Intel May Spend Up to $6 Billion on Israeli Fab Upgrade

Company submits investment plan to upgrade its fab in Kiryat Gat.

Intel Kiryat Gat
Intel Israel's current facility in Kiryat Gat will be expanded and upgraded under the company's plan. Eliahu Hershkovitz

Intel said on Wednesday that it presented the government with an investment program to upgrade its giant semiconductor-manufacturing facility in the southern town of Kiryat Gat. Economy Minister Naftali Bennett says the investment could reach $6 billion.

The U.S. company, one of the world’s biggest maker of computer chips and a major source of Israeli exports, did not provide further details. “At this stage, Intel is not providing any details about investing in upgrading the Intel plant, including time frames, costs or the nature of the upgrade,” the company said in a statement mostly devoted to reviewing the company’s long history in Israel.

As a result, it is not clear how many employees it may take on or its wider impact on the Israeli economy.

However, government sources who asked not to be identified said that the company would probably spend $5 billion to $6 billion on the plant upgrade and hire between 800 and 1,000 new employees. Bennett said Intel would be spending at the upper limit of that range and was committed to remaining in Israel at least until 2030.

“We competed with the whole world and Intel chose us,” Bennett said. “In the next few days it will submit a business plan for immediate and direct investments of $6 billion. I can’t think of a better Independence Day gift,” he said. Israel will celebrate its 66th Independence Day on Tuesday.

In all events, the sources said they expected Intel to submit a detailed proposal to the Economy Ministry’s Investments Center, which administers capital-spending subsidy programs, some time in the next several days.

The government has offered the company an investment grant of about $700 million if Intel decides to build an entirely new $10 billion facility to produce 10-nanometer computer chips in Israel, but it also offered as its less preferred option $200 million in government aid for expanding its existing facility. In the past, Intel has said that it was not certain it would build a new facility alongside an upgraded plant.

Assuming that the estimates offered up on Wednesday are correct, Intel would be entitled to government aid amounting to 5% of its spending, or as much as $300 million. The source said the percentage is based on an analysis that the finance and the economy ministries conducted to gauge the impact of the plant expansion on the wider economy.

Finance Minister Yair Lapid welcomed Intel’s plan. “This is a vote of confidence in the Israeli economy,” he said in a statement. “Investment like this will create thousands of workplaces directly and tends of thousands indirectly all for the Israeli middle class.”

Intel is a major player in the Israeli economy. In 2012, for example, Intel Israel’s exports more than doubled to $4.6 billion, or 10% of the country’s total industrial exports. Last year exports dropped to $3.8 billion due to the timing of the orders, but the company still remains far and away the country’s single biggest source of export receipts, the company said. In addition, Intel Israel currently employs a staff of 9,855 around the country, including four research and development centers Haifa, Petah Tikva, Jerusalem and at Kibbutz Yakum, near Netanya, as well as manufacturing facilities in Kiryat Gat and Jerusalem. It purchased some $850 million locally produced goods and services last year alone.

As a result, Intel’s decision whether to upgrade and expand operations in Israel or do so in another country is critical for the country’s economy. In an earlier round of the global competition for an Intel plant, the company chose Ireland over Israel as the site for a new 14-nanometer plant. This was after Ireland offered the company better terms, but also due to the fact that the facilities in Ireland were older and in more urgent need of upgrading.

In September, Intel bought an aging chip-making facility next to its Kiryat Gat plant from another U.S. company, Micron, reportedly with an eye to turning the facility and its 800-strong workforce into the foundation of a new plant. Intel’s Kiryat Gat semiconductor plant, which uses 22-nanometer technology, is facing obsolescence within several years if it isn’t upgraded to the latest 10-nanometer technology. Intel headquarters in Santa Clara, California also must decide where to locate the new 10-nanometer plant.