Intel reaffirms faith in Israel


The Israeli government learned its lessons from losing the last Intel fab to Ireland, says Izhar Shay.

One of the serious questions about Israeli high tech since the guns ceased to roar in the Gaza war is the effect of Operation Protective Edge on the belief of foreign investors in the local market's stability, and its possible effects on strategic cooperation with large international high-tech companies. Since the ceasefire became effective, stories have circulated in the local market of high-level visitors who canceled their trips to Israel, of foreign parties - mostly European - who decided to discontinue their business in Israel for the moment, and of investors expressing anxiety about expanding their involvement in such an unstable region as ours.

Given all this speculation, the declaration by Intel of its intention to establish it new production facility, the most advanced of its type in the world, in Kiryat Gat, is an extremely significant event, and an important signal to the global high-tech industry. It appears that Intel believes that despite everything, Israel is safe and stable enough to put an important part of its future production capacity in the hands of its Israeli employees.

Intel will invest $6 billion in its new Kiryat Gat fab. It will receive a $300 million grant from the Israeli government, and will benefit from a reduced 5% corporate tax rate for 10 years. The new fab will add about 1,000 new employees to the company's workforce in Israel, and the Ministry of the Economy believes that 2,500 more employees will benefit from various jobs related to construction of the new fab.

Israeli politicians did not ignore the celebrations of Intel's announcement. Former brothers in arms, Minister of the Economy Naftali Bennett and Minister of Finance Yair Lapid, could not contain their (justified) enthusiasm - separately, of course - in describing the actions of their respective ministries concerning Intel's new fab. Significant tax breaks and handsome grants were necessary to convince Intel to select Israel, instead of the other suitor countries pursuing the company at any given time.

"Globes" has already written about the Israeli government's proud and steadfast stance in the negotiations in early 2012, during the previous Netanyahu government, and about the possible locating of Intel's new plant in the Beit Shean region. The Ministers of Industry & Trade and Finance at the time competed with each other who would take a tougher stance on Intel's excessive demands. The Israeli complaints about the excessively large tax breaks under discussion were freely leaked, and soon made their way to the headlines. All this led to the eventual decision to establish the plant in less proud and more practical Ireland, the loss of income for thousands of potential employees in unemployment-ridden Israel, and the failure to develop national infrastructure that could have propelled the entire region forward. It appears that the ministers in the current government have learned the lessons, and took these insights with them to the series of discussions about the new fab, discussions which fortunately ended with far-reaching agreements between the two sides.

A populist carnival

As of early 2014, according to figures published by Intel in celebration of its 40 years of doing business in Israel, total exports by its fabs in Israel reached $35 billion. The company's cumulative past investments in Israel in establishing its fabs and development centers in Israel total $10.8 billion, and it currently has about 10,000 employees, 60% of whom live south of Gedera. Given Intel's standing as one of the largest companies in the Israeli economy, both in the workforce it employs (which will grow still further in the future when the new fab is completed) and the volume of its commercial business as one of Israel's largest exporters, it will continue to draw headlines in both the economic and general press.

It could happen when some politician decides to score a few propaganda points from the tax breaks enjoyed by large companies like Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), Check Point Software Technologies Ltd. (Nasdaq: CHKP), and Intel. Or it could happen when a diligent politician decides to boost his popularity among potential voters by calling on Intel workers to join a union under the Histadrut (General Federation of Labor in Israel). Perhaps the same politician will also call on Intel workers to join haredi (ultra-Orthodox) demonstrations against working on Saturday. These examples may be irritating, but they are not impossible, given the fact that each one of them has happened in the past, including the exploitation of Intel's special status in the Israeli economy and in the general consciousness in Israel.

We hope, as happened in the past, that Intel's senior executives will be able to suffer in silence the periodic populist carnival that is bound to occur concerning the company's business in Israel, and that the company will continue to be one of the Israeli economy's leading success stories. At least for now, with the start of the new year, Intel is definitely sending a very nice and celebratory Rosh Hashanah greeting to the Israeli economy, particularly Israeli high tech.

Izhar Shay is a managing partner in Canaan Partners Israel.

Published by Globes [online], Israel business news - - on September 30, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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