Intel in Israel: A 50-year love affair

On December 26, the 80th day of the Gaza war, the IDF announced the tragic deaths of two soldiers in combat and four seriously wounded. 

There was another announcement that day – a happier one.

The world’s largest chip manufacturer, Intel, confirmed it will invest $15 billion in its manufacturing facility in Kiryat Gat, added to the $10 billion investment announced in 2019. In return, the Government of Israel will provide Intel with a grant of $3.2 billion – the largest of its kind ever.

Intel’s new fabrication plant, Fab 38, alongside existing Fab 28, will begin producing microprocessors in three to four years, using state-of-the-art ultraviolet lithography. 

At a time when the Bank of Israel was desperately selling up to $45 billion from its reserves to support the slumping shekel, Intel’s investment in Israel was more than an against-the-tide deal. It was a strong vote of confidence and a boost to morale. And a big win-win.

William Moss, head of Intel corporate communications, wrote in an email to me that the expansion plan for Kiryat Gat “was an important part of Intel’s efforts to foster a more resilient global supply chain.” 

The deal

Writing in The Times of Israel, journalist Sharon Wrobel reported some of the details of the $25 billion deal. 

Intel will pay a 7.5% tax rate on its profits, up from the 5% Intel pays today. The government will pay Intel a grant of 12.8% of the $25 billion, or $3.2 billion, under the Encouragement of Capital Investment Law. The new plant in Kiryat Gat is expected to open in 2027.

As part of the deal, Intel commits to buying $60 billion in products and services from Israeli companies over the next decade. 

How did Israel decide on whether to invest in Intel’s investment? Finance Ministry Budget Director Yogev Gardos has frequently tangled with his minister, Bezalel Smotrich, in the past. He explained that “negotiations were based on economic models to examine the benefits of the investment.”

Over a year ago, US President Joe Biden severed China’s access to the Western tools and skilled workers it needed to build the most advanced semiconductors. In 2023, press reports told of the closure of numerous Chinese chip-related companies.

Intel has stepped up to the plate to help fill the gap in chip supply caused by the China embargo and is building plants in the US, as well as in Israel. The Wall Street Journal reports that the Biden administration will award billions of dollars in subsidies to Intel, Taiwan Semiconductor Manufacturing Co. (TSMC), and other top semiconductor companies to help build new factories in the US. The initiative is part of the $53 billion Chips Act, passed by Congress in 2022, intended to spur production of advanced microchips and fend off China.

A 50-year love affair

Intel opened its Israel Design Center in Haifa in July 1974. Rafi Nave, with whom I share an office at the Technion, was one of Intel’s first employees. He went on to become the general manager of Intel Israel, 1980-85. 

Nave led development in Haifa of Intel’s 8087 math co-processor, which accelerated arithmetic operations by 20% to over 500%, and co-holds several of the key patents. He asserts that the 8087 “put Intel Israel on the map as a leading [design] center within Intel” at a time when other Intel centers were reluctant to tackle this complex, high-risk project. 

The 8087 chip likely led IBM to choose Intel’s microprocessor for the first IBM PC over Motorola – and enabled Intel’s dominance in the PC industry and hence its success for three decades. 

What Intel gains, what Israel gets

Intel employs some 12,000 Israelis, including 4,000 in manufacturing and 8,000 in development, paying good wages. Over the years, it has invested $50 billion in Israel and purchased $25 billion from suppliers, most from small to medium-sized businesses. In 2022, Intel exports from Israel totaled $8.7 billion, 5.5% of all hi-tech exports. 

In addition, Nave notes that former Intel Israel employees have founded successful start-ups, such as Tower Semiconductor and Mellanox. Intel’s VC company, Intel Capital, has invested heavily in Israeli start-ups. 

Intel’s acquisition of Jerusalem-based Mobileye for $15 billion in 2017 was the largest exit of an Israeli start-up and generates substantial profits for Intel. In October 2022, Intel took Mobileye public, offering 5%–6% of outstanding shares while retaining majority control. The markets currently value Mobileye shares at $21.9 billion – more than what Intel paid to acquire it. 

In 2022, Intel bought computing tech start-up Granulate for a reported $650 million. It was the seventh purchase of an Israeli start-up by Intel in just five years. 

