Intel announced that it is investing $20 billion to help restore its leadership position in semiconductor manufacturing amid a worldwide shortage. The exclusive statement was confirmed by TIME.
Intel plans to build two or more semiconductor manufacturing plants on its 1000-acre campus. These facilities will be used for research and development, as well as production of the most advanced computer chips. The site will also house at least 3000 people. According to the company, construction should begin in this year. The plant is expected to be up and running by 2025.
Intel’s announcement is the largest private-sector investment in Ohio history and a bright spot in what has been a dismal few decades for manufacturing in Ohio and the Midwest. General Motors and other big employers laid off many workers as their factory jobs were relocated overseas or to the U.S. South. Ohio, however, is trying to make a comeback in manufacturing. Automation drives productivity in factories and creates technical jobs rather than production-line positions.
“Our expectation is that this becomes the largest silicon manufacturing location on the planet,” Intel CEO Pat Gelsinger told TIME; the company has the option to eventually expand to 2,000 acres and up to eight fabs. “We helped to establish the Silicon Valley,” he said. “Now we’re going to do the Silicon Heartland.”
This announcement is made amid a drive to boost domestic production of semiconductors. The Semiconductor industry association (SIA) says that the U.S.’s share of chip production has dropped to 12% partly because other countries have offered huge incentives to help jumpstart the manufacturing process. Over the last year, booming demand combined with supply chain problems led to shortages in semiconductors. This caused entire industries such as auto manufacturing to be crippled.
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According to the SIA, Semiconductor manufacturing in America has experienced slower growth than elsewhere in the world. This is partly because it takes 30% longer to construct and maintain a fab in the United States than it does in South Korea, Taiwan or Singapore over the same period..
The federal government may offer incentives to chip manufacturers in the United States, which would help create more reliable supplies of chips. Although the CHIPS for America Act was passed last year, it authorized federal funding for chip manufacturing. In June, the Senate approved $52 billion of funding. However, the House has yet to pass the legislation.
Intel joined forces with leading semiconductor companies, including AMD, Inc., NVIDIA, GlobalFoundries, and competitors, to lobby President Biden on funding semiconductor research. Gelsinger has met with various leaders in Washington including the bipartisan Problem Solvers’ Caucus in Congress and the New Democrat Coalition to emphasize the need for bringing more semiconductor manufacturing capability to the U.S. “My first meeting with the Undersecretary of Defense basically scolded her,” he said. “I said, Why am I explaining why this is so important to Congress, and you’re not?’”
The U.S. requires chip manufacturing
The supply chain bottlenecks of the past two years are part of the reason there’s such urgency to create more chip manufacturing capability in the U.S. General Motors and other U.S. carmakers are unable to obtain the chips needed for manufacturing automobiles. Some North American plants were left to dieIn the end, they decided to produce some cars without any features that required chips last year. That’s made it more difficult for U.S. consumers to buy cars, Driving the used priceVehicles rose 24% during the year; and there was a slowing of national economic growth.
The supply chain problems have prompted large companies to invest more in the U.S. According to the company, it plans to spend $12 BillionAlso in Arizona, to construct a semiconductor plant. Samsung will invest $17 Billion in Texas’ chip plant.
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Some of the pressure to have more U.S. chip producers is political, however. Locating a chip factory in the United States doesn’t necessarily insure against further supply chain disruptions; Intel’s chips will still be sent to Asia for assembly, packaging, and testing. Vice chair of TechInsights Dan Hutcheson said that chips often cross border borders before making their way to customers in smartphones, computers and cars. Three-quarters of the world’s semiconductor manufacturing capability is within the flight path of the Chinese Air Force, Hutcheson said, which could be problematic in an era of growing geopolitical tensions.
Gelsinger indicated that Intel might bring back some testing, packaging and assembly to the United States as long as the CHIPS for America Act funding is approved. It would benefit national security. The sand used to make semiconductors comes from the U.S. South, after all, so it’s not inconceivable that the process of making some chips, from start to finish, could happen domestically. “My objective would be sand to product to services, all on American soil,” he said.
He said that chip manufacturing shifted to Asia due to its low labor costs and the incentive programs. Intel now has the potential to fund government funding and increase automation of chip factories, so it is possible to reshore some production while remaining cost-effective.
Bernstein Research senior analyst Stacy Rasgon said that there is now a time for building semiconductor factories in the U.S. because of the availability of subsidies. Bipartisan support is shown for subsidies to U.S. manufacturing, particularly in the technology industry. It could be a way to gain more support for the legislation by locating a factory near the Ohio political battleground. – CongressFully fund the $52 Billion CHIPS for America Act
Ohio: What is the factory?
Intel’s choice of New Albany for its new facility is a vote of confidence in the Midwest as a manufacturing hub after years of factories decamping from Ohio, Michigan, and Indiana to the U.S. South and overseas. There are 34% fewer manufacturing jobs in Ohio now than there were in 1991; the closure of plants like General Motors’ Lordstown Complex have left whole towns reeling.
