Intel Israel to Raise Sales by 50% as Part of Kiryat Gat Upgrade

State will reimburse chip maker for 5% of 20-billion-shekel investment in overhaul of plants in southern Israeli town.

Reuters

Semiconductor giant Intel has promised to spend 20 billion shekels ($5.8 billion) on upgrading the technology of its manufacturing facilities in the southern Israeli city of Kiryat Gat. In return, the state will give Intel 5% of the investment back as a grant.

After more than a year of discussions, during which the finance and economy ministries sought to reduce the state’s share in spending, an agreement in principle has been reached with Intel. According to information obtained by TheMarker, Intel is to increase its manufacturing volume in Israel by approximately 50%, to between $5 billion and $6 billion annually, after the scheduled end-2016 completion of the facilities overhaul — more than 12% of all Israeli goods exports, excluding diamonds, and about one-fourth of the country’s technology exports.

Intel also promised to increase its payroll in Kiryat Gat by around 1,000 workers. The company employs nearly 10,000 people in Israel today.

Officials in the finance and economy ministries expressed satisfaction with the agreement. “There are still a few details that need to be squared away, but there is an understanding n principle between the sides,” said the Director General of the Economy Ministry, Amit Lang. He said the ministry would implement the plan quickly.

Lang added that Intel has also committed itself to making large purchases in Israel, employing a specific number of employees for an agreed-upon period, allocating part of its spending to Israeli suppliers, investing funds in technology education in the periphery and hiring a specific number of Arabs and ultra-Orthodox Jews.

Lang said it would take a couple of months to work out the exact numbers, but he emphasized that Intel accepts all of the terms and conditions in principle.

Intel’s Kiryat Gat facilities include Fab 18, which the company recently bought back from Micron Technology. Intel is expected to combine Fab 18 with Fab 28 into one large factory that will produce chips using the company’s newest, most advanced 10-nanometer semiconductor technology. Fab 28 now produces 22-nanometer silicon wafers. The new technology will allow Intel to produce chips that are faster, denser and more energy efficient.

Three years ago Intel decided not to upgrade the Kiryat Gat plant in return for a similar grant. The latest development shows that the company has concluded that it is still worth its while to invest heavily in Israel, according to a senior government official who was speaking on condition of anonymity.

Intel’s repurchase of Fab 18 will greatly accelerate the upgrade process and the time-to-market of the company’s new technology, the official said, adding that presumably Intel judged that it would take less time to overhaul the Kiryat Gat campus than to build an entirely new facility in Ireland.

This will be the fourth time Intel receives a significant government grant for building manufacturing facilities in Israel.