Intel’s excellent adventure

Intel and the China National Development and Reform Commission finally made it official – Intel is going to build a new 300-mm semiconductor manufacturing facility in Dalian, China, a city in the Northeastern region of the country.

It’s generally accepted this is a big win for China. The big questions are what this means for other semiconductor manufacturers, the rest of the world’s electronics regions, and to the industry in general?

Intel had been looking at setting up a manufacturing operation in China for more than five years. The company spent at least two years trying to convince the U.S. government that exporting its chip technology to China would pose no threat to U.S. security or heighten the trade imbalance.

The real goal of Intel’s expansion is income growth, not redistribution. This isn’t about the U.S. losing its technology edge or relocation of jobs. It’s about new business opportunities. Intel is still a U.S.-based company, but to play in a global market it needs to have a global presence.

But Intel’s move still deserves watching, for a couple of key reasons. First, Taiwanese companies such as TSMC have been exporting only mature manufacturing processes to China because of the Taiwan government’s restrictions on movement of advanced manufacturing to mainland China. Intel’s move could provide them with ammunition to force their governments to take a more relaxed policy on manufacturing expansion to China.

Second, what effect this has on salaries across the global industry remains to be seen. Intel is late to the party for cheap labor in China. Intel certainly can take advantage of the lower-cost of manufacturing for a few years, but the goal of economic development is to bring the standard of living up to the level of the next highest economy—and beyond. As that occurs, the regional cost situation will reach par with the surrounding areas.

If general economic theory is allowed to play out, the world economy should truly operate as a balanced, ‘flat’ exchange system and the welfare of all countries that participate in the open exchange should increase. So far that has never been put into practice, so it’s difficult to predict the outcome with any certainty. Tariffs, political unrest, subsidies and other interferences create imbalances in the system. And while economies based on artificial drivers often get an initial boost, if not managed correctly they also can experience an untimely plunge.

The move also bears watching to see how Intel will invest its money in the future. The new fab will increase Intel’s total investment in China to $3.8 billion. Over the past six years, Intel’s capital expenditures amounted to more than $30 billion worldwide, with the bulk or that investment in the United States. It’s about time the company started thinking like the global powerhouse it is, and developing new markets from the inside out instead of the outside in.

–Joanne Itow, Managing Director, Manufacturing, Semico Research Corp.