Intel is set to mark 50 years since it began operating in Israel, during which time the US chipmaker has grown from a small development center in Haifa, to the biggest employer in Israel’s private sector with 11,700 employees, responsible for almost 6% of the country’s tech exports. Last year Intel exported $8.7 billion worth of chips from Ashdod Port, contributing to 1.75% of Israel’s GDP.
Former Intel employees founded Mellanox, which was sold to Intel’s rival Nvidia for $7 billion and a long list of Israeli startups have been sold for billions of dollars to other tech giants like Broadcom and Qualcomm. Other Intel graduates have set up companies eventually sold to Apple, Amazon and Google to develop a significant part of their chips in Israel or through Israeli management.
Israel has not only benefited from Intel's presence, it has also rewarded the US company and awarded it major grants. Prime Ministers, and Ministers of Finance and Economy have agreed to give Intel grants of increasing amounts over the years. The grant promised last year for expanding and building the Fab 38 plant in Kiryat Gat was NIS 11.1 billion - 12.5% of Intel's total investment. The construction was approved at the end of last year, but was halted at Intel's initiative last month. In the construction of the plant, Intel promised to build in Israel a decade ago, the state committed to invest NIS 1.7 billion, only 7% of the construction cost. Between 2011 and 2024, Intel was promised grants totaling NIS 15 billion.
In recent years and more so since the start of 2024, the ongoing alliance between Intel and the Israeli government, has been cracking. Israel has seen the financial freefall of the company that was once a global chip giant, and in the shadow of the financial burden that exists on Intel's coffers and with its failure to find customers for its new production systems, the company has been forced to suspend until further notice the new fab it promised to build in in Kiryat Gat. The freeze has brought chaos to the contractors that work with it, and could cost the jobs of thousands of workers, who were hired partly because of it.
At the same time, Intel is tightening ties with the recently inaugurated factory in Ireland and transferring there production lines for its new chips with 7 and 5 nanometer technology, after production delays in the US, and also to save $1 billion in the long term. Decisions about production lines for the new Mod 1 Israeli plant to be inaugurated soon have not been taken due to Intel's difficulty in predicting demand.
The current layoffs, in which Intel is expected to cut about 1,000 jobs in Israel, the possible halt in construction in Kiryat Gat, the risk Intel took to finance the development of many chips simultaneously, and the loss of investor confidence raise the question of how Israel failed to take advantage of Intel's local presence to attract more chipmakers. The continued contraction of Intel may lead to thousands of additional layoffs and significant damage to exports that could also affect the bottom line of Israeli GDP growth.
The semiconductor laws
Dr. Ami Appelbaum, who stepped down last October as chairman of the Israel Innovation Authority, after six years in the job, explains that chipmakers like Intel, Motorola Semiconductor and National Semiconductor came to Israel due to Israeli top executives working in the US returning to Israel and setting up a development center here.
He says, "We don't see this phenomenon now among most of the chip manufacturers, which are Asian, because there are almost no senior Israeli executives there."
Appelbaum does not remember that there was ever a strategic discussion aimed at building a chip industry in Israel for the long term - he claims that Israel should have drawn inspiration from the semiconductor laws enacted in various countries to attract the large chip factories. He says, "The US and EU have come to the conclusion that they cannot remain on the sidelines in the development of global technology, such as AI, the core of which is the chip industry, and that they would be without important factories. That is why the US came out with an initiative to finance the industry with $280 billion and the Europeans with $43 billion, which go not only to grants, but also to the establishment of universities and the construction of packaging factories and supporting factories. If Israel were to prepare such a strategic plan of its own, it would be right to raise at least $10 billion," he says.
The negotiations that collapsed
Western countries struggled until the last few years to convince Asian chipmakers like TSMC, Samsung and Hynix to open plants in their territories. Cultural differences such as work ethic and obedience to authority led them to prefer their home countries. Appelbaum claims that commercial pressure from Western countries plus billions in grants finally made them relent and today TSMC is building new plants in Germany and in Arizona, and Samsung is building a new plant in Texas.
Appelbaum, who previously served as chairman of the KLA chip testing equipment company, reveals that as chairman of the Innovation Authority he negotiated with a large Asian chip manufacturer that expressed willingness to open a chip packaging factory in the north. "These efforts fell through in early 2023 because of the judicial reform," he says. "It was very important for them to have a clear regulatory and legal framework, and when they couldn't get a promise that there would be stability here, the talks stopped completely, even before October 7. For them it was worse than war. During the Second Lebanon War, despite the bombings in the north, KLA under my management did not delay a single shipment and the US management appreciated it very much."
According to Appelbaum, one should not rely solely on the other two manufacturers of advanced chips - Samsung and TSMC, but rather develop an industry in Israel that is at other stages on the value chain of chip production, such as, for example, assembly and packaging - two growing areas that are becoming critical for the chip manufacturers and that are becoming more sophisticated and include more layers. Companies such as Pegatron, Advantech, Wistron, Chipbond, ASE and PTI are active in this industry; Another area in which Israel could expand is in testing equipment for chip production, which according to Israel constitutes about 60% of the global industry, with activities of companies such as Applied Materials, KLA, Camtek and Nova in Israel.
Taiwan and the UAE
Dr. Ariel Sobelman, senior research at the Glazer Israel-China Policy Center at Tel Aviv University’s INSS has been promoting in his research and public activities over the past years legislation of a semiconductor law, like the one enacted in the US. He says, "There is currently an exodus of factories from Asia and countries like the US and India have been able to take advantage of this to win factories. Israel has not invested as required, but now the ultimate goal is to bring more companies here. It is dangerous to depend on one manufacturer and Israel has a golden opportunity to expand its manufacturing signature through companies from Taiwan, for example."
He adds, "The way to do this, in my opinion, is through a message that will express support for their aspirations. Every day it becomes clear to us that China is not a major partner of Israel, and it is possible to take advantage of the unique geopolitical situation that has been created to carry a more positive message towards Taiwan in exchange for investments in the State of Israel. Even though we are a huge market, TSMC does not have an Israeli representative and it is time we act on that. To the same extent, there is an opportunity here to bring Saudi and UAE money to local chip operations, even if it is through a foreign factory. This is not being used despite the four years of the Abraham Accords."
MK Orit Farkash Hacohen, who chairs the Knesset AI and Advanced Technologies Committee, says that the funds of the US Chip Act can be used to bring foreign companies to Israel. In addition, she claims, without a multi-year strategic plan with budgetary goals to reduce Israel's dependence on the supply of chips from abroad, companies will not come on their own. The time has come to see chips as an integral aspect of national security, to avoid embargo situations and to create alliances based on technological security."
Published by Globes, Israel business news - en.globes.co.il - on August 6, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.