Intel Defies Layoff Trend – Spends $7 Billion Protecting 7,000 Jobs

By Don Miller
Associate Editor
Money Morning

At a time when U.S. employers are laying off workers in record numbers, Intel Corp. (INTC) announced yesterday (Tuesday) that it would spend $7 billion over the next two years to build advanced manufacturing facilities while safeguarding 7,000 high-wage jobs.

To support the deployment of Intel's cutting-edge 32-nanometer (nm) manufacturing technology, Intel President and Chief Executive Officer Paul Otellini said the company will upgrade four existing manufacturing sites in Oregon, Arizona and New Mexico to build faster, smaller chips that consume less energy.

The new funding represents the world's biggest chipmaker's largest-ever investment for a new manufacturing process and furthers its efforts to distance itself from its would-be rivals.

We’re investing in America to keep Intel and our nation at the forefront of innovation,”  Otellini said in a speech at the Economic Club in Washington, Bloomberg News reported.

"We're investing in America to keep Intel and our nation at the forefront of innovation

Mr. Otellini's speech emphasised that Intel was intent on making major investments when most other companies were being forced to scale back.

Boldness is in Intel's DNA, as the company is known for its strategy of investing during downturns to give it leverage when economies emerge from recession. Since 2002 it has invested $50 billion in capital and research and development in the United States, where it maintains 75% of its production capacity.

Intel's latest high-performance technology - code-named "Westmere" - will be used in building chip circuitry 32 billionths of a meter across. The tiny, atomic level structures will be 71% smaller than Intel's current generation of 45 nanometer processors. The chips will also incorporate additional graphics capabilities.

"This is the level of technology where we find the sweet spot for a bunch of new markets we have been aiming ourselves at," Otellini said in an interview with Forbes. "You'll start seeing more thin and light products, Apple Air kinds of products," referring to Apple Inc.'s (AAPL) MacBook Air, the world's thinnest notebook computer which is powered by an Intel chip.

The move could help Intel grab more market share from rival Advanced Micro Devices Inc. (AMD). Intel had 82% of the market for x86 processors - the ones found in most servers, desktop computers and notebooks - in the fourth quarter of 2008, up from 76% a year earlier, according to Mercury Research. It will also help Intel's efforts to penetrate other markets such as embedded devices and cell phones.

For its part, AMD won't shift to 32-nanometer technology until the end of 2010, with volume production beginning in 2011. Although other chip makers like IBM (IBM), Samsung Electronics Company Ltd., Chartered Semiconductor Manufacturing Ltd.(ADR: CHRT ), are sharing 32-nanometer chip technology and could ramp up production as early as the second half of this year, none of them can challenge Intel for control of the PC processor market.

The move continues Intel's march to the relentless beat of Moore's Law, which says integrated computer circuits would double in performance every 24 months, coined by  co-founder, Gordon Moore in 1965. 

Intel has kept its founder's legacy intact, setting the pace by building the fastest and smallest chips since the integrated circuit board was invented in 1958.

That provides a powerful advantage to the company, as tech-savvy consumers keep buying new generations of chips to run the latest gaming and other power munching software coming to the market.

"Each time we make this kind of transition people go 'Big deal, I don't need more power,'" semiconductor industry analyst Nathan Brookwood told Forbes. "But two years later if you try to take away their newer, faster machines you'll have to pry it out of their cold, dead hands."

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