Intel to Spend $2 Billion for Chip Factory Upgrade

In a significant expansion of its manufacturing capabilities, Intel Corp. said Tuesday that it will spend $2 billion to upgrade its computer chip factory in Arizona despite deep uncertainties over the direction of the semiconductor market.

Intel, the world’s largest chip producer, said its Chandler, Ariz., plant will be retrofitted to produce chips on 300-millimeter wafers, which are about 12 inches in diameter. The plant now uses 200-millimeter wafers.

Only a handful of companies are able to manufacture chips on the larger wafers, which can pack more than twice as many chips onto a single disk. Intel won’t say how many chips it can make on one wafer, citing competitive reasons.

The semiconductor industry is coming out of its worst recession in history, with worldwide sales plunging 32% in 2001 and growing only 1.3% last year.

But recent forecasts for 2003 have been optimistic.

Gartner Dataquest, a tech market research firm, said Tuesday that it expects sales of personal computers to rise 7.9% this year. The Semiconductor Industry Assn. predicted earlier this month that global chip sales will rise 19.8% this year.

With companies expected to spend more this year on information technology, “stronger growth going forward requires that we have the capacity and the technology to meet that growth,” Craig Barrett, chief executive of the Santa Clara, Calif., company, said at a convention here for firms that develop products based on Intel chips.

The Arizona “fab,” as chip factories are known, will be Intel’s fifth 300-millimeter facility.

“This technology greatly improves our capital efficiency by giving us more than twice the capacity at significantly lower costs,” said Bob Baker, head of Intel’s Technology and Manufacturing Group. “By reusing an existing 200-millimeter factory we save additional capital and take advantage of the highly skilled workforce we already have in place.”

The conversion will begin in the first half of 2004, with production beginning in late 2005.

Shares of Intel were up 56 cents to $16.71 in Nasdaq trading.