Intel Exports From Israel Reached $3.8 Billion in 2013

Figure brings 40-year total since company began local operations to $35 billion

Intel’s Israeli operations racked up exports of $3.8 billion last year, a decline from 2012’s $4.6 billion because accounting technicalities, the company said on Sunday as it marked the start of its 40th year of operations in Israel.

“If you look at the books, we were lower than last year but if you look at capacity we didn’t decline. We were pumping out more wafers,” Mooly Eden, president of Intel Israel told a press conference.

Intel Israel’s 2012 export figure was inflated by a bookkeeping procedure that pushed part of its 2011 output into the year 2012. Discounting that factor, Intel Israel increased exports in 2013, said Eden. The 2013 figure brought Intel’s total exports for the four decades since it began operations in Israel to $35 billion.

Dov Frohman, an Israeli Intel executive, set up the company’s first research and development operation in Israel with five people in 1974; today, the company employs nearly 9,900 people in both research and manufacturing in Israel, making it the country’s biggest private sector employer.

“It’s a microcosm of Intel − a complete Intel within a single country. It’s about the only place where you have a complete cross-section of the company in one country,” Brian Krzanich, the global CEO of Intel, said in a pre-recorded address played at the news conference.

In 2013, 30% of Intel Israel’s exports were in the form of intellectual property generated at its R&D operations, with the rest coming from its manufacturing operations.

Over the last 40 years, the U.S. company has invested some $10.8 billion in Israel and over the last decade it has spent on average $1 billion annually, sourcing goods and services from local companies. Intel estimates it has generated about 30,000 local jobs outside the company. Productivity of Intel employees reaches about $285 an hour on average, more than nine times the national average of $33.40, according to figures provided by the company.

In addition, Eden said that Intel alumni were responsible for starting up some 30 new companies every year, creating about 250 new jobs.

Figures like that, which demonstrate the extent to which the U.S. semiconductor giant contributes to the Israeli economy, will no doubt play a role as the company negotiates a new package of investment aid with the government. Since Intel built its first fabrication plant in Jerusalem in the 1980s, the government has subsidized Intel’s investment spending, as it does with other companies under the Law for Encouraging Capital Investments.

On Sunday, Intel executives declined to detail the company’s plans or what kind of terms they were discussing with the government. Israel is one candidate site to manufacture Intel’s next-generation 10-nanometer chip, with Ireland being its chief rival.

The Santa Clara, California-based company makes around two thirds of its microprocessors in the United States, with others produced in Ireland and China as well as Israel.

Intel’s decision will hinge in part of where it stands to get the most government assistance. “Right now we are in the game. It’s a business decision,” said Eden. “I believe the decision will have to be taken this year.”

Eden declined to say what Intel Israel’s future would be if Intel opts new build its next-generation plant elsewhere, but said: “A fab [semiconductor fabrication plant] like ours is getting older and at some point in time output will begin going down as output goes to new fabs.”

Earlier this month, sources told TheMarker that the government was asking Intel to commit to making up to $15 billion in new investments in Israel in expanding and upgrading existing facilities and building new ones, with the state offering $700 million or more in assistance.

But officials said the U.S. company is unlikely to make such a long-term commitment given the rapid and unpredictable changes in the semiconductor market.

Eden noted on Sunday that management preferred to hold off making huge capital-spending decisions as long as possible given the risk involved. But he termed the decision by Intel last year to buy a small chip plant owned and operated by Micron a vote of confidence in Intel Israel’s future.

Eliahu Hershkovitz