Intel prefers Ireland to Israel for 14 nanometer fab

Intel has rejected the Israel's offer of a NIS 1 billion grant to expand the Kiryat Gat fab and build a new fab in Bet She'an.

Intel Corporation (Nasdaq: INTC) has rejected the Israeli government's offer of a NIS 1 billion grant, to expand its Kiryat Gat fab and build a new fab in Beit She'an, and will build the next-generation 14-nanometer technology fab in Leixlip, Ireland, at an investment of €1 billion. The new fab will be Intel's state-of-the-art fab in the world.

Meanwhile, Intel is in talks on a grant, for an undisclosed amount, to build its next-generation fab, with 10-nanometer technology, in Israel.

Intel's decision to invest in Ireland was announced by CEO Paul Otellini at an investors meeting two weeks ago. The decision was made even as Israel's Ministry of Finance and Ministry of Industry, Trade and Labor were embroiled in a brawl whether to meet Intel's demands for a grant in full. At the same time, Minister of Finance Yuval Steinitz opened a secret channel with Intel executives, for which top Ministry of Industry officials lambasted him.

"We knew nothing about Intel's final decision on this matter. We did not even receive a response from the company about the offer of the inter-ministerial committee, which reviewed Intel's request for a government grant, sent to it a year ago," a top official involved in the matter told "Globes".

Last year, Intel opened clarifications on its request for a $600 million government grant, as part of a $4.8 billion investment to upgrade its fab in Kiryat Gat. The Ministry of Industry's Investment Promotion Center, which had previously approved a $200 million grant for an upgrade at the fab, decided to review the company's conduct. Following this review, it told the company that it would get a smaller grant, and with strings attached. The Ministry of Industry offered a NIS 1 billion grant, of which NIS 300 million must be used to expand the fab in Kiryat Gat, and NIS 700 million used to open a new fab in Beit She'an. Intel has not yet delivered its response to the offer, and there have been reports that it will invest billions of dollars in Ireland instead.

Intel, raised eyebrows over the Israeli government's low offer, but outwardly stayed silent about the government's attitude toward the company. It repeatedly delayed announcing its final decision whether to invest in Israel or Ireland, even as signs began to emerge in September 2011 that it would pick Ireland. "Globes" reported these assessments at the time, based on Intel's wish to upgrade its Irish fab, which had last been upgraded in 2004.

"We did everything to make an attractive offer to Intel," a top government official told "Globes". "In this case, we could not be more attractive than Ireland."

The details of the Irish government's incentives offered to Intel to upgrade its Leixlip fab are still unclear. However, sources close the company explicitly said in the past that Intel acted like any other business, and handled its affairs on the basis of economic feasibility and value of opportunities made available to it.

An Israeli government source said today that the Irish successfully tempted Intel with tax breaks, rather than grants. "In contrast to our offers, which were monetary grants, the Irish offered tax breaks up to the amount of the grant. This means that Ireland is not investing capital in the company, but is offsetting it each year. Since in this case we're talking about a fab upgrade rather than construction of a new fab which requires investment in infrastructures, the arrangement was convenient for the company," he said.

Talks on a new fab

Top Israeli economic officials had thought that the tax pre-ruling which Intel is seeking, and which "Globes" revealed last week, for a NIS 3 billion tax break to export NIS 12 billion in accumulated capital, was partly intended to finance the Irish fab upgrade. Other sources disagreed, saying that Intel was trying to obtain a tax credit on accumulated capital in the US, under a new US law, and that the company would subsequently invest in Israel.

Intel's decision to invest in Ireland is a bitter blow to Beit She'an. For months, residents had hoped that the company would build its new fab in the town, which would serve as a basis for the opening of other plants, creating well-paying jobs.

Meanwhile, Intel executives, including Intel Israel general manager Maxine Fassberg, have been in talks with Steinitz over a future investment of $5-10 billion to build the next-generation 10-nanometer technology fab in Israel.

Sources familiar with the issue say that decisions on the fab will be made over the next 2-3 years, and that Israel will have to make a more attractive and competitive offer than offers of other countries, in order to benefit from such a large investment, which will create tens of thousands of jobs directly and indirectly.

The talks between Intel executives and Steinitz are focusing on building the next-generation fab in Kiryat Gat. Intel executives are due to meet Ministry of Industry officials in a few days. The talks will come in the wake of the bitter dispute between Ministry of Industry and Ministry of Finance officials over Steinitz's secret talks with the company.

Published by Globes [online], Israel business news - www.globes-online.com - on May 28, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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