Intel Corp. (Nasdaq: INTC) announced Tuesday that it would invest up to $8 billion in U.S. manufacturing with the goal of keeping its position as a semiconductor industry trailblazer and beat rivals in creating the next generation of silicon chips.
The world's biggest chipmaker will build a new factory in Oregon and upgrade four existing plants in Arizona and Oregon. The move emphasizes Intel's position as the biggest manufacturer of microprocessors and its ability to keep up with the semiconductor world's rapid and expensive pace.
The upgraded Intel plants will produce the company's most technologically advanced chips and support its move to 22-nanometer production. This next generation of chip production reduces the line widths on circuits, which lowers costs and improves capability. Currently chips are made with a 32-nanometer process.
Intel co-founder Gordon Moore famously predicted in 1965 that computer chips' performance would double every two years as improved technology allowed companies to manufacture more efficient chips, and that prices, in turn, would fall. The theory was coined Moore's Law.
Intel president and chief executive officer Paul Otellini said the announcement represented the "continued advancement of Moore's Law and a further commitment to invest in the future of Intel and America."
Intel holds about 80% of the worldwide market for PC and server microprocessors. Many of Intel's rivals struggle with the steep spending needed to succeed in the semiconductor industry. In 2009, Advanced Micro Devices Inc. (NYSE: AMD) had to spin off its factories to another company to unload debt and reduce upkeep costs.
The news came a week after Intel reported its better-than-expected third quarter earnings, with revenue rising 18% from a year earlier to $11.1 billion. Net income rose to $3 billion, or 52 cents a share, higher than the 50 cents predicted by analysts. Intel ended the quarter with more than $20 billion in cash and short-term investments.
As semiconductor companies invest more in product improvement, chip prices will fall, reducing the overall prices of end products like laptops for consumers.
Intel's investment also will bring a slight boost to weak U.S. employment rates by creating 8,000 temporary construction jobs and up to 1,000 permanent plant jobs. About 75% of Intel's chip manufacturing is done in the United States.
"We have a large manufacturing base in the U.S., it's a great asset from a hardware standpoint and the fact that the employees are highly skilled, so we're going to utilize that the best we can," Brian Krzanich, Intel General Manager of Manufacturing and Supply Chain, said on a conference call.
Intel's move to enhance its U.S. manufacturing is surprising because it has previously complained about the lack of government incentives to invest in U.S. factories instead of going overseas. CEO Otellini told the Council on Foreign Relations earlier this month that it cost $1 billion more to build and operate a plant in the United States than other countries.
Intel's last big U.S. investment was $7 billion in February 2009 to undergo 32-nanometer production. Most of its manufacturing is done in the United States, but the company generates about 75% of revenues overseas, and has facilities in Ireland and Israel and is building its first production site in China.
The new round of plant spending shows Intel is confident that it can remain a leader in computer microprocessors while also diving into other market areas. While Intel holds the biggest slice of the PC market, rival Samsung Electronics Co. is the biggest maker of memory chips used in mobile products like the iPad and iPhone – areas which Intel hopes to explore more.
Intel already has started using its chips in other consumer products like TVs as it seeks to grow its global brand even more than it has already. A recent survey by brand consulting firm Interbrand ranked the company as the seventh-best global brand – outranking clients like Apple Inc. (Nasdaq: AAPL), Hewlett-Packard Co. (NYSE: HPQ) and Dell Inc. (Nasdaq: DELL).
"Intel benefited from a unique time and place through the incredible rise of the PC," Regis McKenna, the "marketing guru of Silicon Valley," told The New York Times. "It was able to put its name out there and sort of drive the marketplace, and it took advantage of that."
Intel plans on jumping into the world of tablet computers next. Some industry experts predict tablet sales could take away from PC sales, which Otellini has said is something Intel is considering.
"At the margin, they probably will," said Otellini when he reported earnings last week. "Consumers will have a limited amount of discretionary income and some will choose to purchase a tablet instead of upgrading an existing PC or purchasing a netbook in any given period."
"At Intel, we are going to utilize all of the assets that are at our disposal to win this segment," said Otellini.
Intel stock was up 2.65% to $19.72 in afternoon trading Wednesday.
News and Related Story Links:
- Money Morning News Archive:
Intel to spend up to $8B on US manufacturing
- Financial Times:
Intel to invest up to $8bn in US manufacturing
Intel To Spend Between $6B and $8B on U.S. Factories
- The New York Times:
Intel Tries Anonymity, for a Change
- Financial Times:
Intel ready to close the gap on rivals