Chipmaker's faith in Leixlip plant sturdy enough to keep Intel inside

NET RESULTS:Both flagship and boon to the economy, Intel has nailed its colours to Ireland's mast

AT THE start of 2009, the news out of Intel and the semiconductor industry as a whole, couldn’t have been more dismal.

Through most of 2008, Intel had said its industry was relatively unaffected by the recession but that changed in the second half of the year when sales plummeted 20 per cent and profits were down virtually to nil. The recession had struck harder and more broadly than had been expected, and the entire industry was suffering.

As a consequence, Intel announced in January it was to shutter five of its global plants with the loss of about 6,000 jobs – a significant 7 per cent of its entire workforce.

The plants affected were two in Malaysia, one in the Philippines, one in the state of Oregon, and a facility in its home of Santa Clara in California. These, the company said, were older plants whose elimination would clamp down on oversupply. In Ireland, a collective sigh of relief went up in government and industry circles that it seemed to have escaped the worst, though later in the year the company did announce 300 jobs were to go at one of its oldest plants, Leixlip – modest compared to the 1,000-plus jobs being guillotined elsewhere.

Intel said at the time it was stripping out that aging fabrication plant and preparing for potential new manufacture, but the usual edginess crept in to commentary. Were they really just preparing for a shutdown? With the Celtic Tiger dying, would they bother to stay?

Any rumbling at Intel makes a lot of people in this State very nervous (although in some circles, hopeful glee still comes across as certain commentators get excited their predictions of a mass exodus of American multinationals is perhaps finally under way). The chipmaker is one of Ireland’s biggest employers, with over 4,000 people working in either chip manufacturing or research and development. Indirectly, Intel supports a considerable business and service ecosystem of its own. The company has always been one of the anchor tenants for Ireland’s tech sector, and its arrival here over two decades ago was symbolic of – and contributed to – nascent shifts in the Irish economy towards high-end manufacturing, production and, eventually, development in the technology sector.

Billions have gone into the economy thanks to Intel, either directly or indirectly. It is a nice shopfront to have on display for IDA Ireland when it is trying to flog Ireland as a location for foreign investment.

No doubt that’s why we get the jitters if all is not going well at Intel. But as the chip industry is deeply cyclical, with some fairly predictable peaks and troughs, maybe we should have a bit more confidence. After all, the company has kept investing in the plant and put in the needed technology for manufacturing processes for the latest chips.

True, Intel has a reputation for having little sentiment. It wouldn’t stick around if there was no business argument for doing so. From the layoffs and closures in 2009, it has shown it will take brutal action when it feels it needs to. But all the places that were shut down at the time were predictable: older plants.

Ireland has never suffered significantly when Intel has announced job cuts or facility closures over the past 20 years, a quite impressive record of stability. Not least when you consider that many of the initial attractions for Intel to come here in the 1980s vanished as costs rose, as noted by former chief executive and chairman Craig Barrett last year.

One thing that is predictable in the semiconductor industry – now the lifeblood of everything from computers and electronic gadgets to dishwashers, children’s toys, and automobile dashboards – is that if there is a trough, the industry will start to climb out of it pretty shortly.

And that’s exactly what happened, swiftly and against all expectations, in dire 2009. Within months of Intel announcing its cutbacks – and then experiencing two of the industry’s worst quarters ever – the sector was going through two of its most productive and lucrative quarters, ending the year with $235 billion in revenue.

Analysts at a semiconductor event at Intel that I attended at the start of last year predicted 2010 would be a boom year to end all boom years in semiconductors.

This was easily forgotten as the rest of the industrial world passed through an annus horribilis. But as analyst Bill McClean of IC Insights told the audience, global downturns tend to be good for the semiconductor sector: “We shouldn’t be afraid of global recessions. They create pent-up demand in any booming semiconductor market.”

Intel’s recent results for 2010 reflected those good times. Revenue for Intel alone stood at $42 billion, a 24 per cent increase on 2009 – McClean had predicted at least 15 per cent growth in 2010 with a good chance of 20-25 per cent. Intel’s recent fourth quarter was its best in its history.

The company’s joy will be shared with Ireland, it turns out, as The Irish Times last week revealed its plans for a $500 million upgrade of that empty fab in Leixlip, creating hundreds of construction and eventually manufacturing jobs, just when we need them most.

Maybe that will steady nerves a bit for a while that Intel isn’t going away any time soon.