Exclusive: Israeli chips sales to China increase as Intel grows

By Tova Cohen and Steven Scheer

TEL AVIV (Reuters) – Israeli computer chip exports to China skyrocketed last year, as Chinese companies bought more semiconductors manufactured at Intel's Kiryat Gat plant. .

A senior official at the Israeli Export Institute told Reuters that new data showed that semiconductor exports to China jumped 80 percent last year to $ 2.6 billion. , 96 billion pounds). An industry source told Reuters that Intel Israel accounted for at least 80% of those sales.

The data will be good news for the Israeli government, which is seeking to tighten its ties with China and because semiconductors accounted for $ 3.9 billion of total goods exports in 2018, according to the institute, a government agency.

Both countries have begun to negotiate a trade agreement and technology should be an important part of the discussions. Overall exports of Israeli goods to China, excluding diamonds, rose 50 percent to $ 4.7 billion, according to statistics.

Intel announced a $ 5 billion investment to increase the capacity of its Kiryat Gat plant in southern Israel in 2017, making it one of the smallest and fastest chips in the world.

That year, she also bought Israeli chip and technology company Mobileye for $ 15 billion. He said this year that he would invest $ 11 billion in a new Israeli factory.

An Intel spokesman said the company had exported $ 3.9 billion worth of goods from Israel last year, compared to $ 3.6 billion in 2017. He refused to give more details about Intel's operations in Israel.

The Chinese authorities said they planned to develop a national chip market, as Chinese companies imported $ 270 billion worth of semiconductors each year. Israel has a reputation for exporting high-end chips.

The Israeli Institute of exports also said that sales to China of control equipment for semiconductor manufacturing had jumped 64% to $ 450 million last year.

This equipment is used to control and inspect the manufacturing processes in semiconductor factories and is useful for China as the manufacture of its chips in the country increases.

Israeli companies manufacturing such equipment include Orbotech, which has just been acquired by another semiconductor equipment manufacturer, KLA-Tencor, California, for approximately $ 3.4 billion.

This deal was announced a year ago but was blocked by Chinese regulators, who gave their approval only in February.

PIVOT IN ASIA

China is now the second largest goods export market in Israel after the United States, having surpbaded Britain last year.

Semiconductor sales in the United States fell 20% to $ 860 million, contributing to a 3% decline in exports of goods. But at $ 10.9 billion, overall exports of goods remain lower than those to China.

Israel has pivoted its economy towards Asia in recent years because of perceived political hostility in some European countries and the fact that Asian markets are growing rapidly.

In recent years, China-based airlines have begun offering direct flights to Tel Aviv. Both countries have signed a visa agreement and are working on this trade agreement. Israel is also negotiating free trade agreements with Vietnam and South Korea.

Some badysts in China expect that relations will strengthen because of the trade war between the United States, major chip producer, and China.

"Because of the trade war, cooperation between China and Israel is narrower than before," said Gu Wenjun, chief badyst at ICWise, a semiconductor consulting firm based in Shanghai.

"Israel has technology and China has the market – the space for cooperation is great."

Eyal Waldman, founder and CEO of the Israeli chip maker Mellanox, said his company was taking advantage of Chinese politics.

"In China, they prefer to use Chinese silicon, then after this non-US silicon and only if they do not have it, we take advantage of it," he told Reuters.

"We are seeing better growth in China."

Mellanox has agreed this week to sell to Nvidia Corp, a chip maker based in California, for nearly $ 7 billion. Intel lost the auction war to Nvidia. Russell Ellwanger, CEO of another major chip maker, TowerJazz, said that his company's growth in China "is very, very strong".

(Additional reports by Josh Horwitz in Shanghai and Stephen Nellis in San Francisco, edited by Anna Willard)