Intel may have little choice in big manufacturing bet

Fri Jan 18, 2013 4:22pm EST
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By Noel Randewich

SAN FRANCISCO (Reuters) - Intel Corp's decision to spend $13 billion in 2013 to develop and build future manufacturing technology has not gone down well on Wall Street but it may be necessary if it wants to stay on top of rivals in coming years.

The top chipmaker's shares slumped nearly 7 percent on Friday, a day after executives said the company would increase 2013 capital spending from an already dizzying $11 billion.

Some analysts decried the move, saying adding new capacity should be far from Intel's mind in a waning personal computer market. Increased spending may further pressure margins and leave Intel with even more idle capacity if PC sales keep falling.

But others believe that Intel's top priority must be maintaining its technological edge, a costly but necessary endeavor that may even pay off in the long run with market share gains. Moving up the technology ladder can also deliver cost savings, helping safeguarding Intel's margins as it tries to catch up to rivals in smartphones and tablets.

"That's the bet they're making and they're all in," said Sanford Bernstein analyst Stacy Rasgon. "If you stop, TSMC and Samsung close the gap - and you're toast."

Of Intel's $13 billion capex this year, $2 billion will go toward expanding a fabrication plant, or fab, in Oregon where engineers will work on a long-term plan to manufacture microchips on silicon wafers measuring 450 mm - about the size of a large pizza.

The other $11 billion goes toward more immediate improvements in Intel's manufacturing technology, letting it build chips over the next two or three years with features measuring just 14 nanometers, and then 10 nm. The narrower the features, the more transistors can fit on a single chip, improving performance.

The newest fabs currently use 300 mm wafers, about the size of a vinyl record. Moving up in size will make room for more than twice as many chips to be etched on each, leading to cost savings.   Continued...

Showgoers visit the Intel booth on the first day of the Consumer Electronics Show (CES) in Las Vegas January 8, 2013. REUTERS/Rick Wilking