Intel announces $7bn investment in Arizona factory

Intel chief executive Brian Krzanich said the semiconductor maker will invest $7 billion (€6.6 billion) to finish a chip factory in Arizona, becoming the latest company to use a meeting with US president Donald Trump to tout spending and job-creation plans that were already in place.

Mr Krzanich, speaking Wednesday at the Oval Office, called the investment an expansion of Intel’s presence in Chandler that will finish a plant – already under construction – capable of advanced, 7-nanometer chip production. The Fab 42 facility will be completed in three-four years and create about 3,000 jobs, Intel said in a statement following the meeting at the White House.

The chipmaker took a page from what has become a familiar playbook for technology and other companies: making a splashy announcement on investment and job additions after a high-profile huddle with Mr Trump, who has threatened punishment for companies that shift operations overseas. Intel already builds most of its products in the US, at facilities in Oregon, Arizona and New Mexico, and part of the spending will come out of the company’s previously disclosed budget for new plants of about $12 billion this year.

This announcement tonight is probably because of the semiconductor demand we have alluded to in great detail in recent weeks, more than it is about Trumponomics

In December, IBM chief executive Ginni Rometty said she planned to hire about 25,000 people in the US and invest $1 billion over the next four years – an announcement made on the eve of a meeting of technology industry leaders with Mr Trump. The president, in the run-up to his inauguration, also sought credit for Sprint’s commitment to create to bring back 5,000 jobs that the telecommunications company said are part of broader US hiring plans previously announced by Japan-based parent SoftBank Group.

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Heavy automation

The massive facilities required to make advanced semiconductors in an economically competitive way don’t require heavy staffing. Chip plants are among the most automated factories on the planet. Their immense cost – more than $5 billion for a state of the art facility – comes from the expense of equipping them with that automation. Intel, like other chipmakers, typically locates its factories in areas where it can get tax breaks to offset some of the outlay.

“We’ve been working on this factory for several years. We’ve held off actually on doing this investment until now,” Mr Krzanich said from the Oval Office. “It’s really in support of the tax and regulatory policies that we see the administration pushing forward that really make it advantageous to do manufacturing in the US.”

The investment will also indirectly generate about 7,000 jobs in support of the facility, Intel said. The plant in Chandler, when completed, will take its place among a worldwide network of Intel factories, which are also located in Ireland, Israel and China. Intel, one of the founding companies of California’s Silicon Valley, has held onto its 15 per cent market-leading slice of the $300 billion global chip industry through outspending rivals on research, development and plants over the years.

Fab 42 has been celebrated by presidents before. In 2012, former president Barack Obama made a speech in front of the building, which was then going to benefit from $5 billion of investment.

Presaging language Mr Krzanich used in the Oval Office on Wednesday, Mr Obama called it “a factory which will turn out some of the fastest and most powerful computer chips on Earth”.

“The factory being built here behind me is an example of an America within reach,” Mr Trump’s predecessor called it at the time. “An America that attracts the next generation of manufacturing jobs.”

Chip demand

Intel’s decision to complete work on the plant now is likely based on industry dynamics. The company is under competitive pressure to move to more advanced production, and the factory was already built and just needed to be equipped.

“Now this announcement tonight is probably because of the semiconductor demand we have alluded to in great detail in recent weeks, more than it is about Trumponomics,” said Neil Campling, the London-based head of global technology, media and telecom research at Northern Trust Securities. “In this industry, talk is cheap until the production ramps.”

The California-based company has about 106,000 employees around the world, with half of them located in the US. The chipmaker’s staffing levels have stayed roughly unchanged through acquisitions. In April last year Mr Krzanich announced he would be eliminating 12,000 jobs, the company’s biggest cutbacks in a decade, prompted by slower growth amid a continuing slump in demand for personal computers, Intel’s biggest market.