Intel in talks to invest $11b in Kiryat Gat fab

Intel Kiryat Gat

Intel is asking the Israeli government for an unprecedented NIS 4 billion grant - 10% of the investment, sources inform "Globes."

Intel is planning to invest NIS 40 million ($11 billion) in constructing a new fab in Kiryat Gat, and has asked the state for a grant amounting to 10% of the investment, sources inform "Globes." If the plan materializes, it will be the chipmaker's largest ever investment in Israel. If the company's request is granted, it could reach NIS 4 billion, also an all-time record. 

This amount would be in addition to the NIS 18 billion investment in Kiryat Gat and NIS 3 billion grant approved last year. 

Discussions on the investment between Intel and the Ministry of Finance began a number of weeks ago, led by Ministry of Finance director general Shai Babad on behalf of his ministry. When the negotiations began, they were expected to be short, but the talks are still going on, despite early elections. As far as is known, Minister of Finance Moshe Kahlon is not directly involved in the talks, and is giving Babad a free hand to conduct them. The Ministry of Economy and Industry, which was deeply involved in contacts with Intel in the past, has so far not taken a significant part in the negotiations. The Ministry of Finance and Intel declined to answer questions from "Globes" on the subject.

Intel's global management has not yet made a final decision about the investment in Israel. Intel says that the fab will probably be built in Ireland, the US, or Israel. Sources inform "Globes" that in dealing with the request, the Ministry of Finance chief economist unit has prepared an opinion stating that the investment fulfills the requirements for assistance from the state, headed by the return on the investment. At the same time, it is not clear whether the opinion refers to macroeconomic considerations beyond the significant figures for the investment, including how such a major increase in Intel's presence will affect the Israeli economy's dependence on the US company.

Israel's economy, especially its investment figures, are already significantly affected by Intel's activity. For example, in the speech on the occasion of the most recent Bank of Israel interest rate decision, Governor of the Bank of Israel Amir Yaron said that the investment picture in Israel was likely to improve, "following an investment in a fab." Babad also hinted that a global company was likely to soon announce a dramatic investment in Israel, which would affect GDP.

In addition to its unprecedented size in absolute numbers, the grant requested by Intel is relatively higher than the previous grants from the state to the company. Since the previous decade, grants to Intel were 5% of the investment in building a plant. The company's proposal does not ask for a change in the current tax arrangement applying to it, called "the strategic track," in which Intel pays a reduced 5% tax rate. This is already significantly greater than the benefit stipulated in the Law for the Encouragement of Capital Investment, which is granted to companies exporting at least one quarter of their output. Companies operating in outlying areas under the law pay 7.5% corporate tax, companies in central Israel pay 16%, and companies that do not receive the benefit pay 23%.

Closing the gap with the competitors

Sources following the talks between the government and Intel say that the amounts are not infinite, and could eventually be lower. The sources added that the agreement with the government also includes an exemption from the tender obligation with Israel Land Administration, and that Intel has already begun preparing physical infrastructure for building the new fab in Kiryat Gat.

The sources also said that despite Intel's statements that it has not yet decided where to locate the fab, the company is preparing to invest simultaneously in two new fabs: in Ireland and in Israel. Investment on this scale is unusual even for a huge company like Intel, which has never before built two fabs at the same time. Intel is also building a fab in Portland in the US, where most of its research and development for chips will be conducted - another indication of the great demand anticipated by Intel.

The technology that Intel plans to develop and then manufacture in the new fabs improves three aspects of chip performance: performance, output, and cost. This 10-nanometer technology facilitates greater density of electronic components at low electrical output. Intel is coming late to this technology; its competitors - the TSMC fab, the largest in the world, and Samsung - are already producing 7-nanometer chips, whose performance is similar to the technology being pursued by Intel.

In May 2018, Intel's global management approved an NIS 18 billion investment in expanding the existing Kiryat Gat fab, and undertook more than NIS 3 billion in additional procurement and hiring 250 employees in the outlying areas. In return, the government approved a NIS 700 million grant for the company, contingent on a strategic investment by Intel in a substantial technological upgrade, and extended Intel's tax benefit until 2030, instead of 2027. Senior Intel executives said at the time that further investments in chip production in Kiryat Gat would follow.

Intel VP and manufacturing and operations general manager Dr. Ann Kelleher said at the time that the company was gradually changing its focus from PCs to the data industry in order "to satisfy the market's enormous appetite" for solutions that process, analyze, store, and share information. As a result of this change, she says that the company is competing in the silicon products market, which is estimated at $300 billion. "We are facing the biggest market opportunity in Intel's history, and are taking the necessary measures to prepare our global production network for being flexible and able to respond quickly to changes in demand," Kelleher says. "We are now planning an expansion of our production sites in Oregon, Ireland, and Israel. Construction work, which will continue for a number of years, will begin in 2019. In the coming weeks and months, we will hold discussions with governments and communities to obtain the necessary approvals and licenses."

The advanced technologies are still remote

In addition to the fab in Kiryat Gat, Intel has widespread development in Israel in almost all of the company's global activity. The development, architecture, and design of 9G processes, Intel's most advanced for business and personal computers, are led from Haifa. Activity in autonomous vehicles is based on Intel's acquisition of Jerusalem-based Mobileye, and the company's centers in Ra'anana, and especially in Petah Tikva, engage in high-speed WiFi connectivity, GPS, and 5G mobile communications with WiGig technology. There is also an artificial intelligence (AI) center in Haifa developing Inference, an AI chip for servers, together with Facebook. At the same time, Intel is developing its RealSense 3D cameras technology and its advanced sports broadcasting technology, based on Replay, a company it acquired, in Israel. The company also previously developed a virtual reality helmet, but the project was shelved.

At this stage, however, the advanced technologies on which Intel is working are not yet having a substantial effect on the company's performance. It is believed that it will take two or three years, if not more, before this situation changes. Mobileye is a good example: the Israeli company acquired by Intel accounts for only $200 million of Intel's $70 billion in sales. It could be as late as 2025, with the advent of an active multi-billion dollar market in automatic vehicles, before Mobileye brings Intel substantial revenue.

Published by Globes, Israel business news - en.globes.co.il - on January 28, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Intel Kiryat Gat
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