Intel to build big chip plant in China
Intel Corp.’s plan to open a $2.5-billion microchip manufacturing plant in China marks a milestone in the Asian nation’s drive to develop a sophisticated electronics industry.
But in the United States, the project could spark concerns about technology transfer and the continued buildup of higher-end production work and jobs overseas.
In a long-awaited announcement, Intel said today that its first silicon wafer-fabrication factory in Asia, in China’s northeastern city of Dalian, would begin production in 2010 and employ about 1,500 workers when running at full steam.
“China is our fastest-growing major market, and we believe it’s critical that we invest in markets that will provide for future growth to better serve our customers,” Paul S. Otellini, Intel’s president and chief executive, said in a statement in advance of a formal announcement that he planned to make today in Beijing.
Chinese government officials hailed the news, saying it would be the largest investment in northeastern China since the nation’s economic opening nearly 30 years ago and would offer a significant boost to the country’s budding high-tech industry.
Intel, the world’s largest chip maker, said its Chinese plant would use what is currently the latest and most efficient 12-inch wafer technology in the manufacturing process.
The Santa Clara, Calif.-based company is expected to produce 65-nanometer chips in Dalian, which would lag by two generations those Intel is likely to be making at its facilities in the United States, Israel and Ireland in 2010. A nanometer is a billionth of a meter, and the measure refers to the width of the circuitry on a silicon chip.
Intel still would need approval from the U.S. Department of Commerce’s office that scrutinizes the export of technologies considered sensitive to national security.
“I believe that the matter deserves a hard look by our intelligence and security experts,” said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission in Washington. “Their review should explore not only the specific technologies that are being transferred but also how the transaction might advance Chinese R&D; efforts to move more quickly into design and advanced fabrication.”
Bill Reinsch, another member of the commission, said he saw no reason that it should be a big issue, if Intel’s Chinese facility used a trailing technology.
Opposition was more probable on commercial grounds, he suggested, given the increased economic friction between the two countries and the American public’s misgivings about the movement of jobs overseas.
It has been more than 25 years since Intel built a new chip factory from scratch in the United States. But spokesman Chuck Mulloy said the company had invested $8.5 billion in its U.S. manufacturing operations in 2005 and 2006, including its chip plants in Oregon, Arizona and New Mexico.
“For us, it is not a zero-sum game,” he said.
Intel’s announcement comes as more high-tech companies are beefing up operations in China to take advantage of the nation’s extensive manufacturing capabilities and booming consumer market.
Dell Inc. said last week that it was launching a low-cost personal computer tailored to China, where PC sales surged more than 20% last year. The chips Intel made in Dalian would be used for computers and possibly mobile devices.
Intel said it had already spent more than $1.3 billion in China for research and development and for chip assembly and testing facilities in Shanghai and the southwestern city of Chengdu.
In picking Dalian, a port city about 290 miles east of Beijing, Intel passed up other Chinese manufacturing hubs such as Shenzhen and Suzhou, as well as more developed Asian countries like Singapore and Malaysia -- underscoring China’s predominant economic role in the region.
Chinese and Western analysts said Intel almost certainly received substantial tax and other incentives from Dalian officials to locate there.
China’s central government has been trying to revitalize the country’s northeast region, a one-time industrial stronghold that has trailed the coast in economic development.
“The favors Intel wants to win from the government are no other than tax, capital and market access,” said Li Ke, a director at the China Semiconductor Industry Assn. “By investing in Dalian, Intel’s products can be treated as domestic products and thus be on the list of government purchases.”
Plans call for Intel to develop a 1.7-million-square-foot campus in a special technical zone in Dalian, giving the company space to build a second wafer fabrication plant, or “fab” in industry parlance.
Greater Dalian has a population of about 6 million and a growing pool of technically skilled labor. The city has a budding software industry, and Japanese electronics makers such as Toshiba Corp. and TDK Corp. have set up factories there.
Labor, however, generally accounts for less than 10% of overall costs at fabs, with utilities, equipment and land consuming much of the expenses.
China is pushing hard to move up the value chain in manufacturing and already has more than 40 chip fabs in the country.
But only two companies -- Shanghai-based Semiconductor Manufacturing International Corp. and Seoul-based Hynix Semiconductor -- are producing 90-nanometer chips in China, which is currently a generation behind Intel’s. The rest are even further behind.
With Intel’s move into Dalian, analysts said, other fabs would probably be built in the area. It is also likely to spur investment in China by chip-making equipment companies and suppliers.
For Intel, one risk in setting up a fab in China is the security of its intellectual property. Investing in Asia’s growing market is likely to help Intel’s financial performance, analysts said, but it could also hurt the company’s long-term competitive position if its technology is infringed.
“Intel feels the infrastructure and IP protection is secure enough” to make such an investment, said Dean Freeman, vice president of research at Gartner Dataquest. “But there are still IP issues.”
