T

rying to build a new processor fab is not always a fab process. Just ask Intel Corp. With its July 25 announcement of a US$3-billion wafer fabrication facility to be built at its complex in Chandler, Ariz.,

	STILL A GOOD DEAL: Earlier this year, Intel President and CEO Paul Otellini (right) told Congress that onerous business climate conditions made building a fab in the U.S. at least $1 billion more costly than overseas locations. Nevertheless, Intel's Ocotillo campus in Chandler, Ariz., is seeing two multibillion-dollar projects unfold at once on its still roomy parcel.

Intel completed the latest round in a global superproject sweepstakes that involved EU withholding of incentives that Ireland felt free to give, Congressional testimony by CEO Paul Otellini about exorbitant costs in the U.S. and what looked like a premature announcement of a separate $4-billion, 2,000-employee project in Israel by none other than Israeli Prime Minister Ariel Sharon.
    But when you already own tens of millions of very valuable square feet and your next project has "billions" in its price tag, all the trappings of an international incident are already present.

   Get ready to add at least another 1 million sq. ft. (92,900 sq. m.) to the portfolio. That's what they're already building on the company's Ocotillo campus in Chandler, even if Otellini's testimony that a U.S. site costs $1 billion more rings true.
   Approximately 1,000 new workers will fill it, and some 3,000 will be employed during its construction. Production at the 300-mm. wafer factory is set to begin during the second half of 2007.
   Intel Arizona Public Affairs Manager Jeanne Forbis says Otellini's comments were in a strategic context. "However, Intel continues to be concerned about the tax structure in the United States," she tells Site Selection. Nevertheless, another federal policy — the 2004 American Job Creation Act — helped to counter those concerns, because it allows companies like Intel to repatriate certain cash earned offshore.
   "We are still evaluating how much cash we might repatriate and how we would use that cash," says Forbis. "This project is under consideration as a potential candidate for this money."
   "For Intel, manufacturing is a key competitive advantage that serves as the underpinning for our business and allows us to provide customers with leading-edge products in high volume," said Otellini at the announcement. "The unmatched scope and scale of our investments in manufacturing help Intel maintain industry leadership and drive innovation."
   The size graduation to the 300-mm. standard allows semiconductor manufacturers to use 225 percent more surface area to make nearly two and a half times more chips, while simultaneously decreasing energy and water usage by 40 percent.
   Fab 32 will be the company's sixth 300-mm. wafer facility. Four of them are in Oregon, Ireland and New Mexico, churning out the equivalent of eight 200-mm fabs. Others under construction in Arizona (Fab 12) and in Ireland (Fab 24-2) will come on line late this year and early next year, respectively. The upgrade of Fab 12 in Chandler is a $2-billion project. The Irish project was due to receive more than $120 million in grants from the Irish government, but the European Union disallowed the measure based on the lack of new job creation and technology transfer, and the reinforcement it would lend to the company's European dominance. Another planning application for Kildare is on the table, however.

   The lack of job creation was one reason Israel recently rejected a grant request from Intel for an upgrade of its Fab 18 in the Kiryat Gat industrial zone. But the country may be getting its mega-project from Intel anyway, with that upgrade tossed in for good measure.
   Reports from Israeli media and the country's Investment Promotion Center indicate that the company might be following its pattern of siting plants in pairs, and is indeed committed to building a new chip fab (Fab 28) on a 175-acre (71-hectare) parcel adjacent to its existing facility, despite the company's initial public demurral on the topic.
   Prime Minister Sharon mentioned the promise of the plant (made by Intel Chairman Craig Barrett in a phone conversation) again in a speech celebrating the establishment of Celcom in the city of Netanya.
   According to those reports, the company would be in line, pending approval, to receive a $525-million grant from the Industrial Development Bank of Israel. Intel received a $580-million grant for its first fab, which was shown to generate more than $801 million in added value within the first six years. A viability study for the grant is expected to be complete by the end of the year — a pace a bit more methodical than the frequent rush to special legislation that takes place stateside.
   That same investment promotion center recently rejected a grant request from Intel related to a $660-million upgrade at its existing Kiryat plant. However, according to Israeli business news publication Globes, a promise to look again at that $158-million grant is part of the incentive package for the new plant.

   Intel announced on the same day that an inactive site in New Mexico would receive a $105-million investment in order to use it over the next two years for component testing for the company's entire factory network. The company will employ 300 at the facility during that period.
   Tax changes made in both southwestern states were a strong incentive for the company. Oregon has done the same in recent months too, in hopes of luring the latest pot of gold. Approximately 15,500 people work at the company's seven campuses there, while 9,000 work for Intel in Arizona.
   In May of this year, local county and city officials in Oregon approved property tax exemptions on Intel property in the state that amounted to a value of $25 billion.
   Arizona, meanwhile, putting a significant dent in its future coffers, offered new legislation that same month that would offer companies significant state income tax savings if they made an investment of $1 billion or more in a new project, allowing them to calculate taxes based purely upon in-state sales.
   Not exactly designed for Bob and Shirley's Paint Store, though another property tax reduction was also passed to the benefit of the more general business populace.
   Then again, Bob and Shirley might see a spike in sales. Gov. Janet Napolitano said as much in an open letter to her constituents after the project announcement.
   "More people working in Arizona means these people will need homes to live in, restaurants to eat in, retail stores to shop in and schools for their children to attend," she wrote, citing an estimate that each Intel job creates 2.5 more jobs to support the growing community. She gave large credit to the tax measure as a turning point that allowed Arizona to win out over Oregon, Ireland and India. So does Intel's Jeanne Forbis.
   "The decision to build Fab 32 in Arizona was not an easy one," she says. "The decision was made easier because of tax reform recently implemented in Arizona."
   According to an October 2004 report from the Center for Business Research at Arizona State University, Intel's current presence in Arizona has a $2.6 billion annual impact on the state's economy and supports 27,680 indirect Arizona jobs. Among the impact's components are approximately $50 million in taxes still paid each year by the company, $87.5 million in employee taxes and $276 million in goods and services purchased from Arizona-based businesses.
   According to an updated preliminary site development plan put before the Arizona community in April 2005, the future may be even brighter for Arizona. It includes the possibility — in addition to Fab 32 — of yet another fab along the west side of the company's property.