Intel to upgrade chip plant in Israel with investment of $6B

Intel (INTC) has received approval from the authorities in Israel to invest $6 billion to upgrade a chip plant in Kiryat Gat. The precise amount is subject to the final approval by Intel’s Investments Center.

After the upgrade, the Intel plant will be one of the most advanced chip manufacturing facilities in the world.

The world’s largest chipmaker will be entitled to a $300 million grant over a period of five years from the Israeli government. Intel will have to pay a reduced tax rate of 5% for 10 years (the standard rate of company tax in Israel in 2014 was 26.5%).

Media reports indicate that Intel Israel’s exports amount to $35 billion over a period of 40 years.

Per the deal, Intel will purchase a minimum of $550 million worth of Israeli products.  The company also intends to hire close to 1,000 more workers for the plant by 2023 (at least half of whom will be residents of communities in southern Israel.) Intel already has 10,000 employees in Israel directly. Intel believes that it is responsible for creating a “multiplier effect” in hiring, with 30,000 plus Israelis working at companies that provide products and services to Intel.

While Intel has not made any official announcement, the investment by the company will likely be utilized to develop its new advanced 10-nanometer (nm) chips.

The deal holds a lot of value for both Intel and the Israel.  As a part of the deal, the Israeli government has set certain conditions. Intel will have to increase production capacity of the renovated plant. It will also have to retain workers irrespective of how its business performs, increase the value of local buys made by the company by 10% annually and give preference to Israeli workers and contractors in the plant upgrade work.

The deal is deemed to be the biggest investment in Israel by a foreign company.

Intel currently holds a Zacks Rank #3 (Hold). A better ranked stock in this industry is NVIDIA Corp (NVDA) which carries a Zacks Rank #2 (Buy). Investors can also consider Aspen Tech Inc. (AZPN) or Park City Group Inc. (PCYG)  as both have a Zacks Rank #1 (Strong Buy).

Image courtesy of Intel
 
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