Intel CEO throws future of Israeli chip-manufacturing factory into doubt with a single sentence
The big question now is what will happen if Intel falls in love with outsourcing and understands that its time as a manufacturer has come to an end?
Such a realization could lead the company to make a decision to sell its entire manufacturing line to similar chip giants or private equity funds that would then create a massive manufacturing conglomerate with at least one guaranteed client in Intel. In such a case, the cloud that is currently barely hovering over Intel's Kiryat Gat company and 4,900 employees will significantly thicken and the uncertainty will be real and clear.
Intel's second-quarter report published on Thursday included an ominous announcement stating that the production of 7nm chips has been significantly delayed and will only hit the market in 2022 and not in 2021 as was planned, marking a delay of a year in the company’s roadmap. That was followed by Swan's words and the company's shares dropped 16% on Friday, its worst trading day in 20 years.
Intel, the largest private employer in Israel, with a total workforce of 13,750 in the country, is considered to be a manufacturing leader in the U.S. While its value dropped by $41 billion in one day, competing chip maker TSMC of Taiwan, added $33 billion to its value and the likes of AMD and Nvidia also experienced significant increases.
Should Intel begin to outsource its manufacturing it could affect Israel. Intel currently makes its 10nm chip in Kiryat Gat, but the company’s new and much talked about factory currently under construction was believed to be meant for the manufacturing of the 7nm chips.Intel has not yet clarified whether outsourcing is intended to transfer full production lines abroad or only to strengthen existing production, but in any case, it is likely that plans in Israel will change accordingly.
Intel Israel without a manufacturing factory is just another R&D center like the ones Microsoft, Google, Apple, and any other tech giant has in the country. But the footprint created by Intel in the country goes far beyond an R&D center that employs mainly engineers and is based largely out of the center of the country, or maybe in Haifa. There is no R&D center in Kiryat Gan and a company that only focuses on advanced technological development is out of touch with the main population.The scenario in which Intel no longer has a factory in Israel is very distant, and even if it does happen, is probably several years away. But should that materialize, Intel Israel will be very different. It would likely mean that the company's 4,900 workers in Kiryat Gan would become employees of TSMC or another company that sets its sights on Intel’s manufacturing facilities. The State of Israel has so far funded Intel Israel's factory in Kiryat Gat to the tune of billions of shekels and is also at the center of its ongoing significant expansion with backing of NIS 500 million ($146.5 million). It did so with guarantees from Intel that it will keep the factory in Kiryat Gat.