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Intel Corp., the world's largest semiconductor maker, plans to build its first computer-chip manufacturing plant in China, a $2.5 billion investment that may spur rivals to follow.
Construction begins later this year and the factory will start producing chips in 2010, the Santa Clara, California-based company, Chief Executive Officer Paul Otellini said at a news conference earlier today in Beijing's Great Hall of the People.
The plant will give Intel, which has been losing market share to Advanced Micro Devices Inc., better access to computer factories in China, the world's biggest market for chips. The decision also may boost China's reputation among other chipmakers as some companies have been slow to invest on concern over intellectual-property theft, analysts say.
``This definitely helps to improve China's position from a global perspective,'' said Jim McGregor, an analyst for research company In-Stat in Scottsdale, Arizona. ``Intellectual property is probably the last major hurdle.''
Shares of Intel rose 2 cents to $19.29 at 4 p.m. New York time in Nasdaq Stock Market trading. They've dropped 4.7 percent this year.
The new factory in Dalian, a northeastern city located on a peninsula by the Yellow Sea, will be Intel's first chip factory in a new location in 15 years. Intel joins STMicroelectronics NV, Taiwan Semiconductor Manufacturing Co. and South Korea's Hynix Semiconductor Inc. in building factories in China.
Top Chip Market
China became the world's biggest chip market in 2005, after passing the Americas region. Sales of chips to the country will rise to $111 billion in 2011, from $39 billion in 2005, according to Scottsdale, Arizona-based IC Insights Inc.
Sales of Sunnyvale, California-based Advanced Micro surged 92 percent last year, according to market researcher ISuppli Corp. Intel was the only company among the world's 10 largest chipmakers to post a sales decline, according to ISuppli.
Intel ``will be bringing in fairly advanced technology to China, more than any manufacturer there has,'' said Len Jelinek, an analyst for El Segundo, California-based iSuppli. ``Once you put one manufacturer there with those capabilities, others will look at it, especially being that it's Intel.''
While the new plant is Intel's first chip-manufacturing factory in China, it has other facilities there. The company owns plants for testing and packaging chips in Shanghai and Chengdu, and research centers in Beijing and Shanghai, according to its Web site. Intel first entered the country 22 years ago and has invested $1.3 billion there.
China Investment
Round Rock, Texas-based Dell Inc., the world's second- biggest PC maker, last May opened its second factory in the southeastern city of Xiamen to make servers, storage systems, notebooks and desktop computers for customers in China, Japan, South Korea and Hong Kong.
Total foreign direct investment in China is picking up. It increased 13 percent in the first two months of the year to $9.7 billion, after rising 4.5 percent last year to $63 billion.
China's economy last year expanded 10.7 percent, the fastest pace since 1995.
The Dalian factory, which will employ 1,500 people when fully operational, will make chipsets -- the supporting semiconductors that link Intel's main product, microprocessors, to the rest of the computer.
The investment will be the largest in northeast China since the country's investment reforms in 1978, Zhang Xiaoqiang, vice chairman of China's National Development and Reform Commission, said in the statement.
The plant will use 90-nanometer technology. Nanometers, or billionths of a meter, measure the circuits of a chip. The smaller the circuits, the more advanced the semiconductor.
Getting a License
While the majority of the world's chips are made with 90- nanometer technology, it's two generations older than the equipment going into new plants in Intel's existing locations.
The reason for the lag: government regulations. Under an international agreement called the Wassenaar Arrangement, the U.S. seeks to control the export of technology that has possible military uses.
For China, the company only has a license from the U.S. to use 90-nanometer equipment. Upgrades will require additional licensing review, said Intel spokesman Chuck Mulloy.
Intel spent five years considering whether to go to China, including two years of negotiating with Chinese authorities and applying for a U.S. license, he said.
``Intellectual property is one of the most valuable assets of Intel,'' Mulloy said. ``Clearly that was a consideration, and we are confident we are able to protect it.''
Chinese Milestone
Intel typically uses its most advanced chipmaking plants for microprocessors. As those factories age, the company either upgrades the manufacturing or assigns them to the production of chipsets, which are built with older machines.
``It's a milestone for China,'' said Albert King, chief investment officer at Prophet Capital Inc. in Taipei, whose $10 million in funds includes Intel shares. ``It says to the world `we think it's very safe and we think it's about time to invest.'''
