Israel Offering Intel Up to $1b to Build New Plant and Expand Existing Factory

Sources say government has offered Intel a sliding scale of grants: $200 million if it only expands its current Israeli plant, rising to $1b if it builds new plant as well.

In a bid to persuade U.S. semiconductor maker Intel to upgrade its plant in Kiryat Gat and build a new one alongside it, the Israeli government is offering to cover somewhere between 4% to 10% of the overall cost, sources have told TheMarker.

Depending on how much the company invests, the amount of state aid could be as little as $200 million or as high as $1 billion. The portion of capital spending Israel would be prepared to cover would rise in line with the total spending Intel commits to the project, and whether it builds an entirely new plant or expands an existing one.

Israel is engaged in a global competition to play home to Intel’s next-generation production facilities. A lot is at stake, as the American company’s Kiryat Gat plant is a major source of export earnings for the country, as well as a major employer.

In 2012, Intel Israel’s exports more than doubled to $4.6 billion, or 10% of the country’s total industrial exports, while employing some 8,500 people.

In addition, Intel has invested $10.5 billion in Israel over the past decade while receiving $1.3 billion in government grants. Last 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 turn the facility and its workforce into the foundation of a new facility.

However, other sources told TheMarker that the government is not interested in Intel only upgrading and expanding its existing plant. They said officials turned down Intel’s request for “many hundreds of millions of dollars” of aid to expand existing operations in Kiryat Gat, but did offer a more modest $200 million.

However, if Intel were to build a wholly new facility at an estimated cost of $10 billion, Israel is prepared to offer the company a $700 million grant, the sources said.

The company faces a decision on whether to upgrade its production facilities in Israel, Ireland or the United States.

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 management also has to decide where to locate the new 10-nanometer plant.

Sources said the government is offering a grant of just 3% to 4% of the cost of upgrading the Kiryat Gat plant, estimated at costing between $3 billion and $4 billion. The relatively small subsidy is based on the assumption that Intel itself has a strong interest in saving the plant from becoming obsolete.

If Intel decides to both upgrade the current plant and build its new plant in Israel, the government would subsidize up to 10% of the overall cost, potentially reaching upward of $1 billion in grant money.

In an earlier round of the global competition for an Intel plant, two years ago 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.

With this in mind, the government is optimistic that Intel will choose to invest in its Kiryat Gat facilities this time, based on its own strategic interests. Intel is expected to make a decision within the next few months.

Last Wednesday, the Finance Ministry asked the Knesset Finance Committee to approve transferring 138 million shekels ($39.3 million) in grants already promised to Intel. The money is being given to the company for meeting milestones approved in 2010 under the framework of the Law for Encouraging Capital Investments.

Haaretz