Chipping Away at Intel’s Seemingly Good News

Perhaps looking for any uplifting news in dire times, some media outlets praised the chipmaker's $7 billion announcement without doing all of the m...
Sarah Johnson and Tim ReasonFebruary 11, 2009

Intel scored something of a financial public-relations coup yesterday morning, issuing a press release boasting of its plans to spend $7 billion over the next two years on three U.S. manufacturing facilities that will make faster chips and “support approximately 7,000 high-wage, high-skill jobs.”

Some news outlets were quick to jump on the announcement as a rare piece of good news in a dour economy. But, while any investment is surely good news as corporate cutbacks continue to weigh down the economy, many of the media reports published afterward may have unintentionally exaggerated the significance of Intel’s plans.

BusinessWeek‘s article, “Intel Invests in U.S.,” characterized the investment as “massive,” praising the company’s “aggressive capital investment spending” plans. The New York Times ran the news under the headline, “Despite Slump, Intel Plans Big Investment.” Other publications incorrectly reported that the company was building new plants and even adding new jobs.

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In fact, Intel will retool existing plants to make a new type of chip, and won’t create any new jobs. Intel’s total capital spending for 2009 actually will be flat or slightly below its 2008 expenditure of $5.2 billion. The company’s investment in property, plant, and equipment has hovered around the $5 billion mark since 2005, when it spent $5.9 billion. In 2007, it spent $5 billion.

The Intel statement said the company was spending the $7 billion “to build advanced manufacturing facilities in the United States,” but many media reports appeared to overlook another line in the same statement explaining that the investment “will be made at existing manufacturing sites in Oregon, Arizona, and New Mexico.” Intel spokesman Tom Beermann told the retooling is a substantial change, and that “the outside walls will be the only thing that will stay the same.”

Intel says the upgrades represent its “largest-ever investment” for a new manufacturing process. In the upgraded facilities, the company will begin making 32-nanometer chips later this year. These chips are smaller, faster, and use less energy, the company said.

The retooling will also give Intel, whose revenues fell 23 percent last quarter, a large depreciation expense over the next several years. That, in turn, could help the company lower its tax bill substantially when the economy, and Intel’s own revenues, recover. It also was not clear from Intel’s announcement how it planned to spread the $7 billion over the next two years, which may provide the company with additional flexibility in reducing earnings before interest and taxes.

Beermann explained that the move will preserve 7,000 jobs, not create them. While Intel could potentially hire new employees to work in the upgraded facilities down the road, the company has no plans to do so in the near future. The investment reflects “primarily job preservation,” Beermann says. In fact, just two weeks ago, the company said 5,000 to 6,000 jobs would be eliminated or relocated after closing or stopping production at five plants, two of them in the U.S.

Much of yesterday’s praise for Intel’s investment was, in fact, aimed at the size of the investment being made specifically in the U.S. At a speech at the Economic Club in Washington D.C. Tuesday morning, Intel CEO Paul Otellini reminded the attendees that Intel builds 75 percent of its products in the United States, where it employs half of its 45,000 workers. “I am pleased to announce our intention to stamp the words ‘Made in America” on even more Intel products in the months and years to come,” Otellini said, according to prepared remarks provided to

His speech came on the heels of a press conference in which President Obama promoted a stimulus plan aimed at stemming further job loss. Otellini encouraged other companies to make similar investments as Intel’s to spur the economy.