As PC Sales Drop, Intel Delays A Plant Opening And Cuts Jobs
Monday, January 27, 2014
As far as factories go, this one was about as ballyhooed as they come. In 2012, President Obama visited Intel's Ocotillo campus in suburban Phoenix, the day after his State of the Union address.
Obama stood beneath a towering crane at the construction site -- a crane so big it could lift 4,000 tons. The president then boasted that Intel's $5 billion factory, known as Fab 42, would someday crank out even more high-powered computer chips for laptops and phones.
"The factory that's being built behind me is an example of an America that's within our reach -- an America that attracts the next generation of good manufacturing jobs," Obama said.
What a difference two years make. That multibillion-dollar factory Obama was raving about is finished, but there's nothing happening inside it.
Earlier this month, Intel announced it would delay opening the factory in Chandler, Ariz. A few days later, the computer-chip maker said it would cut more than 5,000 jobs from its global workforce.
In a statement, Intel said the new factory space would be set aside for future use. Many of the 1,000 or so jobs the project was supposed to have created have been relocated to other buildings on this sprawling industrial complex.
So what happened?
The company's stock has actually stagnated since the day Obama made his visit to Arizona. Intel hit headwinds when demand for personal computers plummeted in favor of tablets and mobile phones, says Morningstar analyst Andy Ng, who follows the semiconductor industry.
"When I think about Intel, it's a company in transition," Ng says. "When you look at what Intel was planning for Chandler, I don't think they figured that the PC market and the demand for PC processors would decline so quickly."
The problem is that 60 percent of Intel's business comes from the processors inside PCs. The company said this month that revenue would be flat in 2014, a big reason for the 5 percent cut in its global workforce by the end of the year.
"Remember, this is a big organization ... so you can't just right the ship overnight," Ng says.
And some industry experts believe Intel has recognized its imbalance; Ng says it's transitioning well into the race for smartphones and tablets. He sees potential in the company's push for building cloud storage and server capacity for the crush of new mobile devices popping up around the world.
There's something else, too, says Roger Kay, president of the market intelligence company Endpoint Technologies Associates.
"There is one fork in the road for Intel that it is thinking about going down -- and that is becoming a foundry, or making parts for other companies," Kay says.
He says Intel has the industry's most advanced manufacturing techniques, and smaller chip designers would pay to fill some of the empty factory space in Arizona. Still, Kay says this potential doesn't completely take the sting out of Intel's recent trouble.
"I imagine that neither Obama nor Intel would like to be reminded of that day when they proclaimed the factory the greatest thing since sliced bread for the American public," Kay says. "It's true it's kind of a setback."
For its part, Intel won't say when it plans to remove the mothballs from Fab 42. But the company does point out that a $300 million research building will open nearby within six months.
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