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Exclusive: Israel’s chip sales to China jump as Intel expands

TEL AVIV (Reuters) – Israel is the export of computer chips to China rose last year when Chinese companies bought more semiconductors made on Intel’s Kiryat Gat plant.

FILE PHOTO: Intel logo is seen behind LED lighting in this image is 5 January 2018. REUTERS/dado Ruvic/Image/File Photo

An official of the israeli Export Institute, told Reuters that new data showed semiconductor exports to China jumped 80 percent last year to $2.6 billion. A source told Reuters that Intel Israel accounted for at least 80 percent of the revenue.

The data will be welcome news for the Israeli government as it pushes for deeper ties with China, and as semiconductor for $3.9 billion of total exports of goods in 2018, according to the institute, a government agency.

The two countries have started negotiations on a trade agreement, and the technology is expected to be a large part of the discussions. The total export of Israeli goods to China, excluding diamonds, rose by 50 percent to $4.7 billion, statistics.

Intel announced a $5 billion 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 also purchased the Israeli car-focused chip and technology company Mobileye for $15 billion. It said that this year it would invest $11 billion in a new Israeli plant.

A spokesman for Intel said the company exported $3.9 billion worth of goods from Israel last year, an increase of $3.6 billion in 2017. He declined to give further details of Intel’s operations in Israel.

Chinese officials have said that they are looking to develop a domestic chip market because Chinese companies importing $270 billion of semiconductors per year. Israel has a reputation for exporting high-end chips.

Israel export institute also said that the sale to China of the inspection equipment for the production of semiconductors jumped 64 percent to $450 million last year.

That the equipment is used for control and monitor of production processes in the semiconductor plants, and is useful for China, as the domestic chip production increases.

Companies in Israel such equipment Orbotech, which was just acquired by fellow semiconductor equipment maker KLA-Tencor of California for approximately $3.4 billion.

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, have surpassed Britain last year.

The sale of semiconductors for the United States slipped 20 percent to $860 million, contributing to a 3% decline in the export of goods. But at $10.9 billion, total merchandise exports still dwarf that of China.

Israel is the pivot of the economy in the direction of Asia in recent years, both because of alleged political hostility in a number of European countries and the fact that the Asian markets are growing rapidly.

In recent years, the Chinese airlines have started direct flights to Tel Aviv, the two countries signed a visa agreement and are not concerned with the trade in. Israel is also in call for free trade agreements with Vietnam and South Korea.

Some analysts in China expect the ties to get stronger by the tit-for-tat trade war between the United States, a major chip manufacturer in China.

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

“Israel has the technology and China has the market space for cooperation is great.”

Eyal Waldman, founder and CEO of Israeli chipmaker Mellanox, said that his company was taking advantage of China’s policy.

“In China they prefer to use Chinese silicon and then after that the non-AMERICAN silicon, and only if, they can’t have the former AMERICAN silicon, so we benefit from that,” he told Reuters.

“We see better growth in China.”

Mellanox agreed this week to sell itself to California-based chipmaker Nvidia Corp. for almost $7 billion. Intel lost the bidding war to Nvidia. Russell Ellwanger, the CEO of a major chip manufacturer TowerJazz, said that his company’s growth in China “is a very, very strong”.

Additional reporting by Josh Horwitz in Shanghai and Stephen Nellis in San Francisco; editing by Anna Willard

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