Israel in Talks With Intel for $15 Billion Investment Over a Decade

In the deal, the U.S. company would receive a grant for both upgrading and establishing microchip plants.

The U.S. semiconductor company Intel is in talks with the government to invest as much as $15 billion in Israeli production facilities over a period of more than decade, sources close to the discussions said this week.

The negotiations center on a grant either for a wholly new production facility that would be upgraded after several years, or for upgrading the existing facility Intel has in the Negev town of Kiryat Gat followed later by development a wholly new fabrication plant. A new plant to produce the next-generation 10-nanometer microchips will cost an estimated $10 billion to develop, while upgrading the existing production line could reach $5 billion, the sources said.

The sources told TheMarker in general terms that the government is prepared to grant $700 million of aid to Intel, but they declined to say whether this covered only helping to cover the cost of a new plant, or both a new plant and an upgrading. However, based on the size of previous government grants to Intel, the $700 million most likely covers the first stage of the project. It could grow to as much as 10% of the total cost if Intel built both the new plant and upgraded it.

Intels Israel payroll, which already exceeds 8,000 at its semiconductor fabrication plant in Kiryat Gat and its research and development facilities elsewhere in the country, would grow as the new production plant was being built and came on line but would decline as the production line aged.

Eugene Kandel, chairman of the National Economic Council, said in an interview with TheMarker last month that the government was in talks with Intel about a long-term investment plan. Sources close to the talks said the company is unlikely to make a long-term commitment spanning more than a decade. However, sources said that if Intel does not commit to the two-stage plan the government is unlikely to approve the grant.

Intels last won Israeli government investment assistance three years ago but more recently the company opted to build its newest facility in Ireland, which offered its significant financial assistance.

The sources said Prime Minister Benjamin Netanyahu supported the idea of giving Intel the grant and that Finance Minister Yair Lapid was in principle in favor as well. The Finance Ministry is now carrying out a cost-benefit analysis based on the experience of previous grants given companies. The sources said that while investment subsidies have not always yielded successful results from the point of view of benefits to the broader economy, or have produced results subject to differing interpretations, they noted that Intel has in the past lived up to its commitments for investment and hiring.

In 2012, Intel Israels exports more than doubled to $4.6 billion, or 10% of the countrys total industrial exports, while employing some 8,500 people. The sources said the government would ensure that a significant chunk of the grant went to hire employees in the Negev.

Eliahu Hershkovitz