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February 10, 2009

Intel Buys American

Michael Feldman

Today Intel announced that over the next two years it is going to invest $7 billion in the US to bring 32nm technology to its chip manufacturing plants. Considering Congress and the Obama administration is getting ready to stimulate the economy with taxpayer money, Intel’s news is great timing.

Intel CEO Paul Otellini revealed the company’s plans at the Economic Club in Washington D.C. on Tuesday, and according to a Computerworld article, received a call from President Obama to express his appreciation for the chipmaker’s investment. According to the article, Obama let it be known that he uses an Intel-based laptop.

Spending this kind of money to get to 32nm is being done with the hope that microprocessor sales will bounce back by next year. The move will also keep the company a step ahead of AMD, which is still putting the finishing touches on its transition to 45nm technology. The Intel processors to be built on 32nm technology are codenamed “Westmere” and represent a shrink of the current 45nm “Nehalem” microarchitecture. The first Westmere chips are planned to be released toward the end of 2009.

Whether the timing of the Intel announcement was just serendipitous or was a public relations initiative to cast the multinational firm in a more patriotic light, the chipmaker did make a point to wave the flag (subtlety) in its press release:

Intel’s investment will be made at existing manufacturing sites in Oregon, Arizona and New Mexico and will support approximately 7,000 high-wage, high-skill jobs at those locations – part of a total Intel workforce of more than 45,000 in the U.S. Intel, while generating more than 75 percent of its sales overseas, carries out roughly 75 percent of its semiconductor manufacturing in the U.S. At the same time, about 75 percent of the company’s R&D spending and capital investments are also made in the U.S.

Ironically, a couple of weeks ago Intel announced it would be laying of 6,000 workers, globally, in response to the severe downturn in the semiconductor market. Those layoffs were the result of plans to close chip assembly facilities in Malaysia and the Philippines and stop US wafer fab operations in Oregon and California.

Otellini said the $7 billion they will spend over the next two years represents Intel’s largest-ever investment for a new manufacturing process. The fact that this kind of money is required just to shrink the transistor geometries by 13 nanometers reflects the capital-intensive nature of 21st century chip making. In a sort of reverse-Moore’s-Law fashion, the cost of moving the manufacturing infrastructure to the next process node is escalating with each additional circuitry shrink. Today only large, well-capitalized firms or conglomerates of smaller firms can afford the relentless economics of semiconductor manufacturing. Last year, AMD spun off its chip fab business in an effort to keep the company financially viable.

Even the US government would have trouble bankrolling a fab these days. Considering that the Senate version of the US economic stimulus bill for the entire country allocates $17.8 billion in research and development funding (according to an independent analysis by the American Association for the Advancement of Science), the Intel investment starts to look like a one-company stimulus package. The $7 billion Intel money looms even larger when you realize that only $2.0 billion out of the $17.8 billion federal stimulus would be applied to R&D facilities and capital equipment.

While the Intel investment seems huge, only 7,000 jobs will be added as a direct consequence of the new spending. That means the company is shelling out $1 million for each additional worker. On the other hand, the 32nm chips will provide the foundation for a new generation of mobile devices, PCs, enterprise servers and supercomputers, so the investment is likely to have a multiplier effect throughout the US and global economy. And since Intel’s 22nm chips are already on the roadmap for 2011, another round of investment is just over the horizon.