Some companies are moving back to Ohio, however, from the coasts. “I truly believe this is our time. This is our time in history,” Ohio Gov. TIME interviewed Mike DeWine wearing a sweatshirt, and sitting next to his fireplace. After a time when tech workers and companies wanted to live in coastal areas, the pandemic helped state sales. Peloton and First Solar were among the companies that announced plans last year to build factories in Ohio.
Ohio has attracted new manufacturing companies due to its changing industrial landscape. “It used to be assembly line work, now it’s tech work,” Ohio Lt. Gov. Jon Husted spoke to TIME. “It’s a lot more enjoyable kind of manufacturing—clean, tech-oriented, higher-paying. These are the kinds of the manufacturing jobs that are part of the modern economy.”
Manufacturing in Ohio is already tied to the semiconductor supply chain. Ford cut its production schedule last year at the Ohio Assembly Plant as a result of chip shortages.
Intel considered 38 different sites “in every major state you can imagine” before choosing New Albany in December, Keyvan Esfarjani, Intel’s senior vice president of manufacturing, supply chains and operations told TIME. DeWine explained that the state found out it won the location on Christmas Day. In support of the plant and its surrounding community, the state agreed to spend $1 billion on infrastructure improvements. Before the Intel factory, and other deals were made, the Ohio General Assembly also acted. It has increased its tax incentivesThis allows mega-projects with over $1 billion of investment to be eligible for tax credits to create jobs up to 30 more years than they were previously.
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Gelsinger has spoken of a new mega-fab as “a little city,” which requires a lot of space. Esfarjani explained to TIME that Ohio had a lot of land available and it was surrounded by a friendly regulatory environment. Even though there were other options, Intel chose Ohio over the others because of its better fit. It also didn’t want any residents to be displaced, which is increasingly crucial for businesses since the rejection of the Amazon headquarters planned in New York City. Esfarjani stated that Ohio was willing to quickly approve plans and permits.
“We want to make sure that where we go, the community is going to be happy,” Esfarjani said. “There were states where we were going to go, where we got a sense that people were not going to be happy, so we ruled them out,” he said, though he would not specify which states. The list was removed from areas where there might be problems with land or protected species.
Intel also found Ohio attractive because it had a lot of talented people to choose from at local universities and colleges. Making semiconductor chips is a completely different type of work than making cars; much of the work is done by engineers in “bunny suits”—protective clothing that ensures that no dust gets into the microchips. Over the last two years, 60% of Intel’s external hires have had a bachelor’s degree or higher. The company said it will spend $100 million over the next 10 years to establish the Intel Ohio Semiconductor Center for Innovation, a partnership with universities and community colleges to build semiconductor-specific curricula.
Ohio State University with its College of Engineering of 10,000 students will join one partnership. In August of 2020, Ohio State named a new president, Kristina M. Johnson, who received bachelor’s, master’s, and doctoral degrees in engineering from Stanford University and who established partnerships with tech companies like IBM while the head of the State University of New York. Ohio State is building an infrastructure. Innovation DistrictIt established a Health and Sciences Research Space near its West Campus, and hired recently a Georgia Institute of Technology woman robotics professor to become dean of the College of Engineering.
Redevelopment of suburban towns
Intel, the Midwest’s premier semiconductor manufacturing facility, is expected to accelerate the growth of the area, which was once a quiet rural community outside of Columbus, into a vibrant city with many tech workers. New Albany is home to 12,000 people and has seen companies such as Amazon, Facebook, Google and Facebook establish data centers there in recent years. Much of New Albany today consists of a master-planned community created in the 1990s by Les Wexner, the founder of L Brands—best known for subsidiaries like Victoria Secret—and Ohio developer Jack Kessler. Both men wanted to make a place that attracted companies and offered a country life for its residents. New Albany is a modern city with Georgian architecture, white picket fences and walking paths.
The choice of New Albany is a bet that after nearly two years of a global pandemic, Intel’s employees will embrace a suburban environment with reasonable home prices and good schools. (Zillow estimates the typical New Albany home is worth $516,752, about one-third the value of homes in Intel’s home base of Santa Clara, Calif.) The pandemic has hastened a move from urban locations to suburban places with more space. “It’s a place where a new college grad can come with a husband, or wife, or significant other, a kid, and they can build a life,” Esfarjani said.
New Albany residents are worried about the impact of development on their neighborhoods. “Two years ago, there were cows, now there are houses,” said Andre Vatke, who has lived in New Albany since 1986, about the area around his home. When he moved in, New Albany was essentially a farm town; now it’s known as one of the wealthiest towns in Ohio. Insider Named the town America’s No. 1 suburbIts schools and public parks were rated highly in 2015. Vatke has publicly objected to the tax abatements given to big tech data centers because the projects don’t create a lot of jobs. He consults with small businesses who are seeing costs go up locally but who aren’t offered the same tax incentives as the multinational tech companies, he said.
