laptops but to chips for desktops, as well. Looking back,
the striking thing about Intel Israel’s campaign for the new architecture was that the engineers were really just doing their
jobs. They cared about the future of the whole company; the fight wasn’t about winning a battle within Intel, it was about
winning the war with the competition.

As a result, the new Israeli-designed architecture, once derided within the company, was a runaway hit. It became the anchor
of Intel’s 13 percent sales growth from 2003 to 2005. But Intel was not clear of industry threats yet. Despite the initial
success, by 2006, new competition caused Intel’s market share to plummet to its lowest point in eleven years. Profits soon
plunged 42 percent as the company cut prices to retain its dominant position.
¹⁵

The bright spot in 2006, however, came in late July when Otellini unveiled the Core 2 Duo chips, Intel’s successors to the
Pentium. The Core Duo chips applied Israel’s “right turn” concept plus another Israeli development, called dual-core processing,
that sped chips up even further. “These are the best microprocessors we’ve ever designed, the best we’ve ever built,’’ he
told an audience of five hundred in a festive tent at Intel’s Santa Clara headquarters. “This is not just incremental change;
it’s a revolutionary leap.” Screens lit up with images of the proud engineers behind the new chip; they were joining the celebration
via satellite, from Haifa, Israel. Though Intel’s stock was down 19 percent over the whole year, it jumped 16 percent after
the July announcement. Intel went on to release forty new processors over a one-hundred-day period, most of them based on
the Israeli team’s design.

“It’s unbelievable that, just a few years ago, we were designing something that no one wanted,” says Friedman, who is still
based in Haifa but now leads development teams for Intel around the world. “Now we’re doing processors that should carry most
of Intel’s revenue—we can’t screw up.”

What began as an isolated outpost an ocean away had become Intel’s lifeline. As Doug Freedman, an analyst for American Technology
Research, put it, the Israeli team “saved the company.” Had midlevel developers in the Haifa plant not challenged their corporate
superiors, Intel’s global position today would be much diminished.

Intel Israel’s search for a way around the power wall also produced another dividend. We don’t think of computers as using
a lot of electricity—we leave them on all the time—but, collectively, they do. Intel’s ecotechnology executive, John Skinner,
calculated the amount of power that Intel’s chips would have used if the company had kept developing them in the same way,
rather than making the “right turn” toward the Israeli team’s low-power design: a saving of 20 terawatt hours of electricity
over a two-and-a-half-year period. That’s the amount of power it would take to run over 22 million 100-watt bulbs for an entire
year, twenty-four hours a day, seven days a week. Skinner noted, “We calculated about a $2 billion savings in electricity
costs. . . . It’s equivalent to a small number of coal-fired power plants or taking a few million cars off the road. . . .
We’re very proud that we are dramatically reducing the carbon dioxide footprint of our own company.”
¹⁶

The significance of the Intel Israel story is not, however, just that the team in Haifa came up with a revolutionary solution
that turned the company around. A good idea alone could not have carried the day against a seemingly intransigent management
team. There had to be willingness to take on higher authorities, rather than simply following directives from the top. Where
does this impudence come from?

Dadi Perlmutter recalls the shock of an American colleague when he witnessed Israeli corporate culture for the first time.
“When we all emerged [from our meeting], red faced after shouting, he asked me what was wrong. I told him, ‘Nothing. We reached
some good conclusions.’ ”

That kind of heated debate is anathema in other business cultures, but for Israelis it’s often seen as the best way to sort
through a problem. “If you can get past the initial bruise to the ego,” one American investor in Israeli start-ups told us,
“it’s immensely liberating. You rarely see people talk behind anybody’s back in Israeli companies. You always know where you
stand with everyone. It does cut back on the time wasted on bullshit.”

Perlmutter later moved to Santa Clara and became Intel’s executive vice president in charge of mobile computing. His division
produces nearly half of the company’s revenues. He says, “When I go back to Israel, it’s like going back to the old culture
of Intel. It’s easier in a country where politeness gets less of a premium.”

The cultural differences between Israel and the United States are actually so great that Intel started running “cross-cultural
seminars” to bridge them. “After living in the U.S. for five years, I can say that the interesting thing about Israelis is
the culture. Israelis do not have a very disciplined culture. From the age of zero we are educated to challenge the obvious,
ask questions, debate everything, innovate,” says Mooly Eden, who ran these seminars.

As a result, he adds, “it’s more complicated to manage five Israelis than fifty Americans because [the Israelis] will challenge
you all the time—starting with ‘Why are you my manager; why am I not your manager?’ ”
¹⁷

The Israeli tank commander who has fought in one of the Syrian wars is the best engineering executive in the world. The tank
commanders are operationally the best, and they are extremely detail oriented. This is based on twenty years of experience—working
with them and observing them.

—E
RIC
S
CHMIDT

O
N
O
CTOBER
6, 1973, as the entire nation was shut down for the holiest day of the Jewish year, the armies of Egypt and Syria
launched the Yom Kippur War with a massive surprise attack. Within hours, Egyptian forces breached Israel’s defensive line
along the Suez Canal. Egyptian infantry had already overrun the tank emplacements to which Israeli armored forces were supposed
to race in case of attack, and hundreds of enemy tanks were moving forward behind this initial thrust.

It was just six years after Israel’s greatest military victory, the Six-Day War, an improbable campaign that captured the
imagination of the entire world. Just before that war, in 1967, it looked like the nineteen-year-old Jewish state would be
crushed by Arab armies poised to invade on every front. Then, in six days of battle, Israel simultaneously defeated the Egyptian,
Jordanian, and Syrian forces and expanded its borders by taking the Golan Heights from Syria, the West Bank and East Jerusalem
from Jordan, and the Gaza Strip and Sinai Peninsula from Egypt.