INTC Intel Corporation

By Asa Fitch and Michael Dabaie 

Intel Corp. is expanding its push into the artificial-intelligence market with an approximately $2 billion deal for Habana Labs, an Israel-based AI chip-making startup.

Intel said the deal strengthens its lineup of artificial-intelligence chips for use in data centers. Those are the large information-storage facilities where companies increasingly are running AI algorithms to analyze data to, for instance, identify customer trends that otherwise might be too hard to spot.

Even before announcing the Habana purchase, the chip-making giant said it expected to generate more than $3.5 billion in AI-related sales this year, up around 20% from last year.

Intel in recent years has been shopping for several new growth opportunities as it deals with challenges in some of its core markets, including powering personnel computers. It acquired Israeli automotive-camera maker Mobileye NV in 2017 for $15.3 billion in a bet on self-driving car technology.

The Habana deal isn't Intel's first acquisition to bolster its lineup of artificial- intelligence products. It bought startup Nervana Systems Inc. in 2016 for around $400 million. It followed that transaction with the purchase of Movidius, an Irish startup in another bet on AI growth.

Its Nervana unit in November unveiled its first production chips. Facebook Inc., which has invested heavily in AI, at the time said it would use the Intel hardware.

Habana fits into Intel's broader strategy of going after large new computing markets instead of simply maintaining its dominant share of the market for computers' main processing chips, Navin Shenoy, the general manager of the Intel division focused on data centers and AI, said in an interview.

"We have a relatively small share in a large, growing market, so our intent is to go after that," he said.

Intel said it expects the market for chips to power AI to grow to $25 billion by 2024. Almost half that revenue, it said, would be generated from selling chips to be used in big data centers. Intel Chief Executive Bob Swan has made AI one of the company's investment priorities.

Artificial intelligence is one of the hottest areas in technology. It is underpinning voice assistants such as Amazon.com Inc.'s Alexa, a key feature in the development of self-driving cars, and helping companies such as Google and Facebook in targeting advertising.

That, in turn, has driven the creation, in recent years, of Habana and dozens of other AI chip startups to help power those processes. Venture capitalists that largely shied away from chip investments because of the high development costs have jumped in given the sector's promise.

Interest in AI has driven acquisitions across the tech industry landscape. Apple Inc. has made a series of acquisitions, mostly of startups for undisclosed amounts, of companies specializing in areas such as facial recognition, AI for home security and self-driving cars. Alphabet Inc.'s Google has similarly been on an AI acquisition spree, acquiring an AI-focused customer-service company, a computer vision company and the prominent British AI firm DeepMind, among other deals.

Other tech companies have taken notice of AI's potential to reshape how people interact with electronics and do business.

Deep learning, a powerful form of artificial intelligence that is in growing use, can require large amounts of computing horsepower to sift through masses of data to spot trends. Intel has been playing catch-up to rival Nvidia Corp., whose graphic chips were better than Intel's standard processors at handling the calculations needed in AI.

Intel said Habana will remain an independent business unit and will continue to be led by its current management team and be based in Israel. Habana will report to Intel's Data Platforms Group, home to Intel's portfolio of data center class AI technologies.

Habana Chairman Avigdor Willenz will be senior adviser to the business unit and to Intel.

Capitalizing on its Habana investment may take time. Habana's annual sales are likely small and unlikely to meaningfully add to Intel's topline in the near-term, Mitch Steves, an analyst at Canada's RBC Capital Markets, said in a note.

The transaction also leaves Intel with seeming overlap in its AI chips between Habana's products and the hardware Nervana produces. "There are going to be some places where we're going to have to evaluate what is the best technology going forward," Intel's Mr. Shenoy said.

Before the deal, Intel Capital was an investor in Habana. Habana said in November it secured $75 million in an oversubscribed funding round.

The Habana purchase also gives Intel another type of chip to sell to lure data-center customers to its range of products. That could help Intel fend off strengthening competition from rival Advanced Micro Devices Inc., which this year started producing chips for data centers that top Intel's by many performance metrics.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

December 16, 2019 17:10 ET (22:10 GMT)

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