Intels Israel plant is chipping away at the old economy

KIRYAT GAT, Israel — Drive 15 miles southwest of the area where David slew Goliath, and an enormous complex faced in pinkish Jerusalem stone testifies to a new type of giant towering over Israel.

This is Fab 18, the plant opened last year by Santa Clara-based Intel, the world's biggest manufacturer of semiconductors. The complex sits in the industrial zone adjacent to the poor southern town of Kiryat Gat.

It is here that Israelis see the best and the worst of their country's new, technology-driven economy. Jobs have been created. But the gaps between rich and poor are widening because low-tech workers haven't been integrated into Israel's new job market.

Inside, the 75-acre facility is like a small city, complete with fitness room, infirmary and travel agency. There is almost a relaxed, California feel here that contrasts with Israel's usual bustle.

Casually dressed workers wearing bright-yellow hard hats break for coffee in the tree-lined plaza. Engineers outfitted in airtight white suits work in a sterile 30,000-square-foot "clean room" where they quietly and diligently churn out silicon wafers. The wafers contain Pentium 733 megahertz chips, which power machines across the globe.

The Israeli engineers and managers here will soon be manufacturing $3 million worth of chips each day — roughly $1 billion worth of them annually. They have been so successful that Intel announced this month it is considering an expansion project for Fab 18 involving an investment of up to $3.5 billion.

It would be the largest direct investment of foreign capital ever made in Israel, far surpassing Intel's original $1.6 billion Fab 18 investment.

While the existing plant has created more than 3,400 jobs thus far, Kiryat Gat's unemployment is still running high — 10 percent.

This leaves local politicians hard-pressed to explain why projects like Intel's are good for the community. Many residents say Intel is actually widening socioeconomic gaps in their town.

"Intel has not yet managed to change the cycle of unemployment here, since people who have been laid off from textile plants cannot retrain for high-tech," said Micha Gabay, deputy mayor of Kiryat Gat.

"But at the end of the day, Intel will be a blessing to Kiryat Gat and to the entire area. The people here do not always see the changes immediately. It takes long-term vision to see it."

In the long term, a capital infusion of the scope Intel is discussing would create at least 2,000 more jobs. It would mean that an astonishing 10 percent of Intel's current workforce would be located in the Jewish state, where it first invested in 1974.

Back then, Andrew Grove, who is now Intel's chairman, chased a promising young Israeli engineer named Dov Frohman back to Israel and set up a research and development facility in Haifa with five engineers and a $300,000 investment. In 1985, Intel built Fab 8 in Jerusalem, which now manufactures 130 products.

Today, even with Fab 18, Kiryat Gat looks as if it is situated directly on the fault line that severs Israel's old economy with its unemployed or low-paid workforce, from the new economy with its increasingly wealthy engineers, managers and high-tech entrepreneurs.

Fab 18, which sits about 30 miles southwest of Jerusalem, towers over an industrial zone of steel mills, sugar processing plants and textile plants that have shut down. The closures have taken place as companies shift manufacturing across the border to Jordan or Egypt, where labor costs are significantly cheaper. Most skilled workers and engineers here at Intel relocated to the area from other parts of the country.

Nevertheless, Intel's Israel managers say the plant serves both as tangible proof of Israel's technological prowess and as an incentive for the local community.

"We carried out this project faster, on target cost and with better yields than what is done in America," said Maxine Fassberg, Fab 18's engineering manager. Intel, she adds, is playing an important role in the community, with engineers helping the elderly and contributing to education.

Intel recently hired 73 of 75 students from Kiryat Gat who participated in an Intel-enhanced school curriculum, with stronger emphasis on physics and mathematics.

"One of the problems in a place like this is that capable youngsters tend to leave the town," Fassberg said. " A program like this helps them stay."

Some workers say Intel has changed their lives.

Yossi Gal, manager of a small manufacturing line at Fab 18 had a similar job at a nearby air-conditioning factory. He recently hired two Kiryat Gat graduates of the Intel program.

"I have gained an enormous amount personally, both from discovering a new world and seeing the differences in managerial culture," said Gal, who lives on a nearby kibbutz. "I think it has also contributed to the whole environment here, in terms of encouraging people to strive for quality and excellence."

However, the boon isn't necessarily one felt in Kiryat Gat. Of the 1,700 jobs in the Intel plant itself and another 1,700 indirect jobs created in everything from catering services to construction, the deputy mayor says only about 600 of the workers are from Kiryat Gat, a town of 52,000.

"Intel is a joke," grumbles Shuki Azoulay, 25, who worked for a company subcontracted by Intel but was laid off when the project ended.

"It has not helped improve the standard of living or the unemployment situation. It's all just public relations."

Hundreds of thousands of Israelis face similar circumstances in this high-tech era. It is also one of the biggest challenges facing Prime Minister Ehud Barak, who came to power promising to create 300,000 jobs and reduce unemployment from 9 percent.

Yet among the high-tech community, which is desperate for skilled workers, and among the low-tech job seekers desperate for a livelihood, there is a feeling that the government has no idea how to integrate workers like Azoulay into the new economy.