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Fab-tastic

Within mere days of each other, two of the biggest US semiconductor companies announced plans to build fabs on opposite ends of the Earth. {complink 2657|Intel Corp.} will invest between $6 billion and $8 billion across several existing US factories, along with construction of a new development fab in Oregon. Just days earlier, {complink 5703|Texas Instruments Inc.} announced the opening of its first wafer fab in China in the Chengdu High-Tech Zone, which is considered by many to be China’s next major technology hub.

Maybe it's a mere coincidence, but it's been just about 10 years since the electronics bust-boom cycle of 2000/2001. The period preceding the supply chain glut of 2001 was characterized by fab openings all over the world, positioning component makers “close to their customers.” These fabs also represented jobs for various regions, economic prosperity, and technological advancement for the invested companies.

The period following 2001 was characterized by the suspension of new fab-building, the shuttering of existing fabs, and a period of fab capacity underutilization. Executives and investors swore they would be “more cautious” next time and noted the rise of the fabless semiconductor company. Foundries such as {complink 5388|Taiwan Semiconductor Manufacturing Company (TSMC)} raked in record revenue in the years hence.

TI's and Intel's latest announcements make interesting reading. Intel's investment “reflects the next tranche of the continued advancement of Moore’s Law and a further commitment to invest in the future of Intel and America,” said Intel President and CEO Paul Otellini. “The most immediate impact of our multi-billion-dollar investment will be the thousands of jobs associated with building a new fab and upgrading four others, and the high-wage, high-tech manufacturing jobs that follow.”

Intel also noted the ongoing health of the PC industry and added that the new investments reinforce Intel’s leadership in the most advanced semiconductor manufacturing in the world. Intel’s brand-new development fab in Oregon is scheduled for R&D startup in 2013. Upgrades are also planned for a total of four factories in Arizona (known as Fab 12 and Fab 32) and Oregon (known as D1C and D1D).

TI notes its China fab puts manufacturing close to the company’s growing customer base in China. “TI has been committed to serving the China market for 25 years,” said Gregg Lowe, TI senior vice president for analog. “Increasingly, customers there are using TI’s analog chips for the real-world functions in their electronic applications. This fab in Chengdu will strengthen our ability to support customers’ growing requirements and deliver analog products when and where customers need them.” This announcement follows TI manufacturing expansions in the US, Japan, and Germany over the past 24 months.

Maybe this is just a coincidence, but at a recent gathering of supply chain executives, {complink 453|Arrow Electronics Inc.}'s former chairman and CEO, Steve Kaufman, noted he's been retired from the industry for about 10 years. His presentation to the NEDA Executive Conference was entitled “The More Things Change, the More They Stay the Same” and held that for all of the technology and forecasting available to the industry, the electronics supply chain inevitably ends up in boom-bust cycles and extreme supply/demand imbalance. In terms of better communication, demand forecasting, and manufacturing capacity management, Kaufman — now a Harvard Business School lecturer — gave the supply chain a low grade.

As 2010 closes, the promise of jobs — anywhere — is welcome, as is the implied demand for lots of PCs and chips. But a few things worry me. Wasn't the globalization of the electronics industry supposed to dispense with the need to manufacture close to your customers?

Have things really changed, or have they stayed the same?

2 comments on “Fab-tastic

  1. bolaji ojo
    October 20, 2010

    Barb, TI's plan is clear enough. They plan a new fab in China. Period. Intel's announcement, on the other hand, is full of all kinds of meanings, including the obvious political throwaway to the U.S. people who are keenly feeling the country's economic problem. Intel's plan to spend $6 billion to $8 billion on capital expenditure, including a new development fab, in the U.S is welcome news to engineers throughout the country but a breakdown of the spending shows it is not similar to spending on a new fab outright. The bulk of the money will probably go to updating existing fabs, something Intel must do or otherwise build new ones from scratch, a vastly expensive concept. It is interesting the company says it will build a “development fab” in Oregon. What exactly is a development fab and how different will it be from a manufacturing fab and how much cheaper would it be than a manufacturing fab? In some news reports, the fab is called a R&D fab. So, which will it be, development (R&D) or manufacturing fab?

    Paul Otellini, Intel's president and CEO, is injecting the company much too closely into the political events in the country. See Intel CEO Otellini: The Democrats are Destroying Our Economy. That's, of course, his right but coupled with his statements about why the company is making this latest investment, one begins to wonder what exactly Intel is driving at.

  2. Barbara Jorgensen
    October 20, 2010

    Good point about Intel and politics. My follow-up questions to that is, what do Intel shareholders think about this? We hear again and again how publicly traded companies are beholden to shareholders. OK. We accept that. But when does the kind of investment Intel is talking about cross the line between responsible investment in technology for the company's sake, and making a political statement? Are most of Intel shareholders (I am not an Intel shareholder for the record) content to take Intel's word that this is the right thing for the company?

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