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Intel (INTC) to Expand Production Operations in Israel

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Intel Corp (INTC - Free Report) has announced plans to strengthen and expand in Israel through production operations, according to a report by Reuters. In this regard, the company will receive approval from the authorities in Israel to invest $5 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 company’s plant in Israel will be one of the most advanced chip manufacturing facilities in the world. Following the investment, the world’s largest chipmaker will be entitled to a 700 million shekel ($185 million) grant from the Israeli government. Further, Intel will have to pay a reduced tax rate of 5% until 2027 (the standard rate of company tax in Israel in 2018 was 23%).

Per the deal, Intel will purchase a 2.1 billion shekels ($556 million) worth of Israeli products, according to the media report.  The company also intends to hire an additional 250 workers for the Fab 28 plant.

Intel’s Position in Israel

Santa Clara, CA-based Intel forayed into Israel in 1974.Notably, the company already has 11,000 employees in Israel directly. Moreover, Intel’s local team now has around 1,000 employees of Mobileye.

Notably, Intel's acquisition of Israel-based Mobileye, an autonomous vehicle technology provider is significantly positive in our view. The acquisition will help the company to rapidly penetrate the autonomous car technology market, currently dominated by the likes of NVIDIA (NVDA - Free Report) and Qualcomm (QCOM - Free Report) . With the buyout, Intel will now have access to Mobileye’s technologies related to cameras, in-car networking, sensor-chips, roadway mapping, cloud software, machine learning and data management. This will bolster its customer base going forward.

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

Bottom Line

The deal holds a lot of value for both Intel and Israel.  As 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 and give preference to Israeli workers and contractors in the plant upgrade work.

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

Zacks Rank & Another Stock to Consider

Intel currently carries a Zacks Rank #2 (Buy).

Another top-ranked stock in the broader technology sector includes Upland Software, Inc. (UPLD - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Upland Software is currently pegged at 20%.

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