Lesson learned in 1990s benefits Republic in downturn as Intel's investment continues

Intel learned one key lesson from the last severe downturn in the microchip market, in the early 1990s: "Don't blink on the investment." It's a lesson that has worked to the Republic's benefit, as the giant chipmaker restarts construction on its halted $2 billion (€2.1 billion) chip fabrication plant in Leixlip, Co Kildare.

"In the early 1990s, we stopped investment", cancelling the construction of a planned fab plant, said Intel president and chief operating officer Mr Paul Otellini, on a visit to Dublin yesterday. "But the opportunity cost of not having that factory was high."

The chip industry tends to run in defined cycles. When technology markets - almost always led by the chipmakers which supply the basic building block of the whole industry, the microprocessors - hit the bottom of a downturn, the chipmakers are already gearing up production, anticipating the upswing in chip demand.

"In technology, you don't come out of downturns with your old products. You'd sure as heck better have new products," said Mr Otellini.

Demand for new products means demand for newer and faster microchips, which puts pressure on the semiconductor industry to churn out its next round of chips in advance of overall industry recovery.

Intel suffered in the early 1990s from not being able to meet the demand for its product during that upturn, giving a foot up to some of its competitors.

That harsh lesson meant the company never seriously considered pulling the new Fab 24 project out of the State, especially not after having made an initial investment in its construction, Mr Otellini said.

An Intel strategy now is always to "invest while we can, particularly while our competitors can't, and use that investment as a huge strategic investment when markets recover".

The recent downturn has been the worst in company history, he said, noting that the company was hit by a "triple whammy" - a spending slump after the corporate splurge before Y2K; the dotcom explosion, which left plenty of cheap second-hand equipment on the market; and the effects of September 11th terrorist attacks, which hit when the industry was already in a cyclical trough.

"That took a typical 10 per cent correction and turned it into a 20 per cent correction," he said.

Intel is also happy with the operation of its two existing plants here, which have the highest chip productivity level in the entire company, according to Intel Ireland general manager Mr Paul O'Hara.

"It's a very cost effective set of plants we have today; otherwise we wouldn't put a few billion dollars in here," said Mr Otellini.

Intel's existing investment in the State is valued at $3.5 billion, with an additional $2 billion coming in from the new fab. Some 3,150 people are employed by the company here, with the new fab expected to bring in another 1,000 employees.