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Intel chip factory neighbors in neighboring states raised concerns about their environmental impacts. In Arizona, residents are also concerned about the amount of water fabs use—millions of gallons a day—in their drought-stricken state. Und Des des da und set all in A All Dea Una Des Weitere weitere them Corrales in New Mexico is home to Intel’s factory. Residents have voiced concerns about their air quality. “A lot of people have an impression that this is a clean industry—but the chemicals they are using are incredibly dangerous,” said Dennis O’Mara, a member of the Community Environmental Working Group, which advocates for improvements at the New Mexico facility.
In the summer, O’Mara and his wife have been overwhelmed by a smell like burnt coffee; once, recently, his wife had difficulty breathing in the fumes. He says that because Intel is categorized as a “minor” source of emissions, creating less than 100 tons per year of pollutants, the company is allowed to hire its own monitoring companies who are not verified by an independent party. This is the group he helped to create. Now Clean AirTo advocate for tighter permit requirements. Change.org petition requesting that New Mexico require a change to Intel’s air permits has 199 signatures. “Because of how important Intel is to the state’s economy, the 73,000 of us living near this plant have to shoulder the entire risk,” he said. Intel announced last year that it will spend $3.5B to allow the New Mexico facility to produce advanced semiconductor packaging technology.
Intel stated that its good neighbour policy minimizes any impact on the surrounding community and meets all regulatory requirements. TThe New Albany location will follow green building principles. It hopes to use 100% renewable energy for the factories and net positive water consumption.
Inside Intel’s comeback strategy
This new facility is part of Intel’s plan to catch up with industry leaders TSMC and Samsung. Despite being a pioneer in semiconductor manufacturing, Intel has been lagging behind the pack over recent years due to delays with its 10 and 14 nanometer chips. Analysts attribute this delay to Intel’s structure; as other leading-edge companies focused on either designing chips and sending them elsewhere to be manufactured, or manufacturing chips for other customers, Intel has continued to try and do both.
Gelsinger is the CEO of the company. His strategy, called IDM 2.0, will see Intel continue to produce its own chips and also set up Intel Foundry Services which will manufacture chips for other businesses. This Ohio location will house Intel Foundry Services, and produce chips for Intel.
Wall Street analysts are skeptical of Gelsinger’s strategy. They say that Intel’s previous attempts to be a foundry have failed, and that it’s fallen too far behind to catch up. Last year, semiconductor industry sales grew 25% while Intel’s sales grew 1%, said Vivek Arya, semiconductor analyst at Bank of America.
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What’s more, analysts say, long-term trends continue to disadvantage Intel. Apple, Microsoft and others have started to use chips that they create themselves as a replacement for Intel processors. Intel makes the lion’s share of chips used in PCs, but analysts say that PC sales are at a cyclical peak, and that competitors like AMD are wrestling market share from Intel. And Intel doesn’t make chips for the biggest semiconductor market: smartphones. That makes analysts like Arya wonder who Intel’s customers will be as it expands its U.S. fabs, and how it plans to catch up to the technological prowess of TSMC when it is still focusing on both design and manufacturing. “This is not an industry where you just wake up and catch up, “ he said. “It’s like trying to get back to being an Olympic level athlete—it doesn’t happen overnight.”
Intel stated that the U.S. government’s subsidies will allow it to grow faster and surpass overseas rivals. The company anticipates that the increased demand for high performance computing will be more than sufficient, both from the auto industry as well as from its newly formed High Performance Computing Business Unit. Gelsinger claimed that Intel is already on the rise and has plans to continue developing new technologies in order to regain its leadership position by 2025.
“It’s going to be unrecognizable”
Chandler, Arizona’s hub for Intel manufacturing, was home to a large population. Estimated to be around 24,000.Chandler is home to around 280,000 people today, with nearly 25% of them working in the high-tech industry. Intel is the city’s biggest employer, with 12,000 workers.
According to Chandler mayor Kevin Hartke, Intel has drawn partners and suppliers who also established businesses in Chandler. This has resulted in a boom of shops, restaurants and tax revenues. The city’s average household income of $114,000 is 32% higher than that of Arizona.
Gelsinger believes that New Albany may experience a similar transformation as Intel grows its presence. Intel hasn’t built a new site from scratch for several decades. But each time it’s done so, the new site has become a magnet for suppliers and talent from around the globe, he said. New Albany is a site where Ohio State students will be happy to work. He also hopes it will draw talent and PhDs all around. According to him, the small community of New Albany will be the center for a new global manufacturing hub that is better than anywhere else and which attracts the kind of economic activity high-tech facilities are known for.
When asked: will today’s New Albany residents recognize their small-town in what he sees for the future, Gelsinger replied: “New Albany today versus the high-tech mega manufacturing center of the heartland in five years?” he said. “Yea, it’s going to be unrecognizable.”