By David Rosenberg

Tel Aviv, Israel

In Israel's high tech economy, the local operations of Intel Corp. stand out as a kind of high tech economy all of its own.

The world's biggest maker of computer chips has been operating in Israel for four decades, long before many of the country's start-up entrepreneurs were born. It has four research and development centers that have produced some of the company's best-selling products and, in contrast to most of the technology multinationals present in Israel, also manufactures products in plants in Kiryat Gat and Jerusalem.

With nearly 8,000 people on its payroll, it is the largest private sector employer in Israel, accounting for 10 percent of all the jobs in Israel's total electronics and software industry. Last year, its exports reached $2.2 billion, making it the country's biggest single exporter of high technology. It even acts as a venture capitalist.

In 2011 Intel's Israel operations marked a new milestone by both developing and producing a product entirely inside the country.

"Today Intel Israel is at the core of the global company, with a central role in developing new products like Sandy Bridge and the Ivy Bridge. We ourselves are in sync for the first time, with a product both designed and produced in Israel," Maxine Fassberg, an Intel vice president and general manager for Israel, told The Media Line on the sidelines of a news conference on Sunday to discuss the company's 2011.

Sandy Bridge, the code name for the Intel Second-General Core chip, was mainly developed in Israel and is now produced there. The chip, whose original name "Gesher" ("bridge" in Hebrew) was dropped to avoid associating it with a defunct Israeli political party, uses less power and offers integrated graphics. It will be superseded in the next month or so by Ivy Bridge, the development of which Israel Intel also played a central role,

When it was launched last year, Sandy Bridge became the global company's fastest-selling product ever, with sales of more than 100 million processors. All told, products developed in Israel accounted for 40 percent of worldwide sales for Intel last year, said Muli Eden, who arrived in Israel last week to take up the post of Intel Israel president alongside Fassberg.

Eden had managed Intel Israel's Haifa R&D center a decade ago before going to the U.S. He and Fassberg defended Intel's controversial decision to put two people in charge of local operations, saying their task was to increase the company's business in Israel and pointing to other country units with two chief executives.

Intel's exports were actually down in 2011 from the year before, when they reached $2.7 billion. But Fassberg and other Intel executives attributed the decline to the retooling of the Kiryat Gat fabrication facility so it can manufacture next-generation products. That has constrained production, but the retooling is slated to be completed in the first part of 2012.

Nevertheless, 2011 was a year of expansion for the company, executives said. The local Intel operation hired 700 new employees during the year and expects to hire 600 more in 2012. It invested $3 billion upgrading its Kiryat Gat plant to 22-nanometer technology, bringing total investment by the company in Israel to almost $9.5 billion.

The Israeli government has contributed $1.38 billion to subsidize Intel's Israeli investment, which has been a point of controversy over the years. Critics say there is no reason for taxpayers to be subsidizing a wealthy multinational, but Intel and its defenders have responded by asserting that the company pays back the aid in benefits to the broad economy.

In any case, said Fassberg, Intel relies less and less on government grants, with state aid accounting for 7 percent of the total last year.

Total exports by Intel from Israel since 1999 have reached $22.4 billion. Last year as it was re-tooling in Kiryat Gat, Intel made purchases of $628 million in Israel - everything from production equipment to lunchroom napkins - and contributed indirectly as much as $4.5 billion to the economy. The U.S. company has invested in 64 start-ups since 1998.

"Israel is the No.3 foreign country in the world in terms of Intel's investments. After the U.S., China, India, its Israel. Intel invests more in Israel than in Europe," said Oren Reiss, the outgoing general manager of the Kiryat Gat plant.

Additionally, ex-Intel employees have formed about 20 start-up companies every year since 2006, creating about 250 workplaces. "We regard ourselves as a school for the Israeli industry," Fassberg said.

Intel not only benefits from Israel's high technology prowess, it shares the same security threats as the rest of the country. Its Kiryat Gat plant - known as Fab 28 in the Intel universe - is less than 30 kilometers (19 miles) from the Gaza Strip.

In a four-day exchange of fire last week between Palestinian militants based in Gaza and the Israel Defense Forces, Israelis in the country's south were forced to scurry to bomb shelters and rockets landed as close as Gadera, which is further north of Gaza than the Intel facility. The Kiryat Gat plant did not halt production.

Nor has it any time since Dov Frohman, the Israeli Intel executive who returned home from the company's Santa Clara, California, headquarters, to set up Intel's first R&D unit in Israel in 1974. During the First Gulf War in 1991, when Israel was bombarded by Iraq missiles and Intel' s Jerusalem plant was a major source of the then best-selling 386 chip, Frohman promised no delays.

"I said the same thing when there were issues in the north and when there were issues in the south, and I say the same thing now," Fassberg said. "In the 40 years that Intel has been in Israel we have never missed a delivery of a product or a design even though we've been in many, many cycles of geopolitical instability."


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Intel Builds High-Tech Empire in Israel | Global Viewpoint