Intel agrees to build new manufacturing plant in Israel

The move is part of the US semiconductor company's push to diversify its production sources

Intel says its existing factory in Kiryat Gat in Israel is its most advanced manufacturing unit. AP

Intel has agreed in principle to build a new manufacturing plant in Israel as part of a push by the US semiconductor maker and its chip peers to diversify their production sources.

The preliminary deal was announced by Israel’s Finance Ministry and Prime Minister Benjamin Netanyahu on Sunday.

Intel confirmed the company’s “intention to expand manufacturing capacity in Israel”, where it is already active, but did not specify the terms of the deal or provide other details.

The plant will be for wafer fabrication, a segment in which Israel is already one of Intel’s four major providers, according to a source.

The expansion will further an effort by Intel chief executive Pat Gelsinger to locate more manufacturing outside of Asia, which dominates chip production.

He is also striving to restore the chip pioneer’s technological leadership after companies such as Nvidia and Taiwan Semiconductor Manufacturing Company eclipsed its capabilities.

While Mr Netanyahu put the value of the deal at $25 billion, which he said was the largest foreign investment in Israel and an “expression of confidence” in the nation’s economy, the source said the total included a previous $10 billion investment announced in 2021.

According to Israeli officials, the project will add thousands of jobs to the about 12,000 workers now employed by Intel in the country.

The new plant – to join an existing one in Kiryat Gat, south of Tel Aviv – is expected to begin operations by 2027 and remain active until at least 2035, the ministry said.

As part of the agreement, Intel will pay a 7.5 per cent tax rate in Israel instead of the 5 per cent it pays now.

Sunday’s announcement caps a busy time for the chip industry. Intel on Friday announced a $4.6 billion plant in Wroclaw, Poland.

Another US chip maker, Micron Technology, is close to an agreement to commit at least $1 billion towards setting up a semiconductor packaging factory in India.

The development plans highlight the global race to diversify supplies of critical components amid US trade tension with China.

Companies are also taking advantage of subsidies from foreign governments eager to make sure the supply of chips in their own territories is safe and attracts jobs.

As part of the agreement with Israel, Intel will probably be eligible for a significant government grant representing 12.8 per cent of its total investment.

The US is doling out about $52 billion in incentives as part of the Chips and Science Act passed last year. And Europe is making a similar effort.

Intel is set to receive about $11 billion in subsidies from the German government for a chip manufacturing complex in the eastern part of the country.

Intel chief executive Patrick Gelsinger. AP

The company also continues to expand in Leixlip, Ireland, spending an additional €12 billion ($13 billion).

It plans to double the manufacturing space there to bring so-called Intel 4 process technology to Europe and offer more foundry services – contract production for other companies.

Once complete, this expansion will bring Intel’s total investment in Ireland to more than €30 billion.

Mr Gelsinger is making bold expansion bets at a time when the storied chip maker is struggling. The personal computer market is mired in a slump, and the company’s peers have pushed into its lucrative data-centre turf.

Nvidia, whose chips help to power artificial intelligence computing, is now the star of the semiconductor industry.

After passing Intel in market capitalisation in 2020, Nvidia now has a valuation of more than $1 trillion – compared with about $150 billion for Intel.

In Israel, Intel also has been working to complete the acquisition of the country’s Tower Semiconductor, a deal announced more than a year ago.

Intel is counting on that $5.4 billion transaction to help bolster its position in the chip foundry industry – where TSMC dominates.

Intel has been operating in Israel since 1974 and has R&D centres in Haifa, Jerusalem, Yakum and Petah Tikva, as well as an existing factory in Kiryat Gat, which the company calls its “most advanced manufacturing facility”.

Intel’s Jerusalem plant is the global development centre for Mobileye, its self-driving business.

Santa Clara, California-based Intel said its intention to expand “is driven by our commitment to meeting future manufacturing needs and supporting Intel’s IDM 2.0 strategy, and we appreciate the continued support of the Israeli government”.

The strategy, unveiled after Mr Gelsinger took the helm in 2021, was touted as an “evolution of Intel’s integrated device manufacturing model” that would see the company become a provider of foundry capacity in the US and Europe, as well as an expanded use of external foundries for some of its products.