Closing of Israeli Microchip Plant May Have Macro Effect

The Israeli government is setting up a team to try to save the Micron plant in Kiryat Gat and keep its 1,300 employees on the job.

Last Thursday, 1,300 employees at Micron Technology's microchip fabrication plant in Kiryat Gat were notified that the factory was slated to be sold or closed. Micron told employees layoffs aren’t expected in the near future, but if a buyer isn’t found for the factory by 2015, everyone will be out of a job.

"In the event that [a sale] isn't concluded, Micron will gradually reduce the scope of production at the factory  and will affix the level of manpower to the size of production up to and including 2015," the company said Thursday afternoon in a written statement.

TheMarker has learned that Micron has offered a compensation plan to provide employees with bonuses for meeting targets as well as compensation tailored to the amount of time employees will remain at the factory until its planned closing in 2015.

Micron has been in Israel since February 2010, when it acquired the operations of Numonyx Holdings, a microchip memory company set up by Intel Corp. and STMicroelectronics. The deal was valued at $1.27 billion and transformed Micron in the world's third-largest computer memory company. Before that, the Kiryat Gat plant was owned solely by Intel.

On Thursday afternoon, the Ministry of Industry, Trade and Labor announced its head Shalom Simhon and a team of senior ministry officials had met with Micron Israel executives to determine how the government could help prevent layoffs at the plant. Simhon later announced that a team of officials from his ministry, the Ministry of Finance and Micron would draw up a government-assistance plan to ensure the factory's future.

Micron currently employs roughly 500 production-line workers and another 800 or so workers in R&D, administration and business planning. Based on Micron's figures, the production center at Kiryat Gat had $350 million's worth of exports in 2010.

Senior industry sources told TheMarker that they couldn't point to any industry player likely to acquire the factory, and that neither Intel or TowerJazz – which both already operate micro-chip-fabrication plants in Israel – would be interested in the Kiryat Gat plant. They also say the plant's employees lack the skills to find work at other multinational companies or microchip design start-ups.

Part of the reason the plant is not an easy sell is that it does not use cutting-edge semiconductor technology. Most microchip fabrication plants built today use technology that cuts 300-micometer microchips, not the 200-milimeter microchips produced at the Kiryat Gat plant. Moreover, the NOR flash memory microchips manufactured at the plants are losing their status in the computing industry to NAND flash memory microchips, which enable rapid transfer of saved data and have lower memory unit costs. Today, NOR microchips are used primarily for machines that save data that doesn't require frequent transfer, such as ATMs.

"Intel sold the plant in 2007, because they understood that it operated with less attractive technology," says Sol Gordon, the chairman of Israel's High Tech CEO Forum.

Eliyahu Hershkovitz