There are several dramatic episodes in which creative Israeli engineers have brought groundbreaking ideas to fruition and boosted Intel’s top and bottom lines. 

For example: 

• Dadi Perlmutter, who went on to become Intel Global VP, and colleagues persuaded then-Intel CEO Andy Grove to design and produce the Pentium microprocessor rather than pursue IBM’s RISC technology. They did this as relatively junior engineers; to his credit, Grove listened. In 1995, the Los Angeles Times reported that the Pentium, a smash hit, boosted Intel’s profits by 44%. 
• An Intel Israel team developed the Centrino chipset that enabled laptops to “take your office with you” and communicate via WiFi.
• Multi-core architecture – two or more cores, or central processing units, on a microprocessor – was driven by Intel Israel. The laptop on which I am writing this column has a multi-core i7 Intel microprocessor. 

Dark clouds

There are some dark clouds hovering over both Intel and Israel.

Sagi Cohen recounts in The Marker that in the past two years, not a single Israeli start-up was launched in chips. At the same time, Israeli designs are leading the world in artificial intelligence chips, through multinationals’ design centers in Israel, especially Nvidia.

In 2019, Nvidia, a US chip company, acquired Mellanox, an Israeli start-up founded in May 1999 by former Intel manager Eyal Waldman and former Intel and Galileo managers, for $6.9 billion. Turned out to be a bargain. 

On the surface, it seemed an unusual fit. Mellanox’s forte was high-speed networking for data centers, quite different from Nvidia’s offerings. But Nvidia founder Jensen Huang envisioned a harmonious path to market-leading AI chips via Mellanox’s technology. 

Mellanox knew how to speed up networks. The same knowhow could be used to vastly speed up AI chips. And it did.

Recently, Huang unveiled plans for one of the world’s most potent AI-driven supercomputers, built here in Israel. With its first phase completed in only 20 weeks, Israel-1 has 2,048 Nvidia chips and is now in use by the company’s research and development teams, along with selected partners; it is housed in Nvidia’s Israeli data center.

In the fierce AI chip rivalry, Nvidia is leaps and bounds ahead. The result? A $1.2 billion market cap for Nvidia, leaving Intel trailing at a mere $180 billion. And it is Mellanox engineers who have helped lead Nvidia’s AI chip success. 

Israel is fighting a war on several fronts, struggling to free over 100 hostages while suffering from a dysfunctional government led by a chronically indecisive narcissist prime minister. Let the chips fall where they may – they are the least of our problems. 

Gelsinger returns

Someone once remarked, “If you’re in hi-tech, you’re in trouble.” Intel was in trouble. Forbes magazine reported that in 2022, Intel had a $664 million net loss for the year, a 32% year-over-year revenue decline for the fourth quarter, and a 20% decline in annual revenue year over year. 

The company knew it needed a new direction. On February 15, 2021, it appointed Pat Gelsinger as CEO. Gelsinger, a religious Christian, had a 30-year career at Intel before leaving in 2009 to run EMC and then VMware. 

Gelsinger initiated from day one a program he called IDM 2.0 (integrated device manufacturer). It opens the company’s chipmaking capabilities, once closed, to outside customers. Gelsinger moved to expand Intel’s semiconductor capacity, including the proposed new Fab 38 in Kiryat Gat. Intel sought tax cuts and grants from governments in the US and internationally to fund the program – and Israel responded, among others.

Forbes magazine argues that it is the semiconductor foundries that are bringing the most innovative semiconductor manufacturing advances to market, especially TSMC. Gelsinger saw that Intel would have to compete directly with these foundries to regain its process technology leadership. 

And, as in the past, Israel was ready. 

When the dark clouds clear, both Intel and Israel will see better days. Creative Israelis may yet lead Intel back to its once-primary place in world chip design and production. Fab 38, too, will play a role.

In 1991, Intel launched a creative marketing initiative, Intel Inside, putting little stickers on computer keyboards and boxes and running ads during the Super Bowl to make buyers aware they were buying not just Dell or IBM but Intel microprocessors, too. The campaign built a strong Intel brand. Intel may be inside our laptops. But Intel is also inside Israel – and has been for 50 years. And, happily, in a very real sense, Israel is inside Intel, too.  ■

The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion. He blogs at www.timnovate.wordpress.com.