Week of May 29, 2000
  Blockbuster Deal of the Week
   from Site Selection's exclusive New Plant database

Intel's $2 Billion Project in New Mexico
Only 29% of Annual Expansion Budget

Like Old Man River, Intel (www.intel.com) just keeps rolling along - though Old Man River almost certainly never had an annual capital improvement budget of US$7 billion. That's a whole different kind of New-River liquidity. Intel's got it, and it's using it.

About a third of Intel's year 2000 capital improvement budget -- $2 billion - is now targeted for a major expansion in Rio Rancho, N.M., where the semiconductor giant already employs 5,200. Left to conjecture at this point is whether Intel's latest New Mexico expansion will bring some of its previous local critics out of the woodwork.

Intel's latest billion-dollar outlay will add between 500 and 1,000 new jobs over the next three to five years. Most of the new jobs will be "technicians, engineers and support personnel," according to Intel officials.

"We expect to begin production using Intel's 0.13-micron process technology with copper metallization in 2002, with production of 300-mm. (12-inch) wafers," commented Mike Splinter, Intel senior vice president and general manager of the Technology Manufacturing Group.

County Permit Spells Out
Project's Imposing Specifics

A micron, by way of explanation, is approximately 1/100th the width of a typical human hair. And Intel's new chips in Rio Rancho will be about 13 percent the width of that. Nothing micro-sized, though, about the New Mexico expansion.

The Santa Clara, Calif.-based chip king will add 1 million sq. ft. (90,000 sq. m.) of new space; 135,000 sq. ft. (12,150 sq. m.) of that total will be dedicated to clean-room space. When the project is completed, the Rio Rancho campus will be Intel's largest factory in the world, as well as the company's technological bellwether, Intel officials explained.

Filed with Sandoval County authorities, Intel's application for a state building permit provides some of the particulars for what's now know only as the "Fab 11 Expansion." According to the application, the project will include building at least one new facility, as well as making additions to some existing facilities and making alterations or repairs to some of the company's existing space in Rio Rancho.

Intel's permit application listed the Dallas arm of Austin Commercial (www.austin-ind.com) as the contractor for the new Rio Rancho project. The Albuquerque, N.M. unit of Portland, Ore.-based Industrial Design Corp. (www.idc.ch2m.com) is also listed on the application as a company that will be doing architectural and/or engineering work on the New Mexico expansion.

Bigger Chip Cuts Per-Wafer
Manufacturing Costs by 30 Percent

Intel officials expect a major payoff from their $2 billion investment in manufacturing microprocessors on 300-mm. wafers.

The 300-mm. wafer offers 225 percent of the silicon surface area, double the amount for the 200-mm. (eight-inch) wafers currently used in many semiconductor plants. In addition, with 300-mm. chips, manufacturers get about 240 percent of the printed die (individual computer chips) per wafer.

Intel's costs advantages with 300-mm. chips are clear even to hardcore non-techies. The larger wafers will reduce the company's manufacturing costs per wafer by more than 30 percent, Intel officials explained.

"This additional manufacturing capacity [in Rio Rancho] will help us maintain our leadership in the extremely competitive world of semiconductors," Splinter said.

Intel's Broad Expansion Will Dramatically
Ramp Up Production, But Will It Calm the Critics?

In a related development half a world away, Intel revealed at a press conference that the company is launching a 933-MHz Pentium III processor. The new chips will sell for $744 each in lots of 1,000, or they can be purchased in single-unit boxed versions, company officials explained. The 933-MHz Pentium III processors provide the power for high-end desktop software for home and office use.

Speaking on the same day the stateside Rio Rancho announcement was made, Intel officials at a press conference in Taipei, Taiwan, noted that the company plans to also increase production of flash-memory ICs at its Colorado and Oregon fabs. With its fever-chart pace in fab expansion, Intel is planning over the next two years to sell 2 billion flash chips. That's twice as many flash chips as Intel has sold in all the past 12 years combined.

Stanley Huang, Intel's director of marketing and business management for Asia-Pacific region, explained in Taipei, "To generate more output, we're pouring billions of dollars into expanding our fab capacity and upgrading our process to 0.18-micron technology from 0.25-micron."

Intel's muscling up of fab capacity also seems designed to send a signal to the market analysts who've criticized the company for misreading customer demand. Intel has, in fact, miscalculated the market's microprocessor demand for the last four consecutive quarters. But almost all of Intel's competitors have also suffered with flash-IC shortages.

"There is nil balance between supply and demand," Intel president and CEO Craig Barrett commented at a press conference on the company's moves to dramatically increase chip capacity. "I . . . think the semiconductor industry as a whole under-invested in 1998 and 1999. I'd expect some shortage of components for the next 12 months or so."

(Intel made a yet another announcement at the same time the company's aforementioned strategies were disclosed. This one unveiled a pact through which Intel will provide Cable & Wireless HKT, Hong Kong's dominant telecom player, with server platforms and communications hardware and software. Intel officials explained that the alliance is designed to boost the companies' combined e-commerce efforts in Asia.)

Rio Rancho Deal Marks Digression
From Intel's Initial Expansion Plan

The announcement of the $2 billion New Mexico project also marks something of a departure from the expansion scheme that Intel had originally laid out.

Mid-April unveiled the first strong inkling of the Rio Rancho deal peeking over the horizon: "We're evaluating the New Mexico site right now," Intel Vice President and Director of Corporate Services Bill Sheppard told the Albuquerque Economic Development Corp.'s (www.abq.org) annual luncheon. "The [site selection decision] should be made later this year." Several other existing Intel sites were being considered for the expansion, said Sheppard, former manager of Intel's Sandoval County operations

Intel had previously announced that it was going to make Chandler, Ariz., the location of its first 300-mm. fab. That plan called for introducing a 200-mm.-wafer plant in Chandler, which would come online in 2001 and then be converted to 300-mm. wafers over time.

The Chandler plan remains intact, Splinter said. Nonetheless, the Rio Rancho fab will be Intel's first to be built from the ground up as a 300-mm.-wafer plant. But it won't be the first to go online with the new technology. By the time the Rio Rancho fab is launched in 2002, Intel will have already implemented next-generation fabrication technology in other operations.

Intel Drew Criticism When
Growth Overwhelmed Rio Rancho

In today's political climate, no major project with the scope of Intel's Rio Rancho expansion ever proceeds without some opposition. (In fact, it seems that no project, period, proceeds without some opposition.)

Intel was criticized in the 1980s for the incentives it received in undertaking its billion-dollar expansions in Rio Rancho. Some analysts estimate that the incentives payout for one five-year span totaled $250 million.

As of this writing, full details had not been disclosed regarding the incentives involved in Intel's latest New Mexico expansion. Bill Garcia, manager of Intel's New Mexico public relations office, commented that the company will pay for the Rio Rancho expansion by using excess bonding capacity. On the other hand, if other multimillion-dollar incentives are involved, local-area opposition may well surface.

But it wouldn't be the first nay saying that Intel has run into in New Mexico, where it began in 1980 with a modest 25-person presence.

The master-planned Rio Rancho area was overwhelmed in the late-1980s, when Intel and other area companies hit high expansion gear. Suddenly, the area was no longer a sleepy retirement haven. As well-paying jobs sprouted up, families with young children moved in. Soon, Rio Rancho desperately needed more school facilities. By 1988, the three elementary schools and one middle school were terribly overcrowded.

To make matters worse, most of Rio Rancho was then part of the Albuquerque Public School District, whose building plans weren't keeping up with the area's jackrabbit growth. The northern part of Rio Rancho, however, was served by the Jemez Valley Public Schools, a small district headquartered 40 miles (57 km.) away. The Jemez Valley system did eventually build an elementary school and a middle school facility in Rio Rancho. But they were composed entirely of portable buildings.

Given that scenario, the less-than-friendly feelings many area residents had toward growth were certainly understandable.

And some of those feelings endure in some area advocacy groups. One of those groups is the Albuquerque-based Southwest Organizing Project (SWOP). SWOP has funded the publishing of a published a book, "Intel Inside New Mexico: The High Cost of High Tech." The book, which WOP offers for sale, is highly critical of Intel.

Current Scenario Notably Different,
Due in Part to Intel's $30 Million Gift

Some things, however, have changed substantially since the area was overwhelmed by growth in the 1980s.

As for Intel, it certainly owned up to how its giant facilities, however inadvertently, had contributed to the area's sudden, choking congestion. And it owned up with its wallet in a major way: The company ponied up $30 million to build a high school for Rio Rancho, which by then had its own school district. The city's first high school opened in 1997, shortly after the openings of a new elementary schools and two new middle schools.

Intel continues to make millions of dollars in annual contributions to civic and educational groups in the Rio Rancho area. Its employees also put in thousands of hours of volunteer work. Another big difference between the current scenario and the 1980s is the area's established rank as a high-tech hotspot. A Milken Institute report recently ranked Albuquerque seventh among 315 U.S. metro areas for high-tech attractiveness. And the study ranked the Albuquerque metro (which includes Rio Rancho) first for high-tech growth.

Intel's economic contributions are now also more widely recognized. State officials estimate that the company contributes $25 million a year in gross receipts revenues. That's a considerable one-company chunk of New Mexico's annual state budget of some $2 billion. And that $25 billion doesn't take into account the revenues that the state receives from taxes on Intel employees and on the large number of related operations that have moved to the state to be near Intel.

In addition, Intel over the course of its new expansion is expected to spend some $250 million on local purchases, according to local and state officials' estimates. New Mexico's Gov. Gary Johnson's comments on Intel's Rio Rancho decision suggested that state politicos know the economic impact of what's going on inside their borders. "We're looking at a $2 billion expansion," said Johnson. "I mean that is really kind of unfathomable. This is very, very significant."

A reasonable man, then, might think that there would be precious little "double, bubble, toil and trouble" over Intel's new billion-dollar outlay in New Mexico. At most, a tempest in a teapot would be more likely, our reasonable man would imagine. Our reasonable man, though, could turn out to be dead wrong. After all, how many of us saw the WTO-Seattle debacle coming? Precious few, we're betting. We didn't.

©2000 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.