Intel appears set to produce its next generation of chips in Israel with the largest-ever foreign investment in Israeli tech. Under a deal announced by the Finance Ministry Monday, Intel will spend $6 billion to upgrade its Kiryat Gat plant to enable production of next-generation computer chips. In return, Intel will get grants of up to $600 million over the next five years, as well as a major tax break through 2023.
For Israel, it’s worth the expense, said Finance Minister Yair Lapid. “Intel’s investment is a strategic asset for Israel,” he said, adding that it “provides additional proof of Israel’s capabilities in high-tech and innovation.”
The announcement signals the end of the drama that has surrounded Intel’s manufacturing plans over the past several years, as the company considered where to build a new plant to produce advanced 10 nanometer chips. The chips will power wearable technology and perceptual computing devices, which Intel believes will be a major growth area for the company in the coming years.
Intel was said to be considering building the plant in either Israel or Ireland.
In April, Intel announced that it had filed a plan with the government to upgrade the Kiryat Gat plant but did not specify what the upgrade would include. Based on Monday’s announcement, industry insiders said that Kiryat Gat was “almost definitely” going to be the site for development and manufacturing of the new chips.
Under the deal, Intel will get a $300 million grant, with distribution to be spread over five budget years. More valuable for Intel is likely to be the fact that it will pay a corporate tax of only 5% through 2023, though the standard rate of company tax in Israel in 2014 was 26.5%. In return, Intel committed to hiring at least 1,000 new employees, at least half of whom will be residents of communities in southern Israel. In addition, the company promised to spend a total of at least $550 million over the period, along with an additional NIS 400 million each year on local purchases.
The huge value of the deal, both to Intel and the state, impelled the Ministry to set specific criteria to ensure that both sides live up to their obligations, the Ministry said. Among the criteria: An increase in production capacity in the refurbished plant compared to previous production levels, a guarantee that workers will continue to be employed even if Intel’s business falls off, an increase of at least 10% annually in the value of local purchases made by Intel based on 2013 figures, funding of more academic research projects and providing more scholarships for Israeli students to the tune of at least $1 million a year, and a commitment to give Israeli workers and contractors preference in the plant upgrade work.
While critics might complain that the government is giving too much away, Intel International Senior Vice-President and CEO of Intel Israel Mooly Eden said that such deals are common today. “The government here, like governments everywhere, knows how the game is played,” and the jobs that are generated by investments in development centers are well worth it for Israel – especially when it comes to Intel, Eden said in a recent interview. “Over the years Intel has invested $10.8 billion in Israel. Last year, Intel Israel was responsible for more than 9% of Israel’s tech exports, which account for half of overall exports, except for diamonds.”
With Monday’s announcement, that investment figure is set to jump some 60% — further cementing the relationship between Intel and Israel, a company spokesperson said.
Intel already employs some 10,000 workers in Israel directly, and according to the company, it’s responsible for a “multiplier effect” in hiring, with over 30,000 Israelis working at companies that provide products and services to Intel. Lapid said that the new deal will expand that multiplier effect. “The plant upgrade will generate 1,000 new jobs, mostly for residents of the south, along with many thousands of supporting jobs. We will continue to work towards the creation of new employment opportunities and investments in the Israeli economy.”