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Intel to spend $7bn to upgrade US factories

Setting an investment example for Washington

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Intel's president and chief executive officer, Paul Otellini, was at the Economic Club in Washington DC this morning as the Senate, the House, and the White House are arguing about what kinds of investments to make in the US economy.

Otellini announced that despite Intel's economic woes as the PC and server businesses slow, it would be spending $7bn over the next two years to upgrade its chip factories in the States. If Intel can do it, Uncle Sam can.

Intel's announcement was also a reason to do a little flag-waving, as President Obama is on a mission to create or preserve 4m American jobs with an economic stimulus package bill he had hoped to sign into law before the upcoming President's Day holiday.

"We're investing in America to keep Intel and our nation at the forefront of innovation," Otellini explained in a statement announcing Intel's capital investment plans for its factories. "These manufacturing facilities will produce the most advanced computing technology in the world. The capabilities of our 32nm factories are truly extraordinary, and the chips they produce will become the basic building blocks of the digital world, generating economic returns far beyond our industry."

Intel said that it would be spending that dough in its factories in Oregon, Arizona, and New Mexico, which currently have 7,000 "high-wage, high-skill" jobs and which are a key part of Intel's 45,000 workforce based in the United States. Of course, Intel announced only two weeks ago that it was closing down five plants worldwide and laying off between 5,000 and 6,000 employees, including wafer fabrication facilities in Oregon and California as well as chip assembly plants in Malaysia and the Philippines. Intel has not said how many US jobs are in that round of layoffs.

The company has also announced it will shut down its Shanghai chip plant, which employs 2,000 people, and move those jobs to a cheaper industrial zone in China.

To help cut costs in the wake of its $8.2bn in sales in the fourth quarter, where sales were down 19 per cent but net income plummeted by 90 per cent to of $234m, Intel has been cutting spending and trying to reduce its 84,000 global workforce. Yesterday, Intel announced that it was canceling its IDF Taipei conference and cutting back its IDF Beijing conference to a single day and focusing only on local vendors. While IDF is not as costly as other things that Intel does, with companies cutting travel budgets and business weak, those who might have attended these events have their own issues to wrestle with at this point, so attendance is probably going to be low anyway.

In any event, Otellini's statement from Washington was keen to remind everyone - and particularly the Congress members from Oregon, Arizona, New Mexico, and California - that Intel is one of the big American companies that exports a lot of products and creates US jobs. Intel says that 75 per cent of its sales are to overseas customers, while 75 per cent of its semiconductor manufacturing capacity and about 75 per cent of its research and development spending is done in America.

While this is a good story, and better than it might otherwise be from an American perspective, what it really shows is that Intel is a manufacturer that, for now, can make a buck by making chips in the US, while the US-based computer companies that use Intel's products have long since had to outsource and offshore manufacturing just to stay in business.

In related news, Intel said that the ramp on its 32 nanometer chip making processes was proceeding ahead of schedule, and that the "Westmere" 32 nanometer rev on the "Nehalem" desktop and laptop chips that has graphics processing integrated into the chip complex. "Outstanding 32nm manufacturing and product health are enabling Intel to accelerate the Westmere production ramp beginning in 2009. Additional 32nm products will follow in 2010," Intel said in the statement.

Intel will be demonstrating the first fully functional Westmere part later today at an event in San Francisco. ®

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