Intel said on Tuesday it had submitted plans to nearly double the scope of its manufacturing operations in Israel, with the government saying the U.S. chipmaker would invest about 18 billion shekels ($5 billion) over the next two years.
The decision by the U.S. maker of semiconductors was expected and the expansion plans don’t call for any upgrade in the technology used at the company’s existing facility in the town of Kiryat Gat. Nor will it involve a major expansion of Intel’s Israeli workforce.
Nevertheless it was greeted as an important achievement for the Israeli economy, raising hopes that Israel would be a leading candidate for an even bigger investment that Intel will be undertaking in 2023, or shortly thereafter, that will involve a technology upgrade.
“Intel’s choice to continue making significant investments in Israel is an important expression of confidence in Israel and the Israeli economy,” said Economy and Industry Minister Eli Cohen. Finance Minister Moshe Kahlon noted that Israel had been competing with several other countries for the investment.
Intel Israel, which is headed by Yaniv Garty, said it only presented an overall expansion plan to the government on Tuesday and that an precise timetable and details about exact costs and technologies had not yet been disclosed.
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Nevertheless, officials hailed the decision by the American company as evidence that Israel remains an attractive destination for international investment after the tax reforms approved by the U.S. Congress at the end of last year that sharply reduced U.S. corporate tax rates.
Intel has had a presence in Israel going back to 1974, and, unlike most multinational tech companies, combined extensive research and development in Israel with a big manufacturing operation, something the Israeli government has been trying to encourage.
Even before the factory expansion gets underway, Intel today employs 11,000 people in Israel and another 1,000 at Mobileye, the automobile-technology it bought last year for more than $15 billion. Last year its exports from Israel reached $3.6 billion, or 8% of the country’s total technology exports.
Under the terms of its agreement with the government, the company agreed to spend 3 billion shekels of the 18 billion capital spending on local suppliers. However, the company expects to add only 250 new jobs from the expansion, far less than the 1,000 maximum that the previous expansion program, in 2013, generated.
In return, Intel will get a 700 million-shekel grant from the government and enjoy a reduced corporate income tax rate of just 5% until 2027, an additional three years beyond the expiry of its existing benefit.
The aid package was less than the $1.8 billion Intel had hoped to get when it started talks with Israeli officials on a package two years ago. In the 2013 expansion, the government awarded Intel a grant of 1.08 billion shekels for a $6 billion capital spending program that upgraded the Kiryat Gat plant to make the then state-of-the-art 10-nanometer chips.
The final amount was based on an expert study that took into account several factors, including Intel’s contribution to the economy relative to any other chip maker, such as jobs created, expected tax revenues and exports. The government team also took into account what the company could have expected in financial help from Ireland – widely regarded as Israel’s chief rival for Intel plants – or from a U.S. state.
Officials said on Tuesday that a key factor in the government’s decision to award the aid is that it will increase Israel’s chances of being the site for Intel’s next-generation plant in 2023 or thereafter. That will not only involve a technology upgrade but twice the level of capital spending the current project entails.