Israel's chip sales to China jump as Intel expands

Israel's exports of computer chips to CHINA soared last year as Chinese companies bought more semiconductors made at Intel's Kiryat Gat plant.

An official at the Israel Export Institute told Reuters that new data showed semiconductor exports to CHINA jumped 80 percent last year to 2.6 billion U.S. dollars (1.96 billion pounds). An industry source told Reuters that Intel Israel accounted for at least 80 percent of those sales.

The data will be welcome news for the Israeli government as it pushes for deeper ties with CHINA and because semiconductors accounted for 3.9 billion U.S. dollars of overall goods exports in 2018, according to the institute, a government agency.

The two countries have started negotiating a trade deal and technology is expected to be a major part of the discussions. Overall exports of Israeli goods to CHINA, excluding diamonds, rose 50 percent to 4.7 billion U.S. dollars, statistics shows.

An Intel logo is seen at the company's offices in Petah Tikva, near Tel Aviv, Israel./Reuters Photo 

Intel announced a five billion U.S. dollars investment to expand capacity in its Kiryat Gat plant in southern Israel in 2017, which makes some of the smallest and fastest chips in the world.

That year it also bought Israeli auto-focused chip and technology firm Mobileye for 15 billion U.S. dollars. It said this year it would invest 11 billion U.S. dollars in a new Israeli plant.

A spokesman for Intel said the firm exported 3.9 billion U.S. dollars worth of goods from Israel last year, up from 3.6 billion U.S. dollars in 2017. He declined to give further details of Intel's operations in Israel.

Chinese officials have said they are looking to develop a domestic chip market because Chinese companies import 270 billion U.S. dollars of semiconductors each year. Israel has a reputation for exporting high-end chips.

Israel's export institute also said sales to CHINA of inspection equipment for semiconductor manufacturing jumped 64 percent to 450 million U.S. dollars last year.

That equipment is used to control and inspect manufacturing processes in semiconductor plants and is useful for CHINA as its domestic chip manufacturing increases.

Companies in Israel making such equipment include Orbotech, which was just acquired by fellow semiconductor equipment maker KLA-Tencor of California for about 3.4 billion U.S. dollars.

That deal was announced a year ago but was held up by Chinese regulators, who only gave their approval in February.

Pivot to Asia

CHINA is now Israel's second largest export market for goods after the United States, having overtaken Britain last year.

Sales of semiconductors to the United States slipped 20 percent to 860 million U.S. dollars, contributing to a three percent drop in goods exports. But at 10.9 billion U.S. dollars, overall goods exports still dwarf those to CHINA.

Israel has been pivoting its economy toward Asia in the past few years both because of perceived political hostility in some European countries and the fact that Asian markets are growing rapidly.

In recent years, Chinese-based airlines have started direct flights to Tel Aviv, the two countries signed a visa agreement and are working on the trade deal. Israel is also in talks for free trade agreements with Vietnam and South Korea.

Some analysts in CHINA expect the ties to get stronger due to the tit-for-tat trade war between the United States, a major chip producer, and CHINA.

“Because of the trade war, CHINA and Israel's cooperation is closer than it has been before,” said Gu Wenjun, chief analyst at ICWise, a semiconductor consultancy in Shanghai.

“Israel has the technology and CHINA has the market – the space for cooperation is big.”

Eyal Waldman, founder and CEO of Israeli chipmaker Mellanox, said his company was benefiting from CHINA's policies.

“In CHINA they prefer to use Chinese silicon and then after that non-U.S. silicon and only if they don't have that then U.S. silicon, so we are benefiting from that,” he told Reuters.

“We are seeing better growth in CHINA.”

Mellanox agreed this week to sell itself to California-based chipmaker Nvidia Corp for almost seven billion U.S. dollars. Intel lost the bidding war to Nvidia.

Russell Ellwanger, the CEO of another major chip manufacturer TowerJazz, said his company's growth in CHINA “is very, very strong.”