Intel confirms acquisition of AI-based workload optimization startup Granulate, reportedly for up to $650M

Last year, when we wrote about new investment for Israeli startup Granulate — which applies AI to high-priority computing workloads to optimize how they travel across a customers’ cloud and on-premises networks — we noted that the network management space was going through some consolidation, with point solutions getting snapped up by platform players. Well today, that trend is touching the startup itself: chip giant Intel has announced that it is acquiring Granulate, to continue extending both its operations in Israel and the tools that Intel provides to customers to better manage traffic on Intel-powered kit.

The acquisition had been a badly kept secret in Granulate’s home market, with a number of publications reporting that it was in the works for about a week now. Well-placed sources tell us the acquisition is a $650 million deal, although Intel and Granulate do not give an actual number in their press release today confirming the news.

The deal is expected to close in Q2 2022, and all 120 Granulate employees are expected to join Intel.

“Today’s cloud and data center customers demand scalable, high-performance software to make the most of their hardware deployments,” said Sandra Rivera, executive vice president and general manager of the Datacenter and AI Group at Intel, in a statement. “Granulate’s cutting-edge autonomous optimization software can be applied to production workloads without requiring the customer to make changes to its code, driving optimized hardware and software value for every cloud and data center customer.”

“We are building our portfolio of software optimization tools that offer flexible and scalable capabilities that allow us to meet the growing demand of the ubiquitous compute era,” added Greg Lavender, chief technology officer, senior vice president and general manager of the Software and Advanced Technology Group at Intel. “Granulate’s innovative approach to real-time optimization software complements Intel’s existing capabilities by helping customers realize performance gains, cloud cost reductions and continual workload learning.”

Granulate had raised $45.6 million with a modest valuation of $110 million, according to PitchBook, with previous investors including Insight Partners, Red Dot Capital and Dawn, among others. It had last raised money just over a year ago, in a $30 million Series B we covered here, so based on that timing, it looks like this deal might have come out of the company talking to companies for investment (a moment that often leads to acquisition offers, when the conversations are with would-be strategic backers).

The acquisition is part of a bigger-picture effort at Intel on a couple of levels.

First, it underscores how Intel is continuing to build out more tools and services to help its customers manage Intel-powered networks better, in part to compete more squarely against the likes of Nvidia, which has also been snapping up smaller companies to build out high-performance computing capabilities and the management of them.

Granulate works across multiple cloud and on-premise environments — where it claims its software can improve response times by up to 40%, and throughput up to five times, while reducing costs by up to 60% for an organization’s workloads. As we’ve noted before, bigger tech companies like Netflix, Google and Amazon typically invest huge sums to build their own optimization technology, but smaller organizations (and you can still be huge while still being smaller than companies like Google) would not have the bandwidth — pun intended — to address it in the same way.

“We are aware of similar things going on inside of Netflix as what we have built,” Asaf Ezra, co-founder and CEO of Granulate, told me last year. “But to us, it’s a testament of how large you need to be to address this issue and the talent you need to hire to address the lowest-level issues.”

Granulate will be an easy fit in one regard: the two already collaborated closely, designing solutions tailored to optimize resource management for customers that use Intel-powered compute architecture. Other partners of Granulate’s include Microsoft, IBM, Google, Datadog and many more. 

Granulate says that its so-called Intel-Agent, built to work specifically on servers using Intel’s processors, incorporates Intel’s AVX instruction set binary translation (something Intel built to improve performance and lower overhead). Installed on a given workload (a 15-minute process it claims), Granulate notes that the agent uses AI to learn how a workload behaves, and then provides kernel-level resource CPU scheduling and prioritization optimization to improve responsiveness.

There has also been some cross-pollination between the two companies in terms of talent: last year, longtime Intel sales director Ron Whitfield jumped to lead business development at Granulate to build out its customer base internationally, and to more market segments. The bigger Granulate became, the more likely it would have become an acquisition target also for Intel’s biggest rivals, including Nvidia. Getting acquired will help the company scale its business in a way that would have been more challenging to achieve on its own.

“Together with Intel, we believe we can help customers achieve meaningful cost reductions and five times the throughput across workloads,” said Ezra in a statement today. “As a part of Intel, Granulate will be able to deliver autonomous optimization capabilities to even more customers globally and rapidly expand its offering with the help of Intel’s 19,000 software engineers.”

Second, the deal appears to be part of a bigger effort at Intel to continue expanding its presence in Europe, and Israel in particular. Earlier this month, the company announced a whopping €33 billion investment into R&D and manufacturing in Europe, the first tranche of what it expects to be an €80 billion investment over several years across a number of EU countries including Germany, France, Ireland, Italy, Poland and Spain.

Its efforts in Israel have been very much complementary to that and arguably have been at the vanguard of what Intel is doing on this side of the world.

The company’s Mobileye division — which is gearing up to be spun out as its own entity with Intel retaining a large share — was at the heart of a commitment Intel made last year to invest $600 million into its R&D operations in Israel. It has also made a number of other M&A moves to grow its footprint there.

Most recently, in February it said it intended to acquire Tower Semiconductor for $5.4 billion to expand its custom foundry operations. Other deals have included to pick up automated machine learning capabilities; and AI chipmaker Habana Labs. Notably, it’s also missed a couple of key acquisitions: rumored to be interested in Mellanox, Nvidia ultimately scooped up the big data chip business.

“Intel has believed in Israeli innovation for many years now…to help [it] stay ahead of the markets in various segments. Intel has 12,000 employees and four R&D and manufacturing facilities in Israel,” said Avihai Michaeli, who advises investors and startups on deals. “Two of its most significant acquisitions, Mobileye and Tower Semiconductor, have been Israeli companies. We understand that its strategy for 2022 will be to buy up more software companies